The Biggest Mistake in Innovation Management
The biggest mistake innovation managers make is taking the value of innovation for granted. We tend to assume that innovation is a must; the overall right thing to do. However, if you leave your goals undefined, you’ll lack the ability to measure and explain your progress. Without results to show for your efforts, innovation will become a dispensable expense.
Value = benefit / costs
If you fail to express the value your innovative efforts bring to your firm, you will constantly fall victim to budget cuts. Because, if you as a manager can’t present costs and gains, you’ll be challenged in the (likely near) future about whether innovation makes any positive contribution to your organization. No matter what soft benefits innovation brings, if its monetary value isn’t widely understood, the innovation project budget will come under so much pressure that innovation becomes a drain instead of a source of inspiration.
The end result of this mistake is innovation managers leaving their jobs disappointed and disillusioned because nobody in their organization saw what they saw.
If the value of innovation is unclear and the benefits each innovation project in the portfolio should bring are not well understood, then the innovation process is not sustainable.
The Value of Innovation
We, as innovators, are prone to mistaking the notion of innovation as an inherently good thing. Blinded by the wealth of opportunities that innovation presents, we occasionally fail to see what it costs. I do mean “cost” literally—let’s face it, supporting innovation efforts is expensive, and not all projects have positive outcomes.
Investing in innovation activities should lead to financial gain. What’s more, innovation has value beyond financial returns. Reputation, client satisfaction, employee satisfaction, and talent retention all get a boost from innovation activities.
However, none of these secondary benefits ultimately pay the bills. In the end, an innovation portfolio needs to generate revenue in order to be sustainable.
Companies that track how much time their employees spent on innovation have discovered that it occupies three to five percent of their revenues. That’s a significant time investment, and if not managed well, this is essentially lost time.
For example: in many industries, Blockchain is a hot topic. Therefore, it’s rife with opportunity for innovation initiatives. Let’s say management puts out a call to action, perhaps a hackathon, and proceeds to initiate a series of projects. Then, these projects get funding, and hopefully one or two lead to new client initiatives. Then someone comes along with the next hot topic—cybersecurity, perhaps. Then the next thing, big data, rolls through… should all these activities get support, simply because they entail innovation?
What and how many innovation activities should be supported?
Assessing the Value of Innovation
The answer to this question requires assessing whether or not the portfolio of innovative activities brings value to your organization. The actual value of your innovation won’t be obvious unless you measure it, so you’ll have to develop metrics and mechanisms to track the impact of your innovation efforts.
I’ve seen innovation managers err in opposite ways when developing metrics and tracking impact; some focus entirely on finances and forget to look at the other impacts the innovation process has on their organization.
If you focus on the financials only, you’ll probably struggle to tell an uplifting story. In the aforementioned example, the cost of engaging the entire team in the Blockchain project likely outweighs the incoming revenue from the one or two new services that the project produced. In service organizations, it is extraordinarily challenging to create a positive return on investment due to limited scalability.
When erroring on focusing too much on the financials, innovation managers typically underreport the contributions innovation brings, and are challenged to find value in the process because, going back to the Blockchain example, perhaps the goal was to engage and re-energize part of the workforce.
On the other hand, others take too much stock in indirect benefits because they find costs and new revenue too difficult to track. This course of action also results in underreporting, because no matter how many tracking points you have—number of new projects, number of people engaged, employee satisfaction, social media recognition, etc—financials are priority number one. Again referring to the Blockchain scenario, other initiatives will struggle to get support if the output of the Blockchain efforts were completely intangible. If there’s no indication that such innovation initiatives generate revenue, senior management will see them as a dispensable cost.
Avoiding This Mistake
In order to avoid this critical innovation management mistake, you must be upfront about setting expectations for your innovation efforts.
Examples of questions to ask yourself include: what value does the organization want from its innovation efforts? Does it want to increase employee satisfaction? Does it want to retain talent? Is the firm looking to create new revenue streams? Is there a new market requiring new capabilities the organization is looking to conquer?
Some specific expectations pertaining to our hypothetical Blockchain initiative might be (1) energizing the workforce—as gauged by decreased retention and a ten percent increase in employee satisfaction survey scores—and (2) breaking even on the investment within two years with one or two newly created services.
The Benefits of Not Taking the Value of the Innovation Process for Granted
Once you’ve defined those goals, you’ll be able to set an appropriate budget. In that regard, a word of warning: don’t expect miracles. Innovation isn’t an investment that will pay off tomorrow. For example, if a firm only has a $100k innovation budget, it should limit its investments to one innovation project, since even the most basic project will likely consume that entire amount in time, effort, and resources.
For service organizations, a typical return for a successful innovation project is in the order of ten times the original investment, two or three years down the road. However, a single project has limited odds of succeeding. Any mistake could cause the firm to lose its investment entirely. Hence, the important role clear expectations play in realistic budgeting.
Now that you have set a suitable budget, you can start measuring what you’ve spent and accomplished, thereby demonstrating innovation’s value. And if your results are unexpected or disappointing, it’s important that you still report them so you can apply the lessons they convey to subsequent projects.
However, to be clear, financial impact isn’t the only metric for the value of innovation. If you value buzz, track how much social media attention your activities get. If employee engagement is the value the company is interested in, make sure you count how many employees are involved.
When you clearly set the expectations for the innovation process, you will be held accountable. Even if you don’t have decision-making authority over the projects you coordinate as an innovation manager, you can still be held accountable for the result of the portfolio of innovation activities. Therefore, own the process and track how well you facilitate it. You can track your impact by monitoring how fast the teams involved progress, how satisfied they are with the support you provide, how much money is spent on each phase, the quality of the reporting, etc.
You can take the innovation efforts of your firm to a whole new level, by clearly expressing what can be expected and not taking the value of innovation for granted. As a result, everyone involved will know what is expected of them, which in turn will increase your ability to hold project teams and management accountable.
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- 10 Innovation Management Dilemmas for Law Firms
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