Organizing for innovation

The Cost of Innovation

The cost of innovation

Innovation is a cost for most firms. That is a problem because it turns innovation into a budget item to cut instead of the buoy that enables organizations to survive and thrive.

You may wonder if this is the time to take risks, when nothing is the same due to looming environmental, health, and financial crises. Isn’t it safer to cut costs and hope for these storms to blow over?

Research into the 2008 financial crisis, shows that firms that came roaring out of this crisis cut costs and innovated, both in moderation.

In this white paper, I explain how you can innovate cost-effectively with a portfolio between 1 and 100 innovation projects per year and an innovation budget between $100k and a few million dollars.

When innovating at this scale, the models applied by successful innovators like Google, Amazon, Apple won’t work. These firms literally spend billions of dollars on innovation. If you try to copy their models, you will soon find out that instead of getting similar results and being able to impress your clients, your innovation efforts will lead to conflicts, slow decision making, compromised and half-baked solutions, and outcomes that cost more to create than they are worth.

The need for a more cost-effective approach

Surveys show that investments in digital transformation efforts paid off during the COVID-19 crisis.

These surveys also show that COVID-19 spurred innovation in the professional services sector.  Law firms, hospitals, accountancies were lagging behind in digital transformation. The COVID-19 crisis made the consequences of this lag clear. And what was once unthinkable – such as for example holding online court sessions – is now happening even at the Supreme Court.

This crisis may have sped up the need for digital transformation solutions, but the track record of such initiatives is still far from great. According to a McKinsey Global Innovation Survey, only 6% of executives are satisfied with their innovation performance. What’s more, according to the 2017 PwC Innovation Benchmark, 54% of innovating organizations have trouble bridging the gap between innovation strategy and the larger business strategy. Additionally, 95% of all product innovations fail, according to the late Clayton Christensen.

With digitization here to stay, what can be done to make the innovation process more efficient and effective? How do you ensure that there is a better payoff from these activities? For too many firms, digital transformation has increased instead of decreased costs, because development budgets were overrun and maintenance costs were overlooked.

The organizational structure of professional service organizations is a challenging model to innovate. However, that does not mean that tossing out this organizational structure is the only way to improve your innovation performance. Since the organizational structure provides the foundations of the service firm, changing this model seems like killing a fly with a sledgehammer.

Instead, changing how you go about innovation seems a more effective and easier way to increase the innovation capabilities of these organizations.

For the past years, I have studied service firms, analyzed their innovation processes, gave workshops, and guided many innovators in the domain through the innovation process and spoke with even more people. These experiences are captured in this white paper.

I illustrate with examples and case studies how you can innovate successfully and create a positive financial return on investment from your innovation efforts, even if you are not an innovative giant.

This white paper is for you if you are:

A manager of a (professional) service organization who is looking for a way to increase your profit margins and win over new clients.

Assumptions about your organization:

  • Your key selling point is the knowledge of your people
  • You want to use innovation, technology, and digital transformation to increase profit margins and win over new clients, but there is only limited budget available to do so
  • The pandemic revealed the strengths and weaknesses in your ability to adjust, invest in new technologies or opportunities, and create new service offerings
  • In the organization, partners or business units run their own profit and loss centers. Large investment decisions need to be approved by leadership
  • You have more ways than billable hours only, to charge your clients for the work you perform for them

Investment: 30 minutes reading time

Thank You!

I could not have written this white paper without having had the input and support from so many people. Thank you for providing me with your time, telling me about your challenges, and sharing the creative solutions you have found. You make that I love the work I do. To name a few who have been especially inspiring, helpful, and/or gave a lot of their time:

Aaron Martin, Ahmed Nasir, Alessandro Radaelli, Alexis Slupe, Alice van der Schee, Anna Everdingen, Anna O'Neil, Anna Young, Beth Patterson, Carlita Vis, Caroline Sweeney, Christie Guimond, Christiaan Bramer, Christiaan van Boetzelaer, Claudia Tellez, Craig Rhinehart, Daan Stolker, Danny Vroemen, David Powell, Don Berwick, Donna Queen, Douglas Wood, Douwe van den Wall, Elma Levy, Esther van de Storm, Eva Peeters, Everett Bellamy, Franziska Moeckel, Gary Grenter, George Beaton, Giulietta Marani, Greg Miller, Hans Schuurman, Ian McClelland, Ivor Horn, Jan van den Ende, Jan Verkade, Jana Vredenburg, Johanna Bell, Jomy Methipara, Karen Sze, Laura Blumenthal, Laura Taylor, Lawrence Gross, Lisa Mendelov, Liz Clayborne, Lotje Bosch, Maaike Blindenbach, Marc Berg, Margaret Cary, Martha Houle, Martijn Glass, Martin Henning, Maureen Bisognano, Melanie Beak, Michael Kaplan, Michele DeStefano, Naeem Hussain, Neal Sikka, Nicky Leijtens, Ray Sze, Rick Gordon, Rick Toren, Rik Menten, Robbert Bosch, Sameena Kluck, Sameera Bazaz, Sarah Trenhauser, Sharon Hayes, Sherry Langston, Solco Reijnders, Tanina Rostain, Tanya Wagstaff, Timm Johnson, Tom Mierzwa, Tricia Ratliff, Veenu Aulakh, Willem Hengeveld, Wim Blindenbach, Wim Plaisier. Thank you all!

If you have questions about the recommendations made in the white paper or would like to learn how to take control of your innovation process, please feel free to contact us!


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