I spend a lot of my time designing the Front End of Innovation Programs for companies around the world. As part of these designs it is important to firstly estimate and then accurately measure the ROI (Return of Investment/Innovation) for the discovery, development and eventual realization once they go to market of their ideas/innovations. These markets can be both internal and external, as a lot of innovation activities today focus on improving how the business works as well as new products, services etc. Some may argue this isn’t innovation but for most teams this forms part of their remit as they look to purse the different dimensions or types of innovation within their organisation.
This is an interesting aspect that I have seen with many innovation business service teams today who have a broad innovation remit that is not limited to a single dimension or area of the business. It is through this strategic remit, when an innovation team is positioned more as a service to other business functions, and in turn how they are funded, that can sometimes lead to them falling into the Innovation ROI Trap.
Unless a team is a self-contained entity (from inception to market release) or aligned as part of an established innovation function (e.g. NPD) then at some point there is a handover to another part of the organisation who will potentially realise the innovation itself. They will in turn account for the innovation output in their estimates for revenue generation or cost-savings. This leads to such innovation service teams re-positioning their ROIs as something they influenced within the business versus directly attributed too. That can be fine to a point but here lies the Innovation ROI Trap, as this ROI isn’t a direct measurement attributable to the innovation team but one that benefits others. This can in turn eventually lead to someone at some point in time questioning their continued funding as they are seen as a cost with no visible return. This is where the Innovation ROI Trap closes and usually rears its ugly head when an organisation needs to reduce its funding of non-core activities, which innovation business service teams are typically seen in there fledgling years.
The interesting aspect though is many of these innovation business service teams have respectable even enviable ROIs but because their benefits were realised elsewhere their existence is always at risk as this closer scrutiny reveals that they discovered, accelerated, leveraged assets etc. to create that number. And so these innovation teams are dissolved, some take redundancy packages, others move into those areas of the business they had significant impact on to continue their “innovation services” and others become innovation consultants. But surely there’s a way to avoid the Innovation ROI Trap?
Perhaps? Firstly we know there is a trap, so it is possible to avoid it. Secondly, we need to think about how an Innovation ROI is truly measured, reported and perceived. It has to be defendable against scrutiny and eventually it needs to mature into something that can be reported on as a driver of the performance measures across the whole organisation. Thirdly and I feel this is going to become key to many innovation business service teams is that they need to move towards being accountable for their own P&L within the organisation. It may be that for some they become a service within their own organisations with a charge back mechanism or they take a percentage of the realised benefits from their activities vs. accounting for the whole benefit. It really depends on how they are initially structured and how that develops over time. What is important at each stage that they don’t loose site of the ROI and how that gets tied back to their continued funding? In a best-case scenario it helps building the business case for additional funding through the ability to highlight success and potential and at worst defends against the potential of funding and support being withdrawn.
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