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A leading innovation and marketing blog from Braden Kelley of Business Strategy Innovation

Friday, August 07, 2009

Is Innovation Expensive?

I was asked last night how companies could afford to allocate scarce resources to innovation in these unprecedented times. When every extraneous expenditure is cut back to preserve cash flow how can it be justified to lavish money on experiments that might fail?

You do not get innovation for free - you have to allocate time, money and people to the search for new products, services, methods etc. However, innovation can lead to powerful cost savings, profitable new products and competitive advantage. Indeed right now the main benefit of innovation might be survival. If you just cut costs and don't innovate you will be bypassed in the market by more agile competitors.

There are inexpensive ways to achieve innovation. Let's divide activities into three categories.

1. It costs virtually nothing to:
  • Communicate a vision of innovation

  • Set goals and objectives for ideas, prototypes and innovations

  • Ask your people for ideas

  • Ask customers for ideas

  • Ask suppliers for ideas

2. It costs very little to:
  • Run brainstorm meetings

  • Set up an intranet based suggestion scheme

  • Evaluate and select the best ideas

  • Build models and prototypes

  • Ask customers to evaluate your prototype products or services

  • Implement small incremental innovations in your products, services and methods

  • Empower people to try more initiatives in their areas

  • Investigate new collaborations and partnerships

3. It costs a lot of money to:
  • Roll out major new products or services

  • Try an entirely new business model

  • Re-engineer your IT systems

So you should do a lot of items from Category 1. Generate many ideas from all sources - it costs very little.

You should do a few things from Category 2. Definitely move the best ideas to the prototype stage and evaluate them (but kill them if necessary).

You should think carefully about items from Category 3, but be prepared to allocate some of your scarce resource in this area.

Innovation involves making bets. Often these bets fail. But you have to stay in the game and keep making small bets until one or more come off. Innovation is not free, but it can be done on slender means if you adopt this kind of approach.



Paul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader published by Kogan-Page.

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3 Comments:

Anonymous Steve Todd said...

Paul,
I just wrote a similar article that encourages employees to practice the discipline of exercising your points #1 and #2 as part of their daily routine. I agree with you whole-heartedly. My article is here: http://bit.ly/i70p0
Steve

5:52 AM  
Blogger Brad said...

Excellent blog, and very pertinent in a time of recession. Echoing Steve's comment, I also agree whole-heartedly. I believe companies often make the mistake of rejecting innovation out-of-hand as too expensive, especially in these economic times of global belt-tightening. There are many ways to save costs by a) investing resources exactly as described in this article, and b) exploring non-traditional means of developing new products and services. I apologize if this is self-serving, but please check out the PowerPoint presentation I made on the topic of non-traditional (or "Guerrilla") New Product Development methods at http://www.slideshare.net/bdbarbera/guerilla-new-product-development.
Well done, Paul!
Brad

6:25 AM  
Anonymous Jeffrey Baumgartner said...

Nice article Paul, but I feel there are a couple of minor inaccuracies which ought to be addressed.

Set "2. It costs very little to..." includes a couple of potentially very expensive activities, though it may not seem so at first glance.

BRAINSTORMING

Brainstorm meetings can be very expensive. If a team that meets regularly, occasionally holds brainstorming sessions, that admittedly costs little, aside from time that would normally be spent in meetings in any event.

But when a company brings a number of their top thinkers together for a proper brainstorming event, then the costs are considerable:

a) Several highly paid employees are removed from other tasks. If their value to the company is, say €100/hour, that comes to €800/day per person.

b) Unless they are all in a common location, there are travel and accommodation costs to take into account.

c) At this level of resource investment, it would be silly not to bring a professional facilitator in.

The result is that costs can easily top €/$/£10,000 for a brainstorming event.

SUGGESTION SCHEMES

Home made suggestion schemes designed to run on the Intranet are surprisingly expensive to build and even more expensive to run. Indeed, my company is often called in to provide a more workable method of focusing, capturing and evaluating ideas. Although clients pay for our innovation process management application, the efficiencies it provides makes it far cheaper than ad-hoc suggestion scheme applications.

Firstly, cost is high, because you need either to divert IT staff into building such a tool or you need to hire outside programmers. In any event, such tools have a tendency to cost hundreds of thousands of Euro and more in the end. But, because they are designed by IT people with little understanding of the innovation process, they are incredibly inefficient.

Imagine a company builds a suggestion scheme and promotes it well. As a result, it brings in hundreds of ideas. A team now has to sift through all of those ideas individually in order to identify ideas they believe will work. However, as there is no structure to the idea submission, there cannot be a consistent evaluation approach. Hence, evaluations are highly objective and based on the opinion of the evaluator, who may not even have expertise on the subject.

Moreover, because there is no focus on the ideas submitted (unlike in an ideas campaign approach whereby ideas are submitted in response to an innovation challenge), the lion's share of ideas submitted will be non-viable. As much as 90% in my experience. Hence time is wasted on idea submission and evaluation, making the process highly inefficient.

Indeed, in my experience, most suggestion schemes die within 12-18 months of launch.

LOW IMPLEMENTATION RATES

As I am sure you will agree, Paul, ideas are not innovation. Innovation is. Companies that do not invest proper time and resources into an innovation process that includes implementing potentially innovative ideas, will clearly not be particularly innovative.

However, if time is spent on poorly thought out idea generation activities, but not on implementation, the result is a huge was of money on ideation. Worse, when this happens, employees become demotivated and highly suspicious of "innovation activities" which the see as a waste of time. As a result, future innovation activities see low participation levels and low levels of creativity.

SUM UP

I have seen this happen in numerous organisations. So, to sum up my overly lengthy comment. Idea generation tools and activities can be far more expensive to implement than appreciated. And, if they are not followed up by implementation, the result is a tremendous waste of money.


Jeffrey Baumgartner

9:43 AM  

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