The Return on Innovation Investment for the Enterprise: At Least $50 Million
One of the most common questions I’m asked focuses on innovation value. Specifically, how might I identify a tangible return on my company’s innovation investment and how can I summarily demonstrate that value within my organization?
The answer is simple: you track the value of innovation within your organization, you consistently monitor (and update) the value of your innovation activities, and you deliver on ideas and concepts by bringing them to fruition. Yes, I know that these steps might individually be complex, but once you develop a method and process (one might call this governance) it’s actually quite simple. These are the basics of building a tangible innovation portfolio that delivers results.The Return on Innovation Investment for the Enterprise: At least $50 Million.
Another question that I’m frequently asked focuses on what to measure and how. The answer to this one is a bit more difficult, especially when you consider the typical spread of an innovation portfolio across incremental to transformative innovation (or H1-H3, depending on your preferred nomenclature). How might teams understand and measure the value of concepts that might not see the market (or light of day, for that matter) for months if not years? Thankfully, we’ve developed portfolio valuation mechanisms that enable companies to deliver value to our clients by helping them value their portfolios, based on currencies, interdependencies, and Monte Carlo simulations.
Finally, I’ve also experienced that it’s actually quite simple to prove the value of an innovation function within a large organization. And demonstrating the value of an innovation function only requires two basic elements:
1. Knowledge of what’s truly important to your organization (so you know what to measure); and
2. A portfolio monitoring and measurement tool that will keep track of what you measure (our solution for this is called Results Engine).
One of our clients, a large, diversified CPG company, has developed a simple method and process to track continuous improvement and cost reduction – based on understanding what’s truly important to their organization. (Amazingly-enough, this innovative approach was developed by the company’s strategic cost reduction team.) They track for cost reduction, hour reduction, etc…….and have demonstrated a conservative return on innovation investment of >$50 million. Not bad, especially when one considers their overall investment in innovation.
This company also has a separate innovation portfolio that focuses on “new sources of value in new ways” – innovative products and services to bring to fruition. But for them, they’ve realized that objectively and quantitatively demonstrating the value of their innovation function by tracking continuous improvement and cost reduction initiatives is most important (and defensible). For now.
I can go on, but I’d instead love to learn from others. What does innovation value mean to you, and how do you measure this value? Additionally, how do you measure the value of your innovation function…..and what have you learned, in terms of what works and what does not? Please share.
And one thing’s for certain – if you’re in an innovation leadership position within a large organization, your innovation function should be demonstrating returns of at least $50 million. If not more.