Rule 4: Have a Connection to the Money
How do you measure the results of an innovation program? Do you count the number of new ideas you generate? How about the number of things your innovation team has worked on, or the number of new product introductions they’ve made?
These are all useful measures, but don’t necessarily reflect anything that will justify the existence of an innovation program. There is only one thing that will do that: a connection to financial results. And the results need to prove that innovation is a very special investment. One, in fact, that is better than any other available.
This is true whether you are running a program in the private sector, in which case you will be about bringing in new revenue, or the public sector, with a financial measure around cost savings.
The financial hurdle is innovators need to recoup the funds invested in them, and then make enough new money to demonstrate they are the best available investment opportunity available.
Consider the scenario where an organization can choose to invest funds in, say, a Lean initiative. Or, alternatively, it can invest them in an innovation program instead. It’s projected that the Lean initiative will result in at least a 20% return on investment as bloated processes are thinned down and operational efficiencies are found.
So innovators, then, must make at least 20% on their efforts if they want to get funding. Considering the fact that a Lean program will likely be more certain (i.e., they will have less risk in achieving their returns than innovators, who will have to deal with a failure rate of, maybe, 80% of what they do), innovation really needs to do better than 20%.
It's fundamental capital pricing. The more risky your investments, the better the return needs to be to justify the investment in the first place.
Now, practically speaking, there is rarely such a binary funding decision at the start. Filled with hope, business stakeholders latch onto the silver bullet that will solve all their business problems and wait for results. In the first months of an innovation team’s life, they can get away with anything.
But sooner or later, they’ll be called to account. Previously excited stakeholders will start to ask what they are getting for all the money they are committing. They will start to wonder whether they might have gotten better outcomes by investing in, for example, a Lean initiative.
This will likely happen within the first 18 months, and the innovators will be asked to justify their budgets. Though everyone will agree the team has done “valuable work”, the only justification which anyone will really consider valid is the financial one. In any event, if all the other available investment opportunities can justify themselves financially, and the innovators can’t, it is obvious where a rational business manager will direct future funding. .