Innovation is a luxury

The other day, I heard on the grapevine that a significant UK bank is cutting back its innovation function. You’ll forgive me, I’m sure, if I don’t name the bank, but reports of the contraction of innovation there were triangulated by several sources. Apparently, given the difficult times at present, innovation was seen to be an expensive "luxury".

Now this is hardly an unusual circumstance. I was recently with an innovator from the charity sector – a woman with a long track record doing this kind of work- and she said it was her experience as well that "innovation is luxury" has been de rigour thinking for much of her time doing the job. Things are changing, she said, but obviously, not so much in the financial services sector. At least if this recent data point is anything to go by.

Now, in a business environment where practically everyone says that innovation is key to future growth, how can an otherwise rationally behaving company make a decision such as this?

The answer to that is simple: the innovators failed to demonstrate value. In such a circumstance, innovation is indeed a luxury. Note that I use the word "demonstrate", because I accept that value may indeed have been created, even if the innovators failed to get it noticed.

The thing is, you can’t just be doing innovation in this job. You also have to sell it as well. People have to care about what you are doing, and then you have to link their success to the innovation agenda in some way. Let me come back to this point in a moment.

There is another problem for innovators in a downturn as well, one that I expect to cover in detail at BarCamp London: if you aren’t the preferred investment activity during the bad times, you get your budgets cut. It is a rational resource prioritisation exercise. Being preferred means the ROI of innovation needs to be way, way better than anything else a bank could do. And that means having a tie to the money that innovation has helped to generate.

Oh, but wait. If you start a new money making activity for your bank as an innovator, it can take years for returns to be anything approaching the scale of the major businesses to materialise. And so many of the costs have to be incurred up front. What happens during a downturn? Long term thinking gets shortened. There goes that ROI.

How to demonstrate a high ROI in these circumstances? Spend less in the first place. Innovation does not need to be big budget to be big impact.

Coming back to my first point about demonstrating value, though, this is a problem that I’m dealing with in detail in Innovation and the Futureproof Bank. The work I’ve been doing on that has led me to a five stage capability model for innovation teams. And it seems that you have to pass through all five stages in order as an innovation programme matures. Skip over one, and the result seems to be the collapse (or at very best, contraction) of the innovation programme:

Here they are:

  • Innovators as Inventors. You have to get some quick wins on the board which you can talk about in the beginning. Doesn’t matter what they are, so long as you have them. And make sure you don’t spend much money in the process!
  • Innovators as influencers. Innovators take their first wins and use them to talk up the value of the innovation process. They build the political connections which lets them open the doors they need for bigger projects. They get themselves tied as closely as possible to the money, knowing that their future success will depend on being able to win the money to do big things.
  • Innovators as entrepreneurs. The value of the innovation process is recognised, and the innovators get predictable across their portfolios. They drive an innovation business plan, and expect to deliver predictable returns for their efforts. They expect a large percentage of their efforts to fail, but don’t care because their portfolio approach is a safety net. Anyway, they have taught their stakeholders that failing quickly is actually success all by itself.
  • Innovators as Thought Leaders. Innovators identify trends and use future planning tools to rehearse strategic decisions with stakeholders before they are asked to make them. In fact, it seems, programmes without this capability are never able to make a disruptive innovation a success, because usually, a bank cannot disrupt itself. On the other hand, banks are being disrupted themselves on every front. By being seen as strategic thought leaders, innovators position themselves to take a spot at the top table.
  • Innovators as Sponsors. The innovation programme is a major business line in its own right. Innovators have a position at the top table, and the bank as a result find itself doing things it would not ordinarily have considered. It is doing different business as usual. Its future success is safely in the hands of people experienced in looking forward rather than backward.

Now, do you imagine for a moment that a programme that’s developed all five of these capabilities is in any danger during a downturn? I don’t either. And in fact, bank innovation capabilities that are at the highest level are likely to get more investment as mainline businesses feel the pinch.

There are several banks that I’ve spoken to in the course of my research that I’d consider are pretty close to this position. But far, far more that aren’t. Most of the time, it seems, bank innovators don’t realise they have to get beyond Innovators as Inventors.

The result is hardly surprising, and is beginning to manifest itself as the crunch bites a bit harder.

3 Responses to“Innovation is a luxury”

  1. June 19, 2008 at 9:26 am #

    I loved the “drowning the puppy” post and this one echoes my frustration at the myopia of conventional corporate thinking.
    How people forget in times of stress how innovation is akin to pulling the rabbit out of the hat.
    If I was marooned on a desert island the one quality I’d ask for would be the ability to innovate…
    To misquote the famous saying: “Necessity is the mother of innovation”
    That should go above your desk…

  2. June 22, 2008 at 4:48 pm #

    And ‘Desperation is the father of necessity’ as Bob Geldof recently said at the innovation edge conference. Great post again James.

  3. Phil Corney
    July 11, 2008 at 1:28 pm #

    This is an excellent post.
    I wonder how innovation for long term ROI reacts with a volatile markets?
    Banks and companies in general that can be flexible and strategically react to changes in the market stand the greatest chance of growing through a downturn.
    For example with all banks putting mortgage rates up by going against the flow there is and opportunity to grow market share.
    Flexibility and incremental change is something which has been around in software development (Boehm’s spiral model) for some time. Could this also be applied to innovation projects?
    All the best
    Phil

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