Another week, and another call with an institution that’s in the process of building out its innovation programme (on a side note, I also took a call from a very major global institution that is ending its programme, but my feeling is the starters are presently outweighing the enders).
Anyway, this institution has been working for a while on its innovation capabilities, following the traditional collect-ideas-then-present-to-management approach. Like most programmes doing this, they have a mandate to "be innovative" but were given few resources, if any, with which do it.
This is a perennial problem for innovators. People imagine the mere fact of having someone around with accountability for innovation is enough to cause innovation to happen.
I’m yet to see such a programme survive more than 18 months. That’s about the maximum amount of time a business sponsor will commit to something without seeing results before trying something else.
Anyway, these innovators are now facing the question that always gets asked around about this point: "show me the money".
It is paradoxical, of course, that the leaders asking this are the same ones who understand that returns are not magically produced anywhere else in the business without adequate investment. But once the "innovation" word is mentioned, corporate rationality goes out the window. Apparently, in the sole case of innovators, it is reasonable to expect institution-level outcomes with individual-level efforts.
Anyway, this leads me to the point of this post, which is the determination of how much money an innovation programme needs in order to get started. And how much money it needs in order to continue its work on an ongoing basis.
Here is the basic yardstick: investment in a programme, if it is to be truly lasting and sustaining, needs to deliver returns which are comparable to or better than, investment opportunities which are available to an institution elsewhere.
There is no point moaning about how difficult it is to quantify returns from innovation, or complain that some innovations don’t translate easily to cash. For "sustainable and lasting" an innovation programme needs to be able to justify its access to capital, and compete for that capital against all other uses.
An innovation programme that doesn’t have to do this is living in a distortion field created by an executive sponsor that has suspended the rules. Most such executives change jobs every few years, and take their distortion fields with them.
Here is a second yardstick: an innovation capability develops its ability to produce returns slowly, probably taking some years to do so. And it is easier to make, say 20% on £1 million than £100 million when you are a new innovation programme. The former case requires a few good decisions and a small team. The latter, though, requires the ability to do it 100 times as often as the former, still making good decisions, of course.
£100 million means having a big capability, and making sure to deliver big returns to justify the access to it.
Generally, a year 1 programme will fail if it tries, if not from volume of ideas, then lack of bandwidth to execute in sufficient volume.
The real question, when determining how much money to invest in innovation is determining how much cash you can reasonably generate. You then compare this to the returns that other investments an institution might make, and from this, work backwards to the amount of capital you can reasonably accept for "sustainable and lasting"
In year 1, that’s going to be not very much, but as I say, innovation capabilities do not happen overnight. Time brings with it the ability to support more investment.
Now, I recognise that such an approach does not rest well with those who think innovation is about doing disruptive, game-changing things. And I don’t for a minute suggest that those things ought not be done.
But what I am saying is innovation programmes must bootstrap themselves into the position when they can take on game-changing things that cost a lot of money and get away with it.
Start small, and grow big. How is that different to any other very new thing an institution tries?