How much money should you assign to an innovation effort to make sure of success?
The easy answer is to get as much money as possible. Surely, the bigger the budget, the better the chances of getting productive innovations out the door? If you have money, you are in the driving seat, right?
Now, clearly, it is obviously difficult to much innovation at all if you have no money. But a large budget is a mistake for new innovation teams because most of the time they will miss the expectations of their stakeholders. Here is the reason.
When a team starts an innovation project, especially if it is more radical than incremental, the time between the moment the investment starts and when revenue arrives can be quite lengthy. New innovators, unfortunately, are in a race against time to prove they can make decent returns, and on average they have 18 months or less to prove to stakeholders they can do so. If, in that time, they have failed to deliver, their programs will usually be cancelled. Having a few very large projects that won’t show quick results is little help.
The challenge of big budget innovation do not end there, because even when they finally start to show returns, they will be generally take time to ramp up to the scale that makes them significant compared to the main businesses of the organisation.
If the innovators have been assigned a very large pot of investment funds they will certainly need to show their returns are better than those available from investing in a core business, because of the higher risk profile of investing in innovation. Traditional business as usual activities are much more certain and controllable by comparison.
But because the big-budget innovation programme has to do things on a big scale (because they won’t have the people or processes at the start to do anything else), there are almost always immediate comparisons to core business operations. An 80% failure rate looks terrible in this light.
It is far easier to start an innovation team with smaller amounts of money because you can get to a decent return number more easily. It isn’t necessary to have a large number of things going on to do this. And it allows the team time to build systems and processes, which can support organic growth.