ROI for Innovation – The low hanging fruit!
© Roger La Salle 2010
Business Units need to provide a return
In my previous article I challenged innovation practitioners to examine the return on their innovation investment. If your innovation initiative is not providing returns greater than its cost, then the very existence of the program needs to be questioned.
Having said that, one may well ask what is an appropriate time scale to obtain this return? Months, years or maybe even a decade as we wait in vain hope for the breakthrough initiative that seldom ever comes!
So let’s examine the possibilities and find the low hanging fruit.
If you can have an early win with innovation then you can be sure more budget will be forthcoming and still greater achievements can be obtained.
Where to start?
Essentially there are just four ways in which innovation may be tackled:
• Product innovation
• Service Innovation
• The broad landscape of systematic opportunity capture
• Process Innovation
The first three above mentioned approaches herald the introduction of innovated products, services and perhaps the implementation of a new captured opportunity. Without doubt it is with these that we can build the top revenue line of a business. Put simply, this is really the only way to build a business. Businesses grow on increased revenues and by no other means.
Having said that, the implementation of any of these involves some degree of risk, technical in the development phase, but much more significantly, risk in the market place. Will the market be as large as you forecast? Interestingly if you embrace proper innovation practices market risk can also be largely mitigated, but of course never completely removed.
With the above in mind, perhaps the early innovation initiative should be focused on the one with the least risk, Process Innovation.
What is Process Innovation?
Process Innovation is about finding better ways to do whatever we are doing. Process innovation, unless it means tinkering with the sales process or sales model really carries little if any risk and in my experience I have found that there is almost always room for process improvements.
Further, any improvement in a process translates dollar for dollar to the bottom line, thus measuring the gain compared with the cost or perhaps the ROI is relatively easy.
Governments both state and federal push process improvement, Lean, Continuous Improvement, 5S and Six Sigma as their way of encouraging innovation in businesses. They do this I believe because these are somewhat tried and tested methods but also because improvements can almost always be made and cost benefits determined with little downside risk. Furthermore the benefits of process improvement are easier to understand and articulate.
However, even so, these extremely simple methods are still somewhat shrouded in a mystique that makes them unnecessarily complex, much more so than they need to be.
For many large multinationals with subsidiaries in Australia, unfortunately there is neither the opportunity nor appetite for innovation except in processes. Consequently this is where the bulk of attention is paid.
In the case of utilities such as water, gas and electricity where this is little scope to actually “innovate” the product there is still scope for service innovation and opportunity capture. In such organisations that are largely process driven and with many people doing the same thing, the gains possible from process innovation are almost unlimited.
Keep it Simple
I like to keep things really simple and in process innovation there are really only two things that need to be addressed:
• Costs – how much does each and any activity cost in cold hard cash, from telephone bills to rents, interest, labours and raw materials, including the cost of work in progress?
• Cycle Time – how long does each activity take? This includes the process of getting an incoming order into the system right though to collecting the money from the customer.
If the above two are addressed in a systematic manner, consistent with the maintenance of quality, the process innovation business is pretty straight forward. It simply commences with an activity that maps and measures where you are now with each process and then works to make improvements in the two above mentioned places.
This is not rocket science and is very low risk.
So what’s the time scale?
With process innovation leading your innovation initiative it should be possible to make real cost benefit gains within six months at the most and, of course as stated, any savings go straight to the bottom line.
But I emphasise again, removing costs or improving processes does not build the revenue line, however the extra funds provided by such improvements can now be applied to where the real business building action can take place, product and service innovation and of course “opportunity capture”.
That’s where the real game is.
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Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com