© Roger La Salle 2010
Business is about profits
I define business as “Creating Wealth through Profitable Transactions”.
Like it or not, that’s what business is about!
Indeed it’s the first duty of a CEO and board to work to the best interest of shareholders in providing a return on their investments. This is one of their fundamental responsibilities and by and large guides their decision making.
Do you measure it?
In many businesses precise metrics are employed to ensure workers are providing an adequate return on their costs, wages and all the attendant overheads. In fact the total cost of many workers these days is 50% or more of their direct salary.
In production we measure process efficiency, defined as output per unit time divided by costs. We then work to maximise the process efficiency, but we measure it.
In accounting, law, consulting and even contracted medical professionals, earned income compared with cost is measured. If you are not paying your way and in fact returning a profit, then unfortunately your time will be short lived. This is how it is in business and this is the way it will remain.
There are some escapees
Strangely, senior managers, except perhaps the CEO, escape this direct measurement of performance (more will be said on this in future articles). In fact some complete departments deemed as essential also escape. accounts, payroll, and ITC may fall into this category as essential overheads whose costs must be amortised across other profit centres.
In the case of innovation initiatives and indeed complete innovation departments, the rationale behind the establishment of these is that “it’s the done thing”. If we are not being innovative we will not be able to retain our position and will soon be overtaken by smarter competitors. This is a great story and so true, but unfortunately the reality is that if the innovation initiative is not delivering quantifiable value then clearly it should simply not exist.
How does your innovation initiative measure up?
In the past many companies have embraced then later discarded their innovation initiatives once it became obvious that the costs were not being in any way justified by the outcomes.
The common defence for such departments when challenged is that “innovation takes time, but we will get the big one and all will be well.” Sure thing, how many times have we heard that one from would be innovators?
There is an old axiom in business and engineering: “If you can’t measure it, don’t do it”. This is so true.
Unlike perhaps the IT, accounts or payroll departments that are simply indispensable, an innovation department that is not delivering value does not qualify as one of these “escapee” and thus should not exist. Such departments are simply an unjustified business overhead.
The bottom line is do you have Innovation Metrics in place?
What is your planned innovation payback period and are the costs exceeding any expected returns.
Where to Start?
The starting point, too often overlooked is embodied in the following four questions.
What are you trying to achieve?
- Where are you now?
- How will you measure progress?
- What outcome defines success?
If you intend to either embrace or continue with an innovation initiative then answer each of these questions, ideally with a single sentence. If you cannot do that, you are not yet on the first rung of the innovation ladder.
Finally, my next article will look at the time scale for implementation, and you may be quite surprised at just how short that can be in providing a positive ROI.
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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