Why companies need to invest in innovation
Welcome to a new series of business innovation columns! When I sat down to write this column about innovation, I asked myself “what is innovation, really?”. Yes, there are standard definitions; “the action or process of innovation”, or “a new method, idea, product, etc.”. But after 30 years of working in Information Technology for various clients on various projects, in various industries, I have come up with this observation; “innovation is the freedom to explore possibilities”. Plain and simple, if you don’t explore, how do you discover? I look forward to sharing my experiences with you, and I hope my learnings and insights add value to your path forward, and the decisions you will have to make for your business today and tomorrow. Enjoy!
We have all seen it! Companies that come from obscurity to mega corporation in just a few years. So how do they do it? Simple, they invest in innovation (which includes research and development), and they allocate a percentage of their forecasted revenues every year to this cause. In today’s column, I have provided you three steps as a guideline to start your investment in innovation. And by reading this column, I know you are ready to explore the possibilities!
A couple of years ago I met with the VP of Technology in a private oil and gas company. He had been given a mandate by his leadership to innovate, but he had no idea where to start. His very first action was to convince company leaders to change his title to “VP of Innovation and Technology”. It was a simple change but the impact to his team, and to the perception within the organization, was immense. This simple title change began to influence the culture within the organization towards one of innovation. The result was that it became easier for him to meet with business units to discuss innovation from their perspective. From that point forward, he had no shortage of ideas to draw upon in changing the way the company did business, and he had immediate buy-in to deliver the changes required to drive the new business outcomes, all because his title helped to inspired a culture of innovation.
The following year, from its list of innovation opportunities, the company picked an opportunity that the leadership team felt would have a significant impact on the company and its bottom line. The company chose to automate a complex process used in royalty calculations. The project required the company to research and select a technology which enabled the analysis of plain text land contracts, the extraction of the required contractual terms utilized in these calculations, and the then the calculation and validation of the royalty to be paid to their landowners. The result of introducing this innovation into the company was faster payments with less errors to landowners. In fact, a process that previously could take up to 3 to 4 weeks to do manually, and often resulted in disputes caused by human error, was significantly improved. Today the new process completes settlements within a week, and errors are rare. As of last year, the VP of Innovation and Technology of this private mid-tier oil and gas company now manages four to six innovation projects a year, with very similar results.
Here are a few simple steps to help you in your innovation journey
Allocate a specific budget for Innovation and set up a separate team in your organization to manage this budget and your innovation projects.
Research what other companies of similar size or industry are doing to help you decide on how much you should allocate for this department. Articles such as Ranking of the 20 companies with the highest spending on research and development in 2018 (in billion U.S. dollars) can be very helpful. Many companies getting started with an innovation agenda begin by targeting 10% of their annual revenue be allocated to innovation. While 10% may seem high to some starting into this field, the value of this level of investment is proven over and over in many companies. As an example, Amazon’s quarterly revenue 10 years ago was approximately $4.7B. In 2018 the company saw revenues of $58.22B.
“We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.” – Jeff Bezos (CEO, Amazon).
The second point in Jeff’s quote above is “invent”, which is the byproduct of innovation. And, the third point is “be patient”; innovation does not happen overnight and not every innovative idea produces an outcome. However, every attempt at innovation is better than not innovating at all; it only takes one success to change your business or your industry.
Invest in resources with the skills, knowledge and aptitude for innovation.
At minimum, your organization needs a dedicated senior leader to champion innovation. One of my most successful clients created the position of “Vice President of Innovation” as a dedicated full-time position. With this position, the company was able to create key relationships required to enable its success in identifying innovative solutions to overcome challenges and grow opportunities. Additionally, the company sourced key resources to manage and maintain projects within the “Innovation Centre” of their organization. If you are unable to source these resources to start or you cannot commit to this type of resourcing, consider hiring a company that specialize in “Innovation Managed Services” like ISM Canada. This type of organization has the support of a large pool of resources dedicated to innovation and can provide affordable options through shared services and pooled assets.
Establish business rules to manage and measure your investment in innovation.
These business rules will drive business outcomes and should include your company’s strategies. If you are focused on growth, then you need to consider acquiring market share from your competitors, which will require market analysis (requires an analytics tool). If you are focused on cost management, then you need to consider internal and external process optimization (requires a process management tool). And if you are focused on customer experience, then you need to consider a real-time customer feedback mechanism (requires a customer management tool). And all of these will not work without an integrated data management solution, as data is key to the success of all your innovation needs. Without good clean and concise data, you are unable to track the success of your investment in innovation, and this is key to achieving all your goals and objectives in today’s competitive landscapes.
In summary, investment in innovation can drive significant value to an organization. It can help you action your strategies, and obtain your goals and objectives, and your targeted business outcomes. It takes three simple steps to get started; budget, resources, and clearly defined business rules. Incorporating innovation into your organization will change the way your company will do business forever! Just imagine joining this list of successful companies who invest in innovation, “The 2018 Global Innovation 1000 study”. Take the plunge into innovation - and you could be on this list!