How much money should you assign to an innovation effort to make sure of success?
The obvious answer is that it should be as big as possible. Surely, the more money a team has, the better its chances of getting some productive innovation done? If you control a budget, you are in the driving seat, right?
Certainly, its pretty hard to do anything if you don't have a budget. But having a big budget is a mistake for new innovation teams because they are almost certain to miss expectations substantially. Here is the reason.
When you commence an innovation project, especially if it is more radical than incremental, the time between the investment and when revenue arrives can be lengthy. New innovators, however, are in a race against time to demonstrate they can make decent returns. On average, they have only 18 months before their stakeholders get bored with their lack of results and cancel them. In that time, they have to show they can deliver, but having a few large projects that don't deliver quickly isn't much help.
The challenges faced by the large-budget innovation programme do not stop there, because, even when projects start to make money, they will generally take quite a bit of time to ramp up to revenues that are significant in the context of the overall organisation.
If the innovators have been given a large budget, they will feel the pressure to demonstrate the returns they are getting are better than those available from traditional business investment. They need to demonstrate this because of the higher risk profile attached to innovation investments. Traditional business, on the other hand, is much more certain, and therefore carries a lower risk profile, and least from a capital perspective.
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 much easier to start an innovation programme with a quite small amounts of money, because you can hit decent return numbers more easily. You don't need to have a large number of things going on to do so. And you have the time to bed in your systems and processes, and then grow organically as your capability develops.
About the Author:
Deciding how big a budget to give an innovation effort is a key task for management. There are free resources to assist online, including James Gardner's ebook with a chapter on supervising the innovation budget.
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