For innovation to succeed, how much money should you assign to an innovation effort?
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?
Obviously, it is pretty hard to do much of anything if you have no money at all. But having a large budget is an error for new innovation teams because without fail they are certain to miss expectations substantially. Here is why.
When you start new innovation projects, especially if they are more radical than incremental, the delay between investment and revenue can be protracted. New innovators, though, are in a race against time to demonstrate they can deliver the best returns available. They have on average 18 months between start and cancellation if they don’t show a pathway to being the best available investment. Having a few, very large, projects that don’t deliver quickly doesn’t 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.
Now, if the innovators have been given a very large budget, they will certainly need to demonstrate the returns they are getting are better than those available from investing in the core business. They need to do so because of the the higher risk profile of innovation. Traditional business-as-usual activities are more certain, and therefore cheaper, from a capital perspective, at least in the short term.
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 simpler to commence innovating with smaller amounts of money because you more easily get to the return numbers a team needs. You don’t have to have a large number of risky things going on simultaneously, and it permits the team time to create the right systems and processes to support organic growth.
Deciding how much money to give an innovation effort is a key decision. There are many resources to help online, including James Gardner’s ebook with a chapter on supervising the innovation budget.
