Kill Innovation With Too Much Money
How big should an innovation effort’s budget be to guarantee 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 a team starts an innovation project, especially if it is more radical than incremental, the time between the moment the investment starts and when revenue arrives can be quite lengthy. New innovators, unfortunately, are in a race against time to prove they can make decent returns, and on average they have 18 months or less to prove to stakeholders they can do so. If, in that time, they have failed to deliver, their programs will usually be cancelled. Having a few very large projects that won’t show quick results is little 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.
Deciding how big a budget to give an innovation effort is critical. There are free resources to help online, including James Gardner’s ebook with a section on managing the innovation budget.
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