Costs of Innovation Must be Weighed Against Standing Still
by Mike Mitchell
February 12, 2019
When faced with the decision of whether or not to invest in an innovative idea, managers often measure the cost of the incremental investment. That is, the cost of investing in the innovation which is above and beyond current operating costs. However, the error in this analysis is that it doesn’t take into account the cost of doing nothing — the cost of standing still.
In the world of innovation, the adage of, “if you’re not moving forward, then you’re moving backward” applies. Organizations who choose to stand still are often the victims of more aggressive competitors. Therefore, if managers accept this view, then the cost of the investment in innovation must be evaluated versus the cost of standing still. Typically, when these two costs are weighed against each other, the cost of the innovation is modest or nothing. Hence, most worthwhile innovative ideas should find initial funding and approval to move forward.
Keep Progress Moving Forward or Risk Failure
Once management approves the investment in innovation, the goal should be to maintain progress towards development and introduction of the new idea. While this sounds obvious, the fact is that most innovative ideas typically never reach implementation. The organization loses focus or “heart” for the idea and the effort folds at some point along the path of development.
The first cost implication of folding along the way is obvious: The wasted investment of money and time in pursuing the development of the idea. However, not only is the investment in development lost, the opportunity created by the realized idea is also lost. When these two costs are added together, the total is significant. Therefore, it’s critical to your investment in innovation to keep an idea moving forward.
How to Maintain Progress
In order to maintain progress, management can offer these three things:
1. Adequate funding: Fueling the fire with adequate funding is obviously necessary. Proper R&D, market research, and other typical costs associated with innovation must be funded in order to maintain progress. Additionally, managers must look at funding in terms of manpower. As an idea progresses, it often requires more people and more time in order to move forward. Therefore, managers must also fuel development with an investment of personnel and time devoted to developing the idea. Starving idea development of people power can be as detrimental as starving the idea of capital.
2. Providing psychological safety: A key fear which keeps employees from participating in the development of a new idea is the fear of being associated with any failure. Unfortunately, many people view their turn in an innovation role as one which needs to be “survived” rather than one which could significantly add to their credibility. This attitude is a direct result of fearing the consequences of failure. However, if managers offer reassurance that failure of a new idea is progress, instead of indictment, there is “psychological safety” in the innovation effort. Less fearful teams tend to blaze through development hurdles and continue to charge towards the ultimate goal.
3. Cut up the elephant: Breaking down the big, overwhelming goal of a fully developed idea into smaller progress goals makes the overall effort less intimidating and more rewarding. Instead of only setting a goal of a fully developed and commercialized idea, managers should set smaller goals along an innovation’s path of development. Achievement of these progress goals — known as “small wins” – adds to the enthusiasm while reducing intimidation.
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This post originally appeared on the Mitchell Innovation blog.