Financing Corporate Innovation

As mentioned in my last post I often run out of space while giving insights on how to run corporate innovation.

So I have created a bi-wekly newsletter called: Corporate Innovation Insider. The main target group is senior executives who want to get insights based on more than 15 years experience in driving transformation, digital as well as cultural and innovation initiatives from the senior executive perspective.

In this newsletter we will take a look into how to finance corporate initiatives. So let's start out with outlining the playfield.

First of all this is not about the ongoing core R&D portfolio work you are already running. We will his newsletter deep- dive into when you have or intending to initiate a "lab", "hub" or something similar where you, as senior executive, want to push the boundaries of innovation in your corporation.

Now that is clear, let's first of all look into the allocation of budgets.

How much to allocate?

This is a question I have got so many times over the years and it is actually super hard to answer with specific budget ranges, because there is a lot of fundamental decisions you have to have cleared out before deciding on the specifics.

On a high level you could say that each year you want to allocate X amount of your earnings and put that into 1) Your ongoing R&D activities (core innovation), 2) Your digital activities (digital transformation) and 3) Your "hub" or "lab" activities (general beyond core innovation).

Those 3 combined, will then be covered by your yearly X amount of your earnings budget going into innovation. In years with less earnings than expected, you could over time, set aside an additional pool of budget for each of the 3 activities to apply for depending on your strategic priorities.

This will keep your initiatives lean and you as C suite are in control from a financial perspective. This is similar on how many scale ups and venture funds work, so learning from them in their scaling journey will make your teams focus on key goals and "customer value" (customers can be both external and internal).

So to sum to up, your budgets are relying on your ambitions and core company earnings and you have to distinguish between the 3 overall high level innovation initiatives. By doing so, there is fully transparency of the financials, and your peers have a clear understanding on the yearly budgets allocated.

Mandates and steering

The mandate from all innovation activities - beyond the core and digital, must be directly linked to the C suite and preferably directly to the CEO of the company.

And yes, I know, CEO's have a lot on their plate with all the global uncertainties going on these years, but the more structure (not overdone), transparency (please set aside own agendas) and mutual vocabulary (about the terms used,) the less time the CEO have to spend on getting up to date. You can even automate the progress and value factors in a report or dashboard and only spend time with the CEO when critical matters, good or bad, turns up.

The CEO mandate is one of the easiest and impactful ways to get "time to innovate" and focus on building great solutions for the future as your innovation leaders do not have to go into "street fighting" about priorities with the peer core organization and do the yearly budget wrestling, which in many cases consumes up to 40% of the innovation leaders time over a year.

So CEO reporting, combined with fixed allocated budgets will in many cases be the trick for you to succeed from a process and mandate perspective. The last thing is who you put into your innovation "lab", "hub" or whatever you have decided to call your "beyond core" innovation.

Organizing and structure

First of all, please remember that in all major transformations, which this topic is as well, the best way of transforming a company is to put the right people in the right positions at the right time.

Hiring a major consultancy and do powerpoint conferences in secret C suite locations, might do the trick, but it is in many cases way too detached from your organization and will for sure create resistance.

If you want strong future solutions and internal backup, hire the right people to do the specific job at the time of urgency and do not let externals lead the process. If you hire within the industry, you will in many cases get less radicallity - towards core. If you hire leaders to drive the beyond core innovation outside the industry, but with great knowledge on how to innovate, get customers desirability nailed fast and build MVP's in a pace you have not yet seen before, this is the trick.

Leaders with vast experiences from outside the industry know how much building the right teams for the right job means and if you have very senior leaders in innovation management and leadership driving your beyond core innovation, you will have to let them. They are most likely more capable to running innovation than you are and many of the core leaders that is already running core innovation. This is by no means a daunting finger-pointing game, but pure reality. Leaders from outside the industry, will most likely build the innovation teams in a combination of industry and vertical knowledge and needed competencies from outside the industry. This way you are able to focus on stretching our industry innovation, but bring new ideas and ways of working to the table.

So now let's look into the most innovation-killing-part of doing corporate innovation.

The innovation killers

One of the first notes you, as senior executive have to make, is that the more radicallity you want to to push from the C suite, the more resistance you will have in your own organization.

This is often the biggest killer of any great innovation setups I have encountered - in any corporation - in any industry.

In many cases, you, as a senior executive will probably not even notice it before you have wasted an significantly amount of money and then decide that you must re-organize, re-focus or shut down the initiatives.

That is why the CEO mandate is such a strong tool to give the leadership in your "hub" or "lab". With that mandate in hand and the "freedom to operate" you will see a lean and fast to market innovation department as on the opposite, there will go en extreme amount of time wasted in internal alignment, that most likely kills the innovations that are truly bringing business and impact opportunities to your company.

Before signing off on this first newsletter, I have a few advices going forward:

A few advices

• Financial allocation: The minute your are arguing that due to existing financial processes in your core business you are not able to support the way you must run your "lab" or "hub", you should stop. This argument is simply way too vague and should not hinder having great people creating the future of your company. So I would advise you to change your processes ASAP for this part of the company and move on.
• Mandates and steering: Get the CEO mandate, reporting and alignment in place. This can't be stressed enough. If that is not in place your innovation "lab" or "hub" is not strategically important enough, so spend the money elsewhere and you and the employees are much better off without a innovation theater. You have to remember that your "hub" or "lab" is creating the products of your future earnings while your core business is running and keeping your global market position.
• Organizational structure: You have to put the right people in the right positions and preferably outside your core industry, to lead. But let them do the mix of teams depending on your strategic guidance of must win battles with a combination of inside and outside industry employees and line managers in your "hub" or "lab". Combining it with less HR process restrictive mandates will also bring significant speed into the equation.
• Innovation killers: Your core organization is in many cases not by intent killing great "outside core" innovations, but since you (yes you in the C suite) have put metrics and KPI's that are great in running a stable global business they are 100% not working in a beyond core innovation context. So you have to define a new set of progress and value metrics for this setup like: 1) Innovation hight and how many new ideas in each hight you want to run in your portfolio (defines how big your team will be), 2) Run a value based (monetary) operating model on new innovations and ideas, 3) Re-evaluate the incentive schemes for your "hub" or "lab" activities as the people joining those teams is most likely not driven by the traditional corporate incentives (a way to attract the best talent).

What's up next?

In the next newsletter we will have a deep dive into how to define your innovation hight, so stay tuned.

Get in touch?

Until then, if you want to learn more, please let's get in touch. As I am a one-man band - by purpose - without any other consultant back catalog to sell, my time is limited and therefore I only engage with C suites and customers who are truly interested in taking the bold decisions and not gambling with substantial budgets decisions going towards innovation theater.

If you want to book me for a conference, workshop or keynote, you can do it here (in Danish): https://www.youandx.com/speakers/jesper-munkholm.