Resourcing Innovation: Building an Innovation Ecosystem

Think of innovation as your precious garden. 

Like a garden, innovation needs constant care and resources. For a garden, resources include water, seeds, fertilizer, etc. Resources for innovation are different, but no less precious. And like a garden, failing to adequately resource innovation efforts will lead to low yields and poor quality in outcomes. Just as crops need more than just sunshine and water, innovation needs more than just dedicated headcount and budget. To adequately resource innovation, you need to support the entire ecosystem that drives innovation: tools, equipment, software, access to support functions such as legal support (for patent evaluations, contracts, and IP management), marketing (surveys, market studies, voice of customer analysis), finance (models, income statements, business intelligence), engineering (models, rapid prototyping, design) and IT (software configurations and implementation). Often innovation stumbles when resources outside the immediate control of the innovator’s department are required. You can quickly run into challenges selling the value of innovation when you run into other people’s budgets and priorities. There must be commitment and support at the top of the organization for interdepartmental innovation support and mechanisms and budgets for driving innovation across platforms. Creativity and development cannot exist in a vacuum, and highly matrixed modern companies can impose significant structural barriers to driving innovation within those organizations.

Innovation in a crisis.

R&D and new product development groups can be the first to face cuts in budgets and staff in the face of economic stress on an organization. Unfortunately, many view innovation groups as cost centers rather than future revenue generators. Likewise, in times of crisis or intense cost management, innovation efforts throughout the organization may not receive adequate resources to sustain them. This is equivalent to eating your seed corn. It feeds you today at the expense of future yields. If innovation is a key focus for the organization, there must be a commitment to continue to adequately resource innovation even in difficult times. Additionally, I have seen new product development efforts diminished by innovation budgets rich in personnel but starved of capital investment. A large pool of innovators with no instruments, software, tools, or equipment to support them is often of limited productivity. Investments in equipment and automation, much like in manufacturing, can significantly increase innovation output with a static or smaller workforce. A robust review of capital requirements for innovation is a must.

Build flexible funds into your innovation budget.

Early in my career, I was leading a global innovation group tasked with providing solutions to the liquefied natural gas (LNG) industry. A customer approached us with an unanticipated opportunity to provide a new technology that operated under extreme, cryogenic conditions, well outside the normal operation of all devices in the market at the time. In just two weeks, my team used the availability of a small “risk” budget to fund testing of our ideas and some new materials. This allowed us to prove the viability of the solution and invite the customer into our facilities for a demonstration. Not only was the customer impressed with our technology, but also the passion of the team and the rapidity with which we demonstrated a viable solution.  We won the job. Even better-our technology was incorporated into all of their future plant designs. You can see the value of having flexibility of funding to allow groups to take advantage of unexpected opportunities throughout the year and “risk” funds that allow groups to quickly take small measured risks to prove out (or disprove) ideas as valid along the way, rather than subjecting all innovation ideas to lengthy, formalized development vetting. The availability of budget flexibility and small “risk” funds serve not just to further innovation but can also drive team commitment by allowing pursuit of creative projects. 

Support innovation outside the official innovation team.

Resourcing innovation is about more than just budgets. It’s also about providing adequate support, personnel and systems to foster effective innovation across the organization. Too often innovative ideas come from sources outside R&D or new product development (e.g. – sales, business development, manufacturing, etc.) whose ideas are then handed off to a development group and siloed without further feedback or input from the original innovator or department. Deprived of that connection they wither or lack commitment because of a “not invented here” bias or a lack of understanding of the underlying product requirements. If a sales person, manufacturing technician or individual outside of a traditional innovation role brings forth an innovation, there should be a mechanism to have that individual devote some portion of their time toward the continued development of that innovation, rather than simply thanking them and separating them from the ongoing development process. Often a great innovation initially exists only in the mind of a single individual. Separating the individual from the effort denies the development effort of the insights, passion and understanding that perhaps only that individual possesses and robs them of the personal fulfilment of continued contribution. Mechanisms should exist to keep the source of the innovation associated with the project through delivery. 

Honesty is always the best policy (cliché, but so true!).

An honest assessment of innovation budgets should lead to earnest internal debate about the true importance of innovation and corporate funding priorities. Part of that assessment involves benchmarking. It is important to benchmark innovation investments internally and externally relative to industry peers. Benchmarking internally against project budgets and timelines gives you an understanding of how well you are planning and executing your innovation projects. Benchmarking innovation investment externally gives you an idea of your investment in the future relative to competitors and may give insight to long-term competitiveness. A good external metric is innovation (or R&D) as a percentage of revenue.  It is in this last benchmark (innovation investment as a percent of revenue) where I have seen questionable accounting. Some organizations upon discovering they are underfunding innovation relative to their peers, questionably broaden their classification of innovation activities to make it appear outwardly that they are investing in innovation at a level comparable to their competitors or peer group. This kind of internal deception can lead an organization to believe, erroneously, that they are keeping pace with their competitors, when they may actually be falling woefully behind. This situation compounds with time and inevitably becomes apparent in corporate performance and market share.

If innovation is truly a corporate priority, investment, internal structures, and budgets should reflect that. It is important to think about the greater innovation ecosystem and the resources required to support it. When effectively managed that ecosystem produces great results, and when filled with internal barriers slows and ultimately crushes innovation efforts. An effective innovation ecosystem supports flexibility (rapid, responsive mechanisms to test ideas), interdepartmental cooperation, inclusivity (people in all roles contribute), honesty, and leads to sustainable growth in revenue and profitability.