Four Steps to Correctly Betting Your Innovation Budget

Where to place your bets, when it comes to investment in R&D and innovation? Is it about bringing the trend watchers in and watching them perform their 2×2 magic on flipcharts? Is it about sinking money in local start-ups hoping for a return? Or simply spend it on free-wheeling time for your technical team?

The problem of course, is the immensely different time lines that your technical and marketing teams operate on. Ask your R&D team how long it takes to develop a particular capability and the default answer is 5 years, plus a request for a massive piece of laboratory kit. Ask your marketing team what new products they expect to need in 5 years’ time and they’ll tell you what they think they might need next year, along with a massive market research budget.

In essence, both teams are right. In the myopic world of foresight, they’re saying the same thing: “We don’t know how the future will affect us”. Which is useless if you need to decide now where to invest for long term capabilities, technical or operational.

The answer lies in de-constructing the question, before answering it.

Explore future scenarios first. Go further out than you’d ever be comfortable with for ROI calculations, it’s OK. Have your technical and commercial teams spend some quality time together on thinking up what the world will look in 5 to 10 years’ time, how the changes affect your industry, your category, your markets. Ideate for 15-20 product or service concepts that would do well in your future world. This is the easy part, everything is obvious in foresight.

Chart & rank what technical capabilities you’d need to create them. For every one of your future concepts, list maximum 3 new capabilities you would need to have matured in order to deliver them profitably. Go 360 here: review technology, supply chain, sourcing, distribution, etcetera. Now chart the overlap; which capabilities appear over and over, as critical for multiple concepts? You’re getting warmer now, most likely a top 5 of core capabilities is emerging, the platforms that will give you most bang for buck wherever the future winners turn out to be.

Review their implications, and then some. This is where it gets fun. For each of the key capabilities, list the implications across your business (internal) and market (external) of implementing them. Then list the implications of those implications. You’ll be surprised at what that second round reveals. Most likely, your list of core capabilities halved along the way, and at least one new joiner appeared.

Play to win or play to be in the game? Make or buy? The last step is surprisingly easy and shamefully often overlooked. “Make or buy?” Just saying that out loud in front of a mirror, and then in front of your technical team, will turn heads. For some reason, too many people think everything needs to be developed from scratch. Look again at your shortlist of capabilities you need in order to thrive in the future, in the context of what passed in all three steps before. Which of them are actually mere nice-to-haves, platform standards that most likely already exist in other industries? Just BUY them, now. What are the ownable, differentiating capabilities you want to excel at and win? MAKE them or buy the companies that make them. Start developing and patenting like there’s no tomorrow. Because there is.

Charting innovation bets and deciding where to invest your R&D money becomes much easier once you realise you don’t need 20-20 vision on what the future will bring, nor spreading the bet across a huge number of alternatives. As long as you know what you need to be good at.

image credit: fountnhead.com

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Costas Papaikonomou is Founding Partner of Happen, a global innovation agency based in London, Amsterdam, Toronto, New York, and Sydney.