How to Solve the Innovation ROI Paradox with Growth Innovation

Ask a Magic 8-Ball what you should have for dinner, and you may get back, “Reply hazy, try again later.” Ask your innovation teams whether your innovation investments are paying off, and you’ll often get a longer version of the same answer. Using a Magic 8-Ball is fine to decide between pizza and tacos, but it’s a rough way to plan next year’s R&D budget.

You know that innovation is the key to an enterprise’s survival. However, when it comes time to prove the true return of investment for innovation initiatives, you and other enterprise leaders face a difficult, yet all-to-common, problem: the way teams in front-end innovation and the development pipeline report on their work doesn’t intuitively connect to the way you report on the business’s performance to shareholders and the board.

And when you ask for more clarity on innovation’s ROI, you’re told that getting you those answers “isn’t that simple.”

This is the paradox that enterprise leaders have been dealing with (and talking with our consultants about) for decades: innovation is the key to the future, but it struggles to demonstrate its own value. You know innovation is vital, but you have no way of checking its vitals.

But some enterprises have found a solution to this problem.

In a study we commissioned with Forrester Consulting, they examined some of our most successful Accolade clients. This study began by simply trying to determine the ROI of using our innovation management software (which was 321%, if you’re curious), but what we found was far more significant: enterprises that see their biggest wins from innovation tend to share a common philosophy of innovation management.

We call this philosophy growth innovation. It’s the shared assumption that growth is the single most important innovation outcome and that every step of the innovation process should be managed accordingly.

In addition to many other benefits, growth innovation enterprises also tend to break out of the innovation ROI paradox. These companies align innovation strategy and reporting practices in ways that give executives a far clearer idea of how their R&D investments impact organizational objectives. And because of this, their innovation pipelines stay well-funded, throughput goes up, and time to market goes down. Benefits of growth innovation the study found include:

• 15% decrease in time to market (weighted average)
• 10% cost reduction on project management (weighted average)
• An additional significant net-new product is launched within the first five years
• One client was able to justify a 40% increase in investments in innovation operations over five years since implementing growth innovation practices with Accolade

Let’s take a look at what these enterprises are doing when it comes to innovation reporting and see how growth innovation can help you escape the innovation ROI paradox, too.

The Black Box Problem of Innovation ROI

One of the most frustrating issues in enterprise innovation management today is what we call the black box problem: innovation is essential to the enterprise’s success, but for most companies, the input-output function is notoriously unpredictable. Money goes into innovation, but nobody knows for sure what is going to come out, when it’s going to come out, or what the net effects of an innovation initiative will be.

That last mystery is where the ROI paradox comes in. You want to be confident that the investments you make in innovation will contribute to the enterprise’s growth. You want the chance to course-correct when projects begin straying from the path that maximizes ROI. And you want to be able to paint a realistic vision of the future when discussing innovation investments with the board and shareholders.

But you can’t do any of that when your R&D shop is a black box.

Growth innovation has helped other enterprises crack open the black box and start running their innovation shops like more predictable machines. But doing this involves understanding the forces at play that tend to make innovation ROI such a mystery.

Top-Down Issue: Setting Innovation KPIs That Don’t Work

One reason innovation ROI is so difficult to pin down comes from the top: innovation KPIs are especially difficult to set.

Most of the other departments reporting to you have straightforward ways to quantify success or failure. Sales, marketing, finance, accounting, and HR activities can be easily tied to hard inputs and outcomes. The data feeding into those metrics comes from a small group of systems, and so it’s relatively easy for these departments to provide clean, intuitive dashboards and quarterly reports.

The same can’t often be said for innovation groups. By nature, innovation and performance metrics don’t easily mix. Innovation involves experimentation: validating new ideas, inventing new products, and finding new markets. This makes the ROI of innovation harder to define, contain, track, and predict than it is for other business functions. (Besides that, for some innovation groups in your enterprise, the traditional ROI conversation is too downstream for them to reliably report on — more on that later.)

Because innovation has such a reputation for being difficult to measure, companies sometimes default to simply monitoring what’s easiest to track. These easy metrics may include the percentage of sales that come from newly developed products or the number of active projects within a set period of time. However, these metrics don’t necessarily help you allocate resources, assess program effectiveness, or hold team members accountable for a project’s success. And as you know, focusing on the wrong KPIs can incentivize behavior that looks great on paper, but runs counter to your desired outcomes in reality.

Choosing the right innovation KPIs and gathering the right data to report on those KPIs is tricky. And because of this, many innovation leaders finish their reporting periods staring at a list of dashboards full of good numbers, but the actual business outcomes of innovation remain a mystery.

Bottom-Up Issue: Connecting Activities and Outcomes

On the other side, your innovation teams face the difficulty of tying the work they’re doing to the business outcomes you’re looking for. You want to know how the simple input-output function of innovation works: what benefits does the organization reap from every innovation investment dollar it sows?

But for innovation workers, this isn’t an easy question to answer. Their work is spread out over three or more major disciplines, each of which has little or no authority over the others:

• Your front-end innovation (FEI) shop is primarily focused on sourcing ideas, building business cases for them, and greenlighting them for production. They’re responsible for getting winning ideas into the launch pipeline, and the returns from their idea-vetting work won’t be visible for months or years after they’ve stopped working on it.
• Your production shop is responsible for taking ideas from FEI and turning them into reality. They don’t always have a say in what’s coming down the pike, and they’re not responsible for the marketing campaigns that bring what they make to the market.
• Your line-of-business leaders are responsible for bringing new products to market: that involves distribution, packaging, promotional campaigns, and sales. Because these activities live at the end of the traditional new product development life cycle, they’re easier to link to ROI. However, unless these leaders are given authority over the entire innovation process, they can’t account for all the FEI and production investment that went into the products they’re selling.

Because the innovation machine is distributed across multiple teams, it’s difficult for any one team in the process to give a thorough ROI report on the resources they’ve been given. This is why innovation workers will often protest that reporting on ROI isn’t a simple (or reasonable) ask.

Overall Issue: Lack of Data Visibility

Both of these issues point to a third problem in enterprise innovation: nobody has access to the data they need in order to give a true and thorough report on innovation’s ROI. Innovation data is usually spread across disparate systems, and so no single individual can look up a given project’s data on idea validation, production costs, pipeline progress, or sales data.

As a leader, you want the whole picture, but when the puzzle pieces are scattered across different systems and departments, finding the ROI of an innovation project becomes a new project unto itself.

How Growth Innovation Solves the Innovation ROI Paradox

These problems surrounding innovation ROI reporting aren’t unsolvable. The enterprises assessed in the Forrester study have been able to turn this around, giving executives unprecedented levels of clarity when it comes to innovation outcomes and empowering them to strategically increase investments.

They do this by radically adopting the three key principles of growth innovation:

• Growth: Articulating measurable targets in the innovation strategy and explicitly connecting every innovation activity to at least one of those targets.
• Visibility: Centralizing all innovation management data in one place and giving every stakeholder access to the information they need.
• Orchestration: Making every decision in the context of a portfolio-level growth strategy.

When an enterprise infuses these principles with their innovation operations, the problem of ROI accountability starts to disappear. That’s because growth innovation methodology gives the enterprise some systemic protections against the innovation ROI paradox, which we’ll explore now.

Tying Every Project to the Organization’s Objectives

Under growth innovation, business leaders translate the overall company strategy to specific growth objectives for innovation. They then prioritize these objectives and bucket out innovation resources at the objective level. This ensures that the company’s investments in innovation mirror the company’s objectives and priorities from the very beginning.

Once this is complete, every active innovation project is tied to one or more of these growth innovation objectives. By doing this, the enterprise establishes a canonical rationale for every project in the innovation pipeline. This means any business leader can see what initiatives are being taken to advance the company strategy, but it also means that every innovation worker can draw a clear link between the work they’re doing and the organization’s goals.

Establishing this link between objectives and innovation projects is foundational to solving the ROI accountability problem we’ve been discussing. Connecting projects to objectives means that everyone in your innovation organization, top to bottom, can understand what any given project’s purpose is, which makes alignment on ROI much easier down the road.

Setting Specific, Measurable Targets for Every Project

Once innovation initiatives are linked to the overall business strategy, growth innovation leaders set success targets for each initiative. These targets reflect the budget allotted to each project, and include KPIs that relate to the objectives the project in question is supposed to help bring about.

This is key for the ROI conversation. By setting these targets early, leaders give their innovation teams a clear set of metrics to report on. Not only does everyone know why a project exists, but they also know how well that project is performing against its targets. With this practice in place, the FEI, production, and go-to-market teams all know what their expectations are, and there’s no scrambling to find new data to prove whether or not a project is actually performing as it should.

Democratizing Innovation Data for Every Stakeholder

Growth innovation enterprises default to data visibility, aggregating all of their innovation data in a central system that allows every stakeholder to access the data they need when they need it. This allows innovation workers to pull data and create the reports that track their projects against the targets set by leadership and then set those reports to refresh in real time.

With this in place, leaders can monitor their entire innovation portfolio from a simple dashboard, and drill down into specific project data to see how individual initiatives are performing. This dramatically shifts the ROI conversation. And because everyone has access to the same data, the discussion moves from defining ROI to finding ways to increase ROI (a far more profitable kind of conversation).

Recalibrating Efforts to Stay on Track

Growth innovation also calls for vigilant orchestration of projects with the entire portfolio in mind. Enterprises that conduct regular cross-functional reviews of the innovation portfolio are able to examine the entire pipeline to spot and circumvent potential snags before they happen, as well as identify any projects that are not currently meeting their targets.

This is an effective way to escape the ROI paradox because it ensures that the ROI conversation happens regularly and often. Consistent calibration and recalibration allows leaders and workers to discuss innovation project ROI all the time, instead of just when things aren’t looking so good for a certain project. Not only that, but it also encourages more solution sharing across departments, so when one team finds a method of increasing ROI, there are established channels for socializing that method across the innovation organization.

Escape the ROI Paradox With Growth Innovation and Accolade

Growth innovation has helped other enterprises solve the problem of demonstrating innovation’s ROI, but that’s only one of the problems this approach to innovation management has solved. We’ve seen enterprises decrease time to market, rescue profit margins for underperforming projects, purge their portfolios of dead-end initiatives, optimize their strategic R&D spend, and more.

They’ve done this by committing to those three key growth innovation principles we listed earlier: growth, visibility, and orchestration. If you’d like to learn more about what growth innovation is and how it works, download a copy of our free guide, The Growth Innovation Trifecta: A New Philosophy of Innovation Management.

One of the key tools these successful enterprises used to implement growth innovation methodology is Accolade, our purpose-built enterprise innovation management software. Accolade integrates with your other innovation data sources and provides your entire organization with data visualization, analytics, roadmapping, and collaboration tools, which means you can overcome the causes of the ROI paradox and give every stakeholder a clear, unified view of your innovation portfolio’s performance.

If you want to see what Accolade can do for your innovation shop, we’d love to show you how it works. Book an Accolade demo today.