The New ROI: Defy Uncertainty by Boosting Return on Innovation

Firing up new engines of growth is never easy. The best time to do it might be when times are tough.

Hard times have proven to be fertile ground for growth and innovation, with companies that embrace opportunities during downturns emerging as the fastest accelerators. While corporate innovation programs may sometimes feel burdensome, putting innovation on hold during economic troubles is a riskier strategy than seizing the moment. Downturns provide catalysts for disruption and market share capture, making it essential for companies to launch or accelerate innovation efforts that promise scalable return on investment (ROI) and foster new engines of growth.

Unlocking the Potential of Downturns

Companies willing to brave downturns may face challenges in translating ideas into scalable businesses rapidly. An unrelenting focus on scale and ROI can transform scattered innovation bets into a well-managed portfolio of viable investments. The first step involves narrowing the company's focus to large markets where it has a competitive advantage. Methodically measuring the performance of the portfolio and individual ventures is crucial, especially when the current environment offers cheaper acquisitions, available talent, and emerging markets driven by evolving customer needs.

The Strategic Pursuit of Growth

To achieve innovation ROI, companies must remain steadfast in their goal of scaling the business. Identifying growth opportunities that address genuine market needs and can potentially transform the company's trajectory is key. Establishing clear financial expectations, managing the origin and evaluation of innovation ideas, and making investment decisions based on strategic criteria are essential. Companies should also consider shutting down existing projects without a clear path to scale, freeing up resources to redirect toward projects with high customer acquisition potential and revenue generation.

Chasing Changing Customer Needs

During downturns, customer needs undergo significant changes. Companies that can swiftly adapt and innovate in response can seize growth opportunities, while those that fail to do so risk losing market share. An astute business-by-business portfolio analysis is invaluable in determining if innovation investments are aligned with emerging opportunities and appropriate offerings. Such an analysis reduces investment risks and expedites returns.

Testing the Market Before Building

Traditionally, successful innovation relied on having a working product in the market. However, this approach can be costly and time-consuming. An alternative, more cost-effective strategy directly measures customer demand through in-market experimentation before product development. Disciplined innovation teams that continually gather market data can minimize the risk of investing in ideas that may not resonate with the market. Real-life examples, such as a leading European insurer conducting digital ads and landing page tests to validate customer interest in the "connected home" concept, showcase the effectiveness of this approach.

Attracting Top Innovation Talent

A lack of leadership talent is often cited as a significant barrier to innovation. Downturns offer traditional companies an advantage by making more talent available as major technology growth companies shed employees and start-up investments decline. However, competing with start-ups and tech firms for innovation talent can be challenging.

To level the playing field, companies must demonstrate a commitment to ROI and create an operating model that combines the agility of start-ups with the scale advantages of established corporations. Aligning incentives, timing, and the parent company's role are crucial components of this model.

Build or Buy? The Need for Speed

When it comes to ROI, speed is just as critical as size. A shorter time to market reduces investment and yields faster returns. While building a business from scratch is one approach, buying or partnering can be the ultimate accelerants. Mergers and acquisitions have played a significant role in scaling successful innovations. Adopting an objective view of building versus buying or partnering, companies should choose the path that gets them to market fastest. Careful due diligence is necessary to avoid missing opportunities or overpaying.

Downturns Are Temporary; Innovation Is Forever

While downturns present advantages such as cheaper acquisitions and readily available talent, they are not permanent. Companies leveraging these opportunities can advance their innovation efforts and build an ROI-focused innovation culture that thrives in good and bad economic times. By embracing innovation, companies position themselves for sustained growth and long-term success.

Written by Eric Pilkington, Managing Partner

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