How much is your innovation spend? This is a question often asked by those who ‘don’t get it’. These are the people who do not understand the concept of innovation and what it can do for them.
There have been many reports, with many more still to come I expect, that analyse the spend of companies on R & D. This is not a direct spend on Innovation but is directly linked. A recent report showed that techMARK firms in the UK claimed to be spending as much as 0.4% of revenue on R & D whilst the average spend over industry sectors was no more than half this figure. The report also states that the spend on R & D is increasing by as much as 4% per year (source Cambridge Design Partnership http://cambridge-design.co.uk/news/patent-box-report).
These figures are very rough and ready but let us take an example of a reasonably sized company with a turnover of £50 milliion. 0.4% of this is £200,000. Your R & D lab would really like to get its hands on a sum like this but what if I suggested to you that ‘real’ innovation could have a much greater effect on the fortunes of your business and could actually cost less?
Read more Business Creativity and Innovation blog.
Today this article was published on the BBC website as David Cameron announced measures to tackle the so called ‘care problem’ within the NHS. Read the article here.
In short, Mr Cameron recommends that the public be encouraged to carry out inspections and nurses carry out regular ward inspections. There are a number of flaws in the logic here. First of all those urged to carry out inspections will already be doing so. The public will be looking because they are concerned about the environment that they and their relatives find themselves. Nurses will be looking anyway because it is part of their job. Nurses, however, are busy and will not be quite so vigilant. If they are to me more vigilant then which aspects of their job does Mr Cameron suggest they give up?
These are trivial issues. What is more important is the fact that Mr Cameron thinks that Quality can be inspected in to a system. This is an old fashioned argument that simply does not work. If you regularly inspect any system and you keep finding faults then you only have 2 options 1) Find the same fault again during your next inspection 2) spend a huge amount of time firefighting.
When Japanese products first became popular it was because of the high quality. When we in the west tried to emulate these methods we failed dismally. Why? It was because we inspected everything thoroughly and we did produce quality items. This was only because of the large number of defective items that we threw away. The cost was enormous.
So there are two main issues, poor quality costs, in terms of both money and health as far as the NHS is concerned. Also the fact that the more you monitor a system the more expensive it becomes to run.
The answer to all of this is simple. To make the NHS work better at a lower level simply change the system. Avoid high level edicts about how things should be done, just state what they targets are (infection rates, bed occupancy or whatever) and let the people who know, those on the front line such as nurses and junior doctors, fix the system with the excellent knowledge that they have.
Call this creativity or innovation within the NHS if you like but surely it is just plain common sense?
The current recession is a problem so we need to be innovating on a budget. It is hurting businesses of all sizes in all sectors. Innovation can help you to cut costs, improve margins, retain customers, acquire new customers, gain market share and ultimately to survive. But when you are cutting costs and squeezing resources in all areas how can you find the people, time and money for innovation? Since experiments are not guaranteed to succeed it can look wasteful to fund large innovation projects.
Here are five tips to help you innovate on a budget:
- Tell people that you want their ideas. Tell your staff, tell your customers and tell your suppliers that you want ideas that will help streamline the business, improve service, cut costs or delight customers. Tell everyone! If you do not have an effective suggestions scheme then set one up. Listen to all suggestions with an open mind and evaluate them constructively.
- Allocate a budget for innovation. You do not get innovation for free. You must allocate time, people and money but you do not have to be extravagant. The most important thing is to give people some time and space to generate, evaluate, select and test Ideas. Google famously gives all employees one a day a week for this sort of activity. You do not have to be quite so generous – maybe one afternoon a month will work for you. However you do it you allow people to have ideas and experiment.
- Move quickly. Once you have selected a promising idea move rapidly to building a model that you can show to people. This might be built in Lego, it might be a series of sketches or a role play. Once you show it to selected customers or other stakeholders you can quickly get useful feedback and of course funding.
- Kill the losers. Set standards for innovations – e.g. Can we make money at this? Is there a real need? Can we make it work? Can we win with this? If the answers are negative then be prepared to cancel the project and move onto something else. Resources are limited and should only be devoted to potential winners. Be ruthless!
- Pinch other people’s ideas, we call this ‘creative swiping’. A low cost way to innovate is to copy ideas from other industries or other places and to try them in your business. What are they doing in other countries to solve this kind of problem? What can you use that is new to you but has been proved elsewhere?
Make innovation a priority and add it to people’s objectives. You have to make the current model work better and at the same time find ways to replace it with something better. Continuous innovation is demanding but rewarding, and is the best way to survive.
There is no manual that says exactly how to estimate innovation costs but here is a common sense approach that seems to work well. Imagine that you are a company that needs to introduce 5 new products into the market place. First of all you need to spend some time generating ideas. Without knowing your actual method of idea generation and until you have had time to calibrate your own process then this is a bit of ‘wetted finger in the air’ calculation. We know that the ration of truly wacky ideas to those that might be worth looking at is one order of magnitude i.e. 10 to 1. Similarly, the ratio of ‘might be worth looking at’ to ‘definitely worth a look’ is once again an order of magnitude.
So if we want to have just one idea that is worth pursuing then we should expect to generate at least 100 crazy ideas, thus our small company wishing to create 5 new products will need at least 500 crazy ideas. So far so good, but how do we generate the ideas? You could collect them in a suggestion box but the quality would be variable and it may take a while although the cost would be low. An idea generation session with a group of people could generate your ideas in less than a day. This would be more expensive and would only use a ‘snapshot’ of the expertise and knowledge available to you.
By now you should get the idea that we can roughly work out how many ideas are required, and how long this would take and the resources that would be used. Not all ideas make it to products so some extra redundancy needs to be built in, and then there are overheads such as management and the costs of prototyping and manufacture, but these should be aspects with which you are already familiar.
So there you are, a simple way of working out your Innovation costs. But hang on a minute, life is not quite that simple. Below is a list of other things that you might wish to consider:
- HR requirements (culture, motivation, working practices)
- Idea capture systems (how do you record ideas and avoid forgetting them)
- Knowledge transfer (what worked, what did not, avoiding reinventing the wheel)
- Feedback for improving all aspects of your process (including estimating costs!)
This is a simple guide but good enough to allow you to get some sort of handle on the cost of Innovation if you have never done anything quite like this before. Reality is a little more complex – good luck.