We know innovation is important, but too many entrepreneurs are nervous about funding it after numerous failed projects. However, the key is to demonstrate ROI from the very beginning—and the right methodology will solve all your toughest innovation problems.
In recent years there’s been lots of passionate discussion around the topic of innovation. Leaders are obsessed with it. Politicians cheer it. Consumers demand it. Investors reward it. And the media won’t stop talking about it. But here’s the thing: No matter how aware we are of the role innovation plays in wealth creation and business growth, companies can’t blindly charge ahead with project after project. In fact, the very existence of all the hype has brought critics out of the woodwork.
This backlash makes sense. Where there’s a lot of innovation, there’s also a lot of failure. When there’s a lot of failure, there are also a lot of “I-told-you-sos.” And all of this leads to a chorus of stakeholders shouting: “Show us some results!”—especially in uncertain times when you can’t afford to waste money on ineffective programs.
“These demands for ROI leave innovation leaders in a tricky spot—you’ve got ideas and plans, but you still need proof they’re going to get real, measurable results,” says Patti Phillips, president and CEO of ROI Institute, who, along with Chairman Jack Phillips, wrote The Value of Innovation: Knowing, Proving, and Showing the Value of Innovation and Creativity. “You can’t just assume your project will pay off. And once you’ve chosen a path forward, you need to know if your efforts are getting results, and, if so, to what extent.”
To successfully innovate—and, frankly, to safeguard your own future as an innovation leader—you’ve got to keep ROI at the center of your projects. Yet most existing systems of measuring ROI fall short of providing the proper system for accountability, process improvement, and results generation.
Here’s a look at eight reasons why ROI should be a priority:
1. Your innovation may be out of alignment with business needs
First, even before an innovation project is initiated, ROI methodology achieves alignment upfront as the project is validated as the appropriate solution. Second, by requiring specific, clearly defined objectives at the impact level, the project focuses on ultimate outcomes, in essence driving metrics by design, delivery, and implementation. Third, in follow-up data, when your metrics change or improve, a method is used to isolate the effects of the project on that data, consequently proving a connection to key metrics.
2. The value of your innovation projects may not be clear
The goal of most innovation projects is to deliver value. However, the definition of value isn’t always clear—or it doesn’t match the desires of sponsors, organizers, and stakeholders. The right ROI methodology can help you forecast value in advance; and if the value has been delivered, it verifies the initial value proposition.
3. Your processes need continual improvement
When things are not where they should be—when projects are not proceeding as effectively as expected—data is available to indicate appropriate optimizations. Or, when things are running smoothly, data is available to show what else could be done to make them even better.
“Throughout the project, results are collected and feedback is provided to the various stakeholders for specific actions and improvement, which drives the project to better results,” says Jack. “Then, those results are measured while the process continues.”
4. Innovation programs may lack middle-manager support
Many projects enjoy the support of leadership who allocated the resources to make projects viable. Unfortunately, mid-level managers may not support certain projects because they can’t see the value. When you have an ROI methodology that shows how a project is connected to the manager’s business goals and objectives it can change this perception.
“As innovation becomes a part of everyone’s job, the support level needs to move from ‘we are involved in innovation activi¬ties when we have time’ to ‘innovation is our top priority,'” says Patti.
5. Chances are, your role could use an image makeover
Many functions—and even entire professions—are criticized for being unable to deliver, and their public image suffers. When you attach ROI to innovation it helps build the respect a job function or profession needs.
“It proves over and over again that your projects have a connection to the bottom line, and shows the value delivered to stakeholders. In the process, it removes any question about the value of your department or function and its supposed lack of contribution to the organization,” says Jack.
6. Demonstrating ROI gets your budget off the chopping block
When a particular function is budgeted, the amount budgeted is often in direct proportion to the value the job function adds. If little or no credible data supports the contribution, budgets are often trimmed—or stagnant. You can use ROI to support proposed budgets. “Bringing accountability to this level is one of the best ways to secure future funding,” notes Patti. “CEOs and CFOs need proof, and the proof is in the ROI.”
7. It helps you build partnerships with (sometimes reluctant) key stakeholders
Almost everyone on your team attempts to partner with senior leadership. Unfortunately, the desire to form partnerships is not always mutual (and often viewed as a waste of time). They want to partner with groups and individuals who can add value in meaningful ways. Showing project results will enhance the likelihood of your team building these partnerships.
8. It earns you that coveted seat at the table
The person who leads innovation should participate in strategy and key tactical discussions. If you delegate this role, a chief innovation officer should report to you, and be an important advisor. Unfortunately, this is not the case in every company.
“Most executives want to include those who are genuinely helping the business and will seek input that is valuable and constructive,” says Jack. “The use of the ROI Methodology may be the single most important action that can be taken to earn the seat at the table.”
When you start demonstrating ROI, it opens up a new world for your business. “Because it helps you silence the criticisms that so often squelch innovation projects, more and more projects go through,” she explains. “And because more of those projects are successful, people begin to embrace an innovation mindset. Ultimately, a culture of innovation evolves easily and organically across your organization—and high performance and growth are likely to follow.”
Jack J. Phillips, PhD, and Patti Phillips, PhD, are coauthors of The Value of Innovation: Knowing, Proving, and Showing the Value of Innovation and Creativity and The Business Case for Learning: Using Design Thinking to Deliver Business Results and Increase the Investment in Talent Development. Jack is the chairman of ROI Institute, the leading provider of services for measurement, evaluation, metrics, and analytics. A world-renowned expert on measurement and evaluation, Phillips provides consulting services for more than half of the Fortune 100 companies and workshops for major conference providers worldwide. Jack is a former bank president and has authored or edited more than 100 books. Patti is president and CEO of ROI Institute. Her clients include Fortune 500 companies, federal and state government agencies, and non-governmental organizations. She serves as faculty for the UN System Staff College in Turin, Italy, and the Escuela Bancaria y Comercial in Mexico City, Mexico.