Just as an organization invests in extending its capabilities through capital expenditures and human resources, it should also invest in innovation. Some businesses need to put more resources toward new products or services, while others need innovation to transform internal processes.
While many companies today say they value innovation, every organization needs budgetary planning for innovation initiatives so employees can focus on the creative process without worrying about the means.
How to Set Your Innovation Budget
When it comes to allocating funds for innovation, every company is different. However, the general rule of thumb for divvying up those funds is to follow the 70:20:10 ratio.
Figure out how much time, funding, and human resources you can put toward innovation; out of those resources, 70 percent should be dedicated to incremental innovation for existing items, 20 percent should be earmarked for the extension of products and services into new markets, and the last 10 percent should be applied to game-changing breakthroughs.
After evaluating your resources, you need to examine specific ways to use them. Here are some tips for making your resources stretch as far as possible:
1. Hire Professional Starters. These are people who can create new opportunities within the existing framework and resources of the enterprise. They are not functionally bound and can be expected to work across the enterprise, rather than within a functional silo.
2. Deploy the Human-Centered Design Process. Commonly known as “design thinking,” this process places user, stakeholder, or customer needs at the heart of the innovation process and seeks to drive an empathetic understanding of those needs into strategic and operational innovation responses.
3. Create and Leverage Workspaces. Build in ways for functional teams to create cross-fertilization of ideas. Use spaces to support and grow project-driven innovation activities in ways that are meaningful and visible to the whole organization.
4. Exploit Existing Assets. Supplement existing resources so they can be repurposed and help you innovate more effectively and rapidly. Step back and look at what you already have that could be improved with small changes. Seeing yourself with fresh eyes can promote surprising outcomes.
5. Extend Relationships. Seek ways to expand the social network within the enterprise. Consider Malcolm Gladwell’s model of mavens, connectors, and salespeople to take advantage of employees’ hidden talents. Think about expanding that social network into networks like InnoCentive or Quirky that encompass resources outside the enterprise.
6. Look at Big Problems. Unless the greatest problems that users, stakeholders, or customers face are elevated and become a source of focused attention, opportunities for breakthrough innovation will be lost. These can be your greatest resources to fuel your innovation.
How to Fund Your Innovation Budget
You may know what will cause dynamic improvements in your company, but your ideas won’t be effective if you can’t convince other decision makers and investors to get on board. You especially need to win over investors if you have more ideas than your current resources can cover. Here are some strategies to convince others to make innovation a fiscal priority:
1. Make Recommendations Based on Real Goals. Tie your recommended funding and investment requests directly to the goals of the company, and show how innovation supports these goals.
2. Come Bearing Gifts. Consider where you might be willing to reduce spending or existing investments. It’s rare that investors will give something for nothing. Rather than create risk exposure in a vital area, come with your own recommendations on what to cut. This also communicates your sincerity about your investment approach.
3. Make the Investment Path Visible. Don’t surprise the people you will rely on for future funding. Map out your approach, and define the required long-term investment you will need.
4. Create an Easy On-Ramp to Funding. Start small so initial investments can be used to mitigate risks and demonstrate proofs of concept as rapidly and effectively as possible.
5. Craft a Compelling Story. You have to provide numbers, but the story you’re selling is more important. Lead with a clear narrative, and then support it with numbers. An emotional response will determine whether your investors or team leaders buy in, regardless of how stiff and results-driven an investor might be.
If you’re not currently budgeting for innovation, you’re most likely not maintaining the competitive edge you wish you had. With a fresh look at your resources and some reorganization, you can take your employees to a place where they are free to explore new ideas without worrying about where the money will come from. Those efforts will give you the boost you need to gain traction in a shifting landscape and lead your industry as the next great disruptor.
About the Author: Andrew (Drew) C. Marshall is the Principal of Primed Associates, an innovation consultancy. He is a co-host of a weekly innovation-focused Twitter chat, #innochat; the founder, host, and producer of Ignite Princeton; and a contributor to the Innovation Excellence blog.