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Innovation leaders: you don’t have to prove return on investment (ROI) right away, but you do have to show some impact.
As a matter of fact, Spigit’s 2018 State of Crowdsourced Innovation Report shows that only 47% of our customer base is tracking ROI on some or all actionable ideas while 63% cite lack of measurable results as the biggest risk to program success.
When we think about ROI, it has a very definite equation with very specific inputs and outputs – a formula if you will.
When the ROI talk happens with leadership, they expect you to clearly quantify the investment and the return in order to determine whether or not to move forward. While, that’s great when you’re talking about a new feature or something that you’re familiar with; what if it’s totally new or not easily quantifiable? Or takes months (maybe years) to research and adequately define?
The reality is, when it comes to a new innovation program, you don’t actually have to prove ROI to the exact formula (inputs-outputs) especially early in the program’s existence. Instead, you need to show that you’re impacting the business in some way, like getting more ideas, demonstrating cross-silo collaboration, vetting and advancing ideas faster, or incorporating diverse voices in the ideation process.
As an example, I’m going through that exact impact/ROI conversation with a client right now.
The client ran an innovation challenge and identified a winning idea a couple of months ago. They were not prepared to provide any financial estimates since the idea was in its early stages and still had too much ambiguity. They requested a small budget to conduct research with end users to validate the desirability of the idea, and as a result realized the idea needed to be changed entirely.
So, now with more stakes and validated assumptions they can provide rough financial estimates, while they continue learning and addressing remaining unknowns. As they keep iterating, validating, and adjusting they will be able to strengthen and refine their estimates. The key here is to request just enough funding/resources to tackle small pieces of unknowns and/or assumptions to build a stronger business case; this is the essence of rapid prototyping to advance ideas in the lowest cost way.
In parallel, they’re showing business impact by measuring the percent of employee participation in the challenge (both unique logins and diversity of participation) along with number of ideas and comments. This has allowed them to show measurable value with “indirect” metrics to assess program progress more holistically, while they work on high potential, innovative ideas.
Again, measuring innovation isn’t an exact science. It’s not an input-output formula but rather a de-risking and learning process. The premise isn’t to throw out ROI and avoid talking about it. Instead, work towards getting clarity on the various components and over time you’ll build this muscle.
Our experience is that somewhere around the 2 to 3 year mark is when leadership presses for ROI/hard impact dollars and by then there’s usually some traction with ideas in the market. My advice here is to document financial estimates (along with a confidence interval) all throughout the journey, so once the idea is in market you can close the loop by comparing the actuals.
That means you have to show value in other ways for the first couple of years; and here are some other short-term impact measures I’ve seen:
Like any program created to move a company’s bottom line, there has to be some type of ROI that can be articulated to warrant ongoing investment.
However, ROI is the end goal in the greater conversation about how your innovation program is driving value for the business. What needs to happen between launching a program and demonstrating ROI, is showing the impact you’re having on short-term value adds like the examples I’ve outlined above.
One thing is clear: when you show impact, ROI isn’t far behind.