Returns on Innovation Investment: Stop Asking When, Start Asking How

investment_growthA recent Forbes article voices frustration with the pressure for investments in innovation to produce fast results—a concern that is all too familiar in the field of innovation management. Since investment in innovation is meant to produce a break with the past, as author Andrew Marshall puts it, to “provide value where previously little to none was being delivered,” it will always take time. Hoping to harvest breakthrough ideas shortly after investment is wishful thinking.

This point about breakthrough innovation taking time raises an important distinction: that of incremental versus breakthrough innovation. Incremental change is often the default strategy, making small, steady gains within a dominant design. These small gains do not inherently represent a failure in innovation—Mack-funded researchers make the argument that this stability is socially negotiated, and can reflect intentional reinforcement of the dominant design.

However, while it is important to make incremental gains, Marshall argues that those who invest in innovation need to accept that producing breakthrough ideas requires firms to take the long view. The priority, then, is to recognize and encourage behaviors that will contribute to a strong return on the investment. As Co-director George Day told Marshall, the Mack Institute’s research priorities are designed to address innovation performance. We ask, “What metrics are needed to identify weak links in the innovation process and allocate innovation resources?” in part to ascertain what behaviors throughout the innovation process are most critical for later returns.

In order to increase a firm’s chances for producing meaningful innovation, Marshall advocates an approach similar to the solution process Christian Terwiesch and his colleagues propose for insourcing solutions to healthcare’s problems. The basic schematic is to first immerse employees in customer experience, then encourage proliferation of ideas, pare down the idea pool, and carve out time for employees to fine tune the remaining ideas.

The bottom line: There is no way to measure returns on investment in innovation early on, but managers can still help cultivate breakthrough innovation by putting the right organizational habits in place.