As the so-called U.S. recession thrives in 2008, so does the need for innovation and low-cost development. Traditionally, during an economic downturn, executives are quick to stick their finger into any leaks occurring in the corporate revenue dam. The common mistake is to think of research and development efforts as cash leaks needing to be cut off. What makes this a mistake? Innovation should be a process within the organization, not a tangible expense. Yet most organizations do not have the metrics in place to measure innovation and thus do not give the team leaders any method to value the work.
The common approach used by many executives to value R&D and innovation efforts is to ask a series of questions … and then guess answers.
The questions might look like this:
• Does this effort support a profitable revenue stream today?
• Do we need these efforts to maintain current business?
• If this effort is reduced, can I free up some more dollars for the quarter?
Often the answers to these questions create the following executive conclusion: If it has two legs and walks, it’s an expense! Then the budgetary ax falls, creating many disruptive changes.
Disruptive change can be the genesis of new thinking and the heart of an innovative effort. Unfortunately, the energy to innovate often dies during budgetary reductions. Most of this is due to an organization’s lack of an innovation process to capture the benefits of the disruptive changes. As a result, any semi-organized efforts towards innovation walk out the door with freshly printed pink slips.
But the good news is that none of this has to happen. If today’s leadership wants to retain an organization’s innovation momentum while reducing operational inefficiencies, adopting lean innovation processes is a starting point.
The principles used in lean implementations have been very successful in revitalizing many distressed organizations. The origins of lean come from the Toyota Production System (TPS), which transformed the way manufacturing operated. The overall focus of lean is to eliminate waste and inefficiencies.
Lean operations reach that goal by putting the highest priority on providing value to customers. Since the mid-1990’s, the lean mindset has moved on from the factory floor to product development. And just as it happened in production lines, lean innovation has been creating its own success stories. On the other hand, very little of this mindset has been brought into the developing lean service-oriented products.
Without an understanding of an innovation process, much less a lean one, creative efforts can appear to be pure chaos. This mistakenly puts the efforts in the “wasteful” revenue category. Thus, any genesis of new products, improvements and services is at risk of elimination from the organization’s future.
In the absence of lean, how can leadership eliminate waste while keeping the innovation momentum moving? The following questions can help managers qualify the key components and resources to safeguard innovation:
• Which resources focus on creating value for clients and customers?
This question will drive out non-value-oriented thinking and activities. It is simple; money and business come from customers. Preserving the origins of customer-centric value will be a solid investment going forward.
• Which parts of your business continuously study customer needs internally and externally?
Gaining an understanding of the problem is often part of the 80/20 equation, with 80 percent of the efforts representing diagnosis. Gaining an understanding of customer needs is often the bulk of expense in development.
• Where is visualization of the possibilities occurring?
Putting a fresh idea into the market demands an ability to envision it. Keeping the vision, as well as the ability to communicate it, will be an intangible asset for any organization’s future. Relinquishing this capability would surely limit the possibilities of the future portfolio.
• Who is evaluating a value-driven outcome?
Another way of asking this question would be the following: Does this innovation make sense? Does it create a customer desire? The ability to ask, and then answer, these questions is often overlooked. Do not cut out the resources to make it happen.
• Where are continuous refinements occurring?
Lean as a way of thinking that is continuous. Getting continuous innovation in the organization will act as an insurance policy against market stagnation.
• Who is getting the innovative ideas out to the market?
Identify the key individuals turning innovative thoughts into reality. The movers and shakers understand market windows and time-to-market metrics. They are the channel-makers that get the product or service into the customer’s hands. Make sure you have identified the channel-makers.
Getting the most from these questions requires a little timing. Be sure to know the answers before you are asked to trim the budget. Trying to find answers at the last minute will do yourself or the organization no justice. Remember, the key is to get an innovation process established. Long term, it will be the process that continues to deliver the value, regardless of the economic conditions. •
Brad Beiermann is the co-founder and president of Cimstrat Inc., a consulting firm focused on innovation management and marketing for S&P 500 firms.
