The numbers are compelling. Innovative companies report higher sales and profits from new products compared to less innovative peers, a difference of about 48 percent vs. 21 percent, according to an innovation study by Development Dimensions International. Shareholders love innovation because they enjoy a 12.4 percent advantage in their three-year returns, reports a 2010 study by Boston Consulting Group.
So when it comes to funding innovation, what’s the holdup? The simple answer: Too many companies view innovation as a costly project rather than an investment.
Innovation is both a budget issue and a matter of priorities. If there’s not enough money to support the exploration and development of innovative opportunities, then the C-suite most likely views innovation as an expense vs. an investment. Senior leadership must view innovative growth as a long-term investment that will produce some short term, immediate returns, but mainly delivers incremental growth over the long haul.
When 3M first began considering innovation beyond the Post-It Note, it invested 20 percent of its billion-dollar R&D budget in long-term growth opportunities. The company learned early on that it needed to relax its evaluative screens and filters because quick revenue isn’t part of the plan.
In his new book, Imagine: How Creativity Works, Jonah Lehrer notes that 3M has evolved from Post-Its and masking tape to making patches for delivering medicines with pain-free nano-sized needles. It takes a level of sophistication to balance the portfolio, manage the growth opportunity pipeline, and ensure the innovations are in sync with company goals.
Innovation is the currency of business growth; if you’re not doing it, you’re losing it.