Do you measure return on investment for innovation in your company?
We noticed that many innovators tend to avoid answering the question about what returns their projects bring. We believe that every innovation should give back for the effort we put in. Our focus on ROI is not just about numbers; it's about making sure our hard work leads to real success. Let's learn how to balance our ambitions with data, ensuring that our innovations are not just groundbreaking but also make economic sense.
Close followers of Strategyzer are likely not strangers to the concept of the Explore—Exploit spectrum, and here is where it is incredibly important. Recently, we shared insights in a paper about the dual mindset organization, highlighting the ability to navigate both exploration and exploitation in your company.
It all begins with an idea—sparking a startup or enhancing a business. Then, we search for the right business model, value proposition, or solution. Once found, we step into scaling and management—the exploit phase. The exploration side is a bit chaotic, needing a unique approach to investment and return measurement.
Three key points emerge:
- Firstly, uncertainty differs on each side. In the exploit world, where we know our customers and business models, we plan and execute traditionally. On the left side, it's unpredictable, requiring fast iteration.
- Investment strategies differ. Large bets for exploitation, small investments for exploration, doubling down only on successful ideas. You don’t pick the successful ideas — they emerge.
- Lastly, leaders, especially CEOs, must adjust their mindset and ask different questions. On the exploit side, focus is on plans and budgets. On the explore side, a CEOs questions must shift to learning and the worthiness of continued pursuit.
Metrics and processes change on each side. To optimize results, it's crucial to measure return on investment for both exploration and exploitation, ensuring the organization unlocks its full potential.
Shifting from “Return on Project” to “Return on Portfolio”
Leaders recognize that measuring ROI from innovation investments is the ultimate gauge of success. Shifting from “Return on Project” to a “Return On the Portfolio” helps us sidestep excuses for avoiding ROI measurement. Let's consider the three types of innovation: Efficiency, Sustaining, and Transformative.