How To Estimate Your Innovation Costs

There is no manual that says exactly how to do this or how much you are likely to spend innovating but here is a common sense approach that seems to work well. Imagine that you are a company that needs to introduce 5 new products into the market place. First of all you need to spend some time generating ideas. Without knowing your actual method of idea generation and until you have had time to calibrate your own process then this is a bit of 'wetted finger in the air' calculation. We know that the ration of truly wacky ideas to those that might be worth looking at is one order of magnitude i.e. 10 to 1. Similarly, the ratio of 'might be worth looking at' to 'definitely worth a look' is once again an order of magnitude.

So if we want to have just one idea that is worth pursuing then we should expect to generate at least 100 crazy ideas, thus our small company wishing to create 5 new products will need at least 500 crazy ideas. So far so good, but how do we generate the ideas? You could collect them in a suggestion box but the quality would be variable and it may take a while although the cost would be low. An idea generation session with a group of people could generate your ideas in less than a day. This would be more expensive and would only use a 'snapshot' of the expertise and knowledge available to you.

By now you should get the idea that we can roughly work out how many ideas are required, and how long this would take and the resources that would be used. Not all ideas make it to products so some extra redundancy needs to be built in, and then there are overheads such as management and the costs of prototyping and manufacture, but these should be aspects with which you are already familiar.

So there you are, a simple way of working out your Innovation costs. But hang on a minute, life is not quite that simple. Below is a list of other things that you might wish to consider:

• HR requirements (culture, motivation, working practices)
• Idea capture systems (how do you record ideas and avoid forgetting them)
• Knowledge transfer (what worked, what did not, avoiding reinventing the wheel)
• Feedback for improving all aspects of your process (including estimating costs!)

This is a simple guide but good enough to allow you to get some sort of handle on the cost of Innovation if you have never done anything quite like this before. Reality is a little more complex - good luck.

Innovation or Lean?

A recent article published on the Knowledge@Wharton website suggested that the philosophy of Lean could exist along with Innovation. After reading the article I have two questions:

1. Why would you want them to?
2. Why put Innovation into a box (like Lean or BPR) when an Innovation system has the ability to change and respond to its surroundings?

The article states "Lean has come to mean an integrated, end-to-end process viewpoint that combines the concepts of waste elimination, just-in time inventory management, built-in quality, and worker involvement -- supported by a cultural focus on problem solving. Can such practical principles be applied to innovation, or would lean's structure and discipline snuff out the creative spark that underlies the birth and development of great ideas? Can lean co-exist with innovation?"

The article suggests that Lean brings structure and predictability to Innovation without sufficiently defining Innovation. Innovation requires a framework within which we generate ideas, experiment and develop new products, services and processes. Such frameworks exist and also provide ways of measuring and monitoring Innovation. In that sense we have structure and predictability within Innovation so we do not need Lean also. The very definition of Lean also implies that the flexibility and adaptability required to change, either in times of crisis or to seize opportunities, may have been engineered out of an organisation.

Those who fully embrace Innovation will understand that Innovation systems evolve and fully embrace such aspects as new ideas of collaborative working, new leadership and organisational models, empowerment and customer engagement. These attributes are not specific to Innovation systems nor are they specific characteristics of Lean.

An Innovation system can exhibit Lean characteristics if necessary, but a Lean system cannot be truly Innovative since there is always be an intellectual overhead in an Innovation system and so the Lean system will become 'non Lean'.

Another contentious topic is that of separating idea from development. It is true that the mix of people that are required during the many phases of Innovation may change, but once more this is a characteristic of Innovation, that things change. In fact, idea and development must be connected. What if the technology to implement an idea does not exist and ideas must be generated in order to put an idea into production? Imagine the first time Silicon wafers were used to produce chips in large numbers. I cannot imagine that those who developed the chips were completely separated from those who developed production processes.

So if Innovation is an end to end process which provides a framework, is adaptable to changing conditions and which can be measured, why would we wish to consider Lean? One possible (and perhaps cynical) answer is that those who promote Lean would lose a possible source of revenue or that they simply do not understand Innovation - after all, it does have ambiguity built in!