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Business Creativity & Innovation

The Cost of Ideas

The cost of ideas

What normally happens when people come up with bright ideas at work? A manager will typically calculate the cost of implementing it. This cost will then be balanced against the value potential of the idea – usually additional income from increased sales or reduced operational costs. The more creative an idea is, the harder it can be to determine the value in monetary terms. Many potentially very exciting ideas are not implemented simply because a manager has decided that to do so would be too costly.

While such managers are excellent at working out the cost of implementing an idea, they often fail to calculate the cost of NOT implementing an idea which can often be far more than the cost of implementing.

How much does it cost not to implement an idea? Here is a simple example where an idea might lead to cost savings on a production line. The cost of the idea in terms of equipment and labour is USD500,000 and is a one off cost. As a result of this, the cost of manufacturing each widget that comes off your production line is reduced by USD5.00. Your Sales department tells you that you are currently  making 100,000 widgets each year and that sales are expected to rise 10% per year over the 5 year life of the equipment.

Simple maths tells us that the cost of not implementing the idea is zero in year 1 and then USD500,000 in year 2. Over 5 years the cost would be over USD2,300,000 which is significantly larger than the initial investment needed.

Things are not always this easy though. Imagine that one of your R&D staff has come up with a pen sized device that can see through solid objects with potential applications  in medicine, construction and intelligence gathering to name a few. To get such a device into production might cost say USD50,000,000 but how can you predict the sales potential of such new technology and also keep it secret from your competitors until launch? The potential seems huge but you cannot put your finger on it.

We know that ideas do not spring from single sources and it is likely that a competitor will come up with a similar idea at some point. What will they do? Will they develop the idea and create a new product? What will happen, will it be a success? If it is then you lose out big time in terms of cash. But what about your reputation?

The cost of not implementing an idea might be both financial and long lasting damage to your reputation and brand.

Does anyone remember Polaroid? Polaroid was the word that described instant images. The company failed to keep pace with digital technology and almost went bankrupt.

Next time an idea is put to you, think very carefully about the cost of not implementing it as well as the actual cost of implementing it.

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