You know that innovation is something new that creates value.

(But not too new)

Sometimes the value can be hard to describe, let alone quantify. You know that, ultimately, the value needs to be financial – more revenue, lower costs, higher profit. You also know that the value created in the short term will likely be more intangible – increased satisfaction, improved brand perception, and greater loyalty.

Your challenge, especially in tough economic times, is to tell a story that connects success indicators seen in the short term to the financial returns realized in the long term and maintain support and funding as the story unfolds.

That is a HUGE challenge! One that overwhelms most managers because they don’t know where to start let alone how to maintain support and momentum.

But you are not “most managers.” You know that the best place to start is at the beginning.

What is the Goal of Innovation (i.e., why are we investing in this)?

Goal #1: Create (or keep) a competitive advantage

Innovation is essential because it keeps you ahead of the competition.

Your business is already a leader in something that creates a competitive advantage, and your innovation efforts focus on keeping it that way.

For example, imagine you’re the President of Big Machine Co (BMC). You’ve been in business for decades in an industry with commoditized products, few competitors, high barriers to entry, and medium barriers to switching (i.e., it can be done, but it’s a pain). 

You know that customer relationships and loyalty are the fuel that drives your business and why you’re #1 in the market. As a result, you focus your innovation efforts on creating new products or services that deliver unique value to your customers and provide easy and fast resolution to service issues.   

Goal #2: Avoid (or overcome) competitive disadvantage

Innovation is essential because it keeps your business alive.

Your business is falling behind the competition either because you’re not keeping up with their pace of innovation or because you’re failing to deliver on table stakes like quality, price, or accessibility. You invest in innovation to catch up to the competition or regain your place in customers’ consideration.

Let’s go back to Big Machine Co.  Because of the amazing growth you achieved as President, you’re now CEO (congrats!). The new President continued your innovation strategy but got so excited by everything new he forgot to pay attention to the “old” things – existing products, manufacturing capabilities, and people. Now, you’re #2 in the market and losing customers at a concerning rate.

It’s time to get back to basics and invest in “new to BMC” innovations by creating products that customers want and competition can already offer, investing in manufacturing equipment and processes that improve efficiency and quality, and retaining people who have the knowledge, experience, and relationships that are the heart of the business.

Goal #3: Build a reputation for being innovative

Innovation is essential because doing it makes the company look good (and executives and shareholders feel good), regardless of whether it produces results.

Your business demands innovation, new news, and big splashes. Your customers want novelty, not perfection. Image is everything, and perception is reality. You invest in innovation to show what’s possible, provoke conversation, and stay in the spotlight.

Believe it or not, this is on your mind as CEO of Big Machine Co.  Your customers demand perfection, not novelty, but they need to shed the perception that they’re boring companies in a boring industry moving at a glacial pace to attract and retain the next generation of talent. You can help.

You look beyond the market to identify trends and technologies in the news but not yet in your industry. You identify the ones that could transform industries and make your customers’ eyes light up with wonder and excitement. You create proof of concept prototypes that make the vision tangible and discuss the plan and timing of the first step toward that vision.

How to Goal Helps

Your reason for innovating informs everything else – your strategy, structure, activities, metrics, and governance.

That is why you can only have one Why at a time.

Yes, it’s tempting to try to do a bit of everything, but that often results in achieving nothing.

Think back to Big Machine Co:

• If the products break, don’t perform as they should, or aren’t available when needed, it doesn’t matter how excellent the customer service is or how cool the new products are. You must achieve Goal #2 (avoid or overcome competitive disadvantage) to earn the right to pursue Goal #1 (create or maintain competitive advantage)
• If the products are the right quality, perform as expected, and arrive on time but the customer service is poor, and there are no new products, it’s hard to believe that a company that struggles to deliver incremental innovation can deliver on a radically innovative vision. You must make progress against Goal #1 to have permission to pursue Goal #3 (build a reputation).

The next time you face the challenge of connecting your innovation’s short-term success indicators to the long-term financial returns and maintaining support and funding, don’t be overwhelmed.

Go back to the beginning and explain, “It achieves (Goal #) so that we earn the right to invest in (Goal #).”