Smart Innovation: Innovation as a LOB or “Innovation as a Service”

Smart Innovation: Innovation as a LOB or “Innovation as a Service”

Successful product innovation is a bit like capturing lightning in a bottle. It is no different from creating a hit movie or a hit song. Despite its ethereal nature innovation can be run as a line of business. Make no mistake – innovation is a volume game – at bats matter. Below are six principles for smart innovation.

1.) Innovation does not have to be expensive. Gone are the days of spending millions of dollars to develop a new software product. Entrepreneurs may leverage AWS (rather than buying truckloads of servers) and open-sourced ML and AI services from Microsoft and Google – enabling the entrepreneur to focus on developing differentiated IP.

Micro-experiments can be executed for thousands of dollars – a fraction of the cost from 12-15 years ago. If you’ve read the book Moneyball you’re familiar with Bill James’ innovations around player evaluation. James’ innovations primarily required passion, curiosity and time, not large upfront capital investments. Software product experimentation today has more in common with low-cost efforts like James’ Sabermetrics than big, expensive software development initiatives from the 1980s, 1990s and early 2000s.

2.) Consider explicitly budgeting and reporting on “innovation” as a line of business. Budget items would primarily consist of people (base compensation as well as variable comp), 3rd party technology and fixed costs including real estate leases if you wish to lease dedicated space.

3.) Link innovation investment to output and pay for performance. Link innovation revenue, expenses and EBITDA back to the P&L. For example, the revenue line items in the 8-K may read: “Product Revenue” “Services Revenue” and “Innovation Revenue”.

  • Allow those employees who delivered (or that failed to deliver) to see their effort in the SEC filings (or internal financials if not a public company).
  • Reward employees/ new product project teams who drove performance.
  • Calculate ROIC for each new offering whether it was released to market or terminated prior to release.
  • If what I suggest is too transparent for your taste, capture the above internally but hold back on sharing publicly.

4.) Accountability drives results. What I’ve suggested creates a lot of work, both from a reporting standpoint as well as an operating standpoint. However, I suspect the extra work and transparency will intensify the level of focus required to produce great new products and services. Bright lights have a way of focusing effort.

5.) Embed innovation within the business units. Those people and resources dedicated to “innovation” should be part of and report to a particular business unit. They can’t be off on a desert island somewhere. They should be product managers, engineers, developers and marketers with domain expertise that can be leveraged across the product development/ innovation process.

6.) Innovate now. Innovation is difficult. Some innovations are happy accidents (the Slinky for one). The sooner you start the process the better. The number of at-bats matter. Innovation is a volume game.