ROI = KING*

Why not to ask for ROI at the front end of innovation.

*In French

The best way to destroy an innovative idea – and the motivation of an innovator – is to ask for the Return On Investment (ROI) if someone comes up with a new solution. How can someone who doesn’t even know if the idea will work understand what it’s costs and returns will be.

It’s tempting for business leaders, always looking for efficiencies, to evaluate business proposals based on their ROI. Innovations should also be looked at in this way. But not in the early stages, when the idea needs to be nurtured, to be given a chance to fail, to be adapted, to evolve, to grow.

There are more appropriate ways to evaluate early stage innovative ideas: qualitatively. In the first phase, it’s important to go back to the problem that needs to be addressed. I typically asked the innovator 3 simple questions:

1. What is the business and/or customer problem you want to solve? (example: pediatricians would prefer vaccines that do not cause injection pain, in order to keep children calm)
2. Can you briefly describe how the innovation would work? (example: a lightly vibrating tool used during injection will make that the child will not feel the injection pain)  
3. What potential value will the innovation generate for the business and for the customer? (pediatricians will chose our vaccine, as it uniquely doesn’t scare the children)

This helped me understand if the innovative idea is aligned with the business issues that the leadership team wants to focus on (or to see if the innovation can be adapted, so it will fit within the business priorities). It also helped to understand if question 3 is aligned with question 1. If all this is fine, then I  asked one more question:

• What are 2-3 key assumptions/uncertainties that need to be validated for this innovation to work? (example: 1. pediatricians will want to use the tool and 2. children will not cry)

The answer to this helped with the transition to the second innovation phase: experimentation. In that stage, those 2-3 key assumptions were validated or rejected, typically qualitatively: a fast, low cost way to learn fast or fail fast. If the assumptions were confirmed, then we looked at a ROI-kind of evaluation, before investing in a typically quantitative pilot. More on this in a future blog.

The first phase can typically be done in a few minutes, the second in a few days. Both evaluation phases are inexpensive. In this way, many innovative ideas can be evaluated. Innovators are not discouraged by having to spend a lot of time in preparing. The company doesn’t need to invest a lot (sometimes defined by non-innovators as “waste”) in the early stages of this innovation framework. 

As Richard Branson said:

“It’s a common misconception that money is every entrepreneur’s metric for success. It’s not and nor should it be.”

So, as Innovation Leader, I made every effort to familiarize leadership with this approach (framework), avoiding evaluation with ROI at the front end of innovations to “protect” innovations and innovators. 

More reading: 7 Mistakes to Avoid when Measuring Innovation

What do you think? Please share/discuss below!