On the Importance of Innovation Value Estimation

The definition of innovation entails the concept of changing existing ways of working and added value it brings. The discussion on the topic is very much concentrated on the change aspect on either products, processes, services leadership or strategy. If we forget to get the estimated value in the focus of innovation work we are endangered to lose it all.

A company searches for value in everything it does. In our research we have collected data that innovation work in general has a ROI from 20 to even 400%. This figure is surprisingly lucrative since the average ROI for M&A is only at about 25%. The problem is that innovation work too often lacks this kind of measures and estimates on profitability.

I had a customer complaining about investing into an innovation project that had 50% change of making significant ROI (75%). The customer argued why he should invest into something so insecure when he simultaneously had an investment project that was 100% sure to bring the ROI asked for. We analyzed the investment project immediately with same approach as the innovation, and were able to conclude that they would reach their “100% sure” ROI target with the certainty of less than 5%!

Innovation work is often considered to be close to R&D. This means that the projects are in their infancy regarding the evaluation of their business potential. It is very difficult to predict value of innovations that no one is so sure of what they will be like. On the other hand, if we are not able to do this, we endanger the projects to be cut off due to budgetary reasons. Despite the difficulty of innovations’ value potential estimation it needs to be there. Otherwise the work has no monetary backup and it will be offered in the name of efficiency. And very often this is a mistake.