Does Return on Investment have its place in an innovative business culture? by Chloe Avril

It is virtually impossible nowadays to have a 10-minute business conversation without the words “digital transformation” coming up. Whether one sees it as a passing trend or truly appreciates the imperative of changing the way businesses operate, there is no denying that digital disruption is on everyone’s lips. And businesses that truly want to transform and “digitalise” will have to focus on creating a strong culture of innovation, where failure is accepted and new ideas are explored with an open mind. 

Most businesses are aware of this and recognise the imperative of “disrupting themselves” before the outside world disrupts them. However, anyone who has tried to lead an innovation programme in a large company will have witnessed a blatant contradiction. In order to receive funding, our traditional organisations require an estimate of the Return on Investment (RoI). How much is this idea going to earn us or how much is it going to save us? This leaves innovators in the uncomfortable position of having to argue for a project that has potential, but no quantifiable RoI. Without a clearly defined RoI, most projects don’t receive funding, making it impossible to foster a culture of innovation and discouraging any potential disruptors from putting themselves “out there”. 

But consider this: If Jeff Bezos had been asked to produce a business case for launching Amazon, is there any way he (or anyone) could have predicted that it would become a $1 trillion business, selling goods and services across all markets, as well as a publishing company, a film and television studio, a producer of consumer electronics, a grocery store and the world's largest provider of cloud infrastructure services? The beauty of innovation is precisely that it opens a door of opportunity and potential that goes beyond what we can imagine through our common-day lens.  

In order to truly encourage bottom-up innovation, businesses need to radically change their current mindset and accept that RoI is incompatible with innovation. Leaders and decision-makers must stop making investment decisions in the same way they did 20 years ago, when they were offshoring, outsourcing or globalising. Especially in the initial stages of culture change, when a business is trying to create and foster a culture of innovation and controlled risk-taking, it must take its eye off RoI and focus on the message it is sending to its employees by allowing them to “waste” money to experiment with new ideas. Innovating is about investing in options, in the idea’s potential. By definition, it is impossible to quantify the RoI of something that isn’t fully fleshed out. Because innovative ideas are new and disruptive, the financial impact of innovation is rarely quantifiable upfront, it grows over time as the idea develops and is applied to various business issues.  

Furthermore, continuing to apply old-fashioned profit and bottom line metrics to innovation investment effectively stifles innovation and product development. In a culture of innovation, emphasis should be placed on developing the product, not calculating the likely financial impact it might have. If the product fails, then the business has gained a valuable insight: the idea wasn’t particularly disruptive after all and there is no need to worry about it. Should the idea succeed, then the product will likely have been worth the investment, removing any concern about RoI. Either way, a business has nothing to lose in exploring disruptive and innovative ideas without worrying about RoI, it is a win-win situation, whatever the outcome. 

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Chloe Avril has 13 years of experience working for Big Four consulting firms. In this time, she has delivered a number of business transformation and innovation programmes.