Innovation, flops and experimentation
To understand how ROI prevents innovation from flowering you need to understand innovation. When we try something new and it bears commercial fruit (that is to say we find a market for it and make money) then we call that innovation. The other side of the innovation is the flop – ideas, products, services that fail to find fertile ground and flower. The process that results in either innovation or a flop is experimentation: trying out something new.
We can sum that up by saying that experimenting is the process of trying out the ‘new’ and this process generates both flops and innovations.
What happens when you ask the ROI question?
When your boss asks the ROI question he is asking for certainty – he wants to minimise his risk of loss. Yes, he is asking you for a guarantee that the course of action that you are proposing will produce a predictable outcome – success (innovation) and not failure (flop). How can you meet his demand given that you cannot predict the future especially if what you am proposing is something truly new? Here are the courses of action open to you:
a) Ditch the radical (new) ideas and suggestions and instead go for safe ground – brand extensions, product enhancements – in short, incremental changes to what exists;
b) Do lots of research (including trials) to support your proposal and hope that this will convince your boss and protect you if the experiment delivers a flop and not an innovation.
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The problem with the first course of action is that it kills the process that delivers innovation and the source of future revenues and profits. The problem with the second approach is that it is costly, it introduces significant delays, the majority ( some 70%+) of new products fail despite all the time, trouble and cost associated with the research: remember New Coke?
A smarter way to think about and deal with the ROI question
What if we let go of evaluating each proposed Customer Experience initiative on its own? What if we bundled Customer Experience initiatives into a portfolio such that the risk of the radical proposals (leading to either innovation or flop) was offset by the predictable returns of the safe, predictable, proposals? If we were to take this approach then we would be doing what the professionals (VCs) do. They invest in a portfolio of companies knowing full well that some of these companies will deliver huge returns, some will flop, and others will give meagre returns.
My advice to those asking for funding for Customer Experience initiatives and for those making the decisions on whether to give the funding is to take the portfolio approach. Why? Because it enables the experimentation process that delivers innovation whilst managing the risks associated with flops.
What do you think?