Platt Perspective on Business and Technology

Building a “free” contingency fund to innovate new best practices from

Posted in strategy and planning by Timothy Platt on November 10, 2011

I have written about lean, efficient, competitive organizations and about developing and maintaining competitive advantage from that. See, for example, my series Virtualizing and Outsourcing Infrastructure as listed on my directory page Business Strategy and Operations (postings 127 and scattered following.)

My goal in this posting is to propose a somewhat novel, but relatively easy approach to funding innovation prototyping and testing, in finding and implementing change that would create and sustain marketplace strength and competitive advantage for a business. And what I will propose here is both a process, and a way of thinking about business efficiency.

• Start out by looking for bottlenecks and inefficiencies in your business, and with open eyes and an open mind.

The most important criterion for judgment here is in impact on the top and bottom lines, and on cash flow and cash available – the financial impact of change and of issues and problems that would call for it. That can mean places in your system where sales or other business opportunities are lost. That can mean places where resources are lost and wasted or at least inefficiently used which means waste too. The list of possibilities here can in fact be very large and for any established business or organization.

• What is the cost of an inefficiency under consideration?

The key issue here is “compared to what?” The real proof validating that you are facing an inefficiency in need of change is where you see an alternative that would expand available monetary or monetizable value by costing less, by reducing risk or by both means.

• What is your best estimate of the savings and increase in overall value that making a change to this alternative would bring?
• That specifies a calculated breakeven point for the monetary value you can invest in prototyping and testing out a proposed innovation. Think of this as leveraging the potential for systems and process improvement to support overall cost-free change. If testing out and carrying through a change costs you less than the price paid for maintaining the inefficiency, you gain some positive amount in your books.

The basic underlying assumption here is an ability to flexibly shift monetary resources and costs from one area of the budget to another as a means of optimizing cash flow to meet business needs. And this should be done in accordance with generally accepted accounting principles (GAAP).

When I noted at the start to this posting that I was writing about a way of thinking about business efficiency and change I had a set of interrelated points in mind.

• Processes and practices, and the elements that feed into them and come out of them cannot effectively be viewed as if isolated in a vacuum. At some point you have to look at how all of the pieces fit into your business as a whole, and about their impact at that level.
• Innovation and the selection and implementation of change should be looked at this same way.
• Bottom line, innovation is positive where, and to the extent it brings positive monetary benefit to the organization as a whole – and an argument in favor of making an innovative change that is couched at that level offers compelling justification to try it.
• And effective innovation can pay for itself. True, there can be lags and delays in this monetary return and real befit might be more long term but good innovation is always cost-effective – and at the level of the organization as a whole.

You can find this and related postings at Business Strategy and Operations – 2 and also at the first page for this directory: Business Strategy and Operations.

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