Platt Perspective on Business and Technology

Keeping innovation fresh – 14: calculating in production and marketplace costs

Posted in strategy and planning by Timothy Platt on April 9, 2012

This is my 14th installment in a series on innovation, and on finding and developing paths to bring it to productive fruition within an organization (see Business Strategy and Operations – 2, postings 243, 246 and 248-253, 255, 257, 259, 261 and 264 for parts 1-13.) So far I have discussed issues of organizational structure for when a business maintains a distinct research and innovation center such as an industrial research lab, so that it can be effectively connected into the overall organization. I built that discussion around two case studies – one positive and one negative as far as transfer of innovation into production is concerned (see Part 2: Xerox PARC and Menlo Park and its continuation in Part 3.) I then began discussing the decisions process through which select innovations would be transferred from the lab and into production and for sale in a marketplace, going through a formally organized transfer committee to consistently, systematically manage this process.

At the end of Part 13: understanding the transition committee and its processes, where that set of processes play out, I stated that I would further refine my discussion of some of the core financial considerations that would have to be taken into account. And I begin that by noting a very simple and I add obvious set of points, which I will discuss for their implications:

• In the real world a business might have deep pockets and significant cash reserves that it can deploy in developing new opportunities. But it will still hold only a finite and limited reserve fund. And while some of those funds might be specifically earmarked for new business development, some will always have to be held back as a due diligence cushion for addressing challenges and problems too, in the event that they arise.
• And real world businesses also have finite and limited experienced staff and production capacity – limitations for all resources and resource types that would be needed, and both for maintaining current product and service production and distribution, and for bringing new marketable offerings into production and to the marketplace.
• Together, and taking the full range of human and equipment resources, cash available as immediately accessible liquidity and space to work in, this means making resource allocation decisions. That, I add, can even mean taking the calculated risk of cutting into current product production in ramping up for and producing for New with an innovation that has been moved ahead out of research – in effect gambling a partial stake in the immediate here and now for future reward and for long-term market strength and business capability.

The types of comprehensive, business context-based analyses that I refer to there are very important: no matter how bright the likely future of a new innovation, it cannot be developed into a marketable product, produced and distributed as if by itself in a vacuum. This will all have to take place in the context of the business’ current and ongoing activities that have been paying the bills and serving as a source of profits taken in – and that will have to continue to do so until this new innovation can reach cost/revenue break-even and even until it starts to generate profits in its own right too. And part of the potential downside that the liquidity reserve I cited above might also have to cover is the expense that can develop if for whatever reason this promising new innovation does not succeed in the marketplace and it simply generates red ink and loss.

And with this as a foundation, putting the implementation of a new innovation as future business into the context of current business, I turn to two bullet points I ended Part 13 by noting: the need to look out from the transfer committee in two directions.

• First in facilitating the transfer of insight from the market-facing side of the business back to the lab to help the people working there, develop and present the fruits of their labor in ways that would more readily and clearly translate into marketable products and services.
• And second, in reaching out to the market-facing, consumer-oriented side of the business to help them see the realizable potential of the innovations coming to the transition committee – which I add becomes particularly important for the potentially highest value innovations that would form the basis for blue ocean, marketplace creating opportunity.

When I write here of analyzing and assessing innovations coming to the transfer committee for their business potential and fiscal viability, I mean doing so in as full a context and with as wide-reaching an understanding of consequences as possible. And insight gained here has to be shared back to the research base through targeted, meaningful feedback as to business capabilities and marketplace needs as possible, so that researchers can develop their ideas more fully into practical forms. And this requires the transfer committee knowing the production side of the business just as well, and the marketplace and external context that overall business operates in too.

• A well-run and well-staffed transfer committee makes operational decisions, but every one of them is also a strategic decision too, and with long-term and even profound consequences for the business.

I have been developing this series in terms of in-house research and development centers. I have separately discussed crowd sourcing and in that regard I cite postings such as Crowd Sourcing and the Opening Up of Open Innovation and my series Crowd Sourcing, Open Innovation and Open Organization as posted at Social Networking and Business as postings 44-46 (among possible references.) One of the overriding benefits that a formal structure such as a transfer committee offers is systematization, so the right opportunities not be left to fall through the cracks and remain fallow, and so that the real costs and benefits be considered, at least as fully as they can be known when making innovation development decisions. Maintaining a focus on this type of organization as a source of positive value, I am going to turn in my next series installment to more open paradigms for sourcing innovation, first looking more widely within the overall organization to include insight and creativity coming from the production and market-facing side of the business too.

You can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.)

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