IT’s New ROI: Return on Innovation

November 14, 2019

Originally published by CIO

CIOs struggle to temper business expectations of 100 percent innovation success with the realities. Here’s how to foster a healthy innovation outlook.

After years of leading Colliers International through its digital transformation and dealing with the pressure to create new business solutions quickly, CIO Mihai Strusievici has come to a troubling conclusion: “We can create applications very fast, but our business partners may have expectations that if you do it fast, that you also got it right on the first attempt,” Strusievici says. “Iteration is harder to accept than one would believe.”

As the global real estate services company continued to advance its business strategy, business leaders keep pushing for the same agility from IT. But the team faced challenges when innovation was taken from theory and into practice. Business leaders have grown frustrated with what they consider to be half-cooked ideas, and that worries Strusievici. “I don’t know if the [internal conflict] will emerge as creative energy, or if it will bring [innovation] to its knees out of fatigue.”

He’s not alone. It’s just one of many challenges that CIOs face when measuring the new ROI — return on innovation.

CIOs are being looked to more than ever to create business solutions that add revenue or business value, and this is creating a need to get returns on pilot projects at a faster, more conspicuous rate.

IDC predicts that by 2022, up to 80 percent of revenue growth will depend on digital offerings and operations. This bolsters the perception that there is little or no wiggle room when it comes to project failure or apparent tolerance for the quick and simple.

Turf wars and scaling challenges

Scaling innovation — from idea to pilot, to business case, and then to phased implementation — is exceedingly difficult, even for the most experienced organizations. According to a 2019 KPMG report on benchmarking innovation, 60 percent of the executives responsible for innovation, R&D and strategy cited competing priorities as being one of the greatest challenges in scaling innovation, and 59 percent said that company culture was another key challenge.

“We still see culture and entrenched attitudes as a problem when you’re trying to scale beyond the micro to macro,” says Steve Bates, principal and leader of KPMG’s CIO Center of Excellence.

A small innovation group can afford to look out through a lens of three, five or 10 years, but when you actually try to take that step and make it real and scale it across the enterprise — that’s where the challenges lie.

A venture capitalist mindset

“The problems that I’ve seen with innovation is, we look for ROI in every single project that we try to innovate,” says Satya Jayadev, vice president and CIO at Skyworks, maker of high-performance semiconductors. “You need to have a venture capitalist mindset, especially when it comes to innovation. The company needs to say, ‘I need to invest in 10 ideas, and even if two of those succeed, it can benefit the company.’”

Jayadev tries to change his organization’s mindset by measuring return on innovation using three non-financial metrics: how many innovation projects did IT bring to the table, how many of those were chosen for a proof of concept (PoC), and then how many of those PoCs went into production. In FY2019, out of all the solid ideas that the IT team brought to the table, 60 percent were brought into PoC, and 40 percent were converted to production. Jayadev shares these metrics with business leadership to show the value of innovation across the business.

Although non-financial metrics are sometimes considered too soft to be significant to the C-suite, KPMG believes they can also give senior leadership a sense for the innovation team’s momentum and activity level, how its work is influencing the corporate culture, how quickly it is getting new products and services to market, and how outside perception of the company’s offering is changing. Some organizations even measure the number of learnings or insights generated by fledgling ideas.

Having business relationship managers embedded in business units has also been a big help in providing better communication and more realistic expectations, Jayadev says.

Tips for scaling up innovative solutions

While no single approach fits all scenarios, KPMG suggests several steps to improve communication and speed up scaling of innovative solutions.

1. Continuously validate and broadcast success

Those who successfully innovate do a really nice job of “going small to go large,” Bates says. They take a hypothesis and work on the smallest executable step. They continuously validate and broadcast that success back to the stakeholders. “The breakthrough comes from when they work in very small chunks and they demonstrate value against this larger investment continuously.”

2. Learn to test cheaply and quickly

One way that innovation teams can prove their value is by developing the capability to experiment and capture learnings faster and with less expense than other parts of the organization. The ability to test, learn and iterate was mentioned as one of the key enablers of success by respondents in a KPMG study. In many cases, these early tests can capture data that helps attract more funding.

3. It’s OK to kill an idea

Attempting to do too much can result in nothing having a significant impact, according to KPMG. It’s OK to put a stop to projects that lacked senior executive sponsorship or that caused staff to stop supporting core business needs. Failure, however, is often perceived differently by different groups. Corporate executives often view failure as something bad, while innovation teams believe failure is the best thing that can happen because it can help you get on to the next idea.

Give business techies a stake in development

Strusievici is examining the concept of citizen development where he would reach out to all the technical people who reside in business units — “those who create monster Excel spreadsheets or elaborate databases or systems under their desks,” that would traditionally be chased down as shadow IT — and invite them into a more formal development process.

“The idea would be to bring all this workforce in our platform and try to put some governance around it and next-level scalability to the whole development process,” he says. Perhaps “a low-code development platform that will enable them to create a certain level of solution that is acceptable to everybody,” Strusievici says.

The concept could potentially scale up the number of people capable of producing digital solutions, speed innovation and infuse the business with technical software development knowledge, he says. “People will actually start talking the same language.” There are certainly risks, too. There may be an explosion of digital solutions that would be very hard to manage. The platform and the governance may not be enough to ensure that all these pieces of software are secure, or too much time will be spent in apps development and taken away from the business functions, he says. “It is unchartered territory, and we must approach it with caution and be ready to pivot from the original plan, as needed.”

Perhaps most importantly, “It’s going to increase the confidence, and I hope, the acceptance to less-than-perfect solutions,” Strusievici says. “Now [the solution is] coming from insiders rather than from just the IT group.”

Deep cultural change required

It’s no surprise that technology-focused organizations are more often open to change and new ideas than more risk-averse organizations. For the latter, changing the innovation mindset will require deep cultural change. “It may just come through attrition and retirement of traditional thinkers, and a new generation of workers who have a much bigger appreciation and understanding of creating business software,” Strusievici says.

Part of the culture change, successful innovation teams change how people are measured and they provide space for people to innovate, Bates says. “Innovation needs to be part of your day job, not just nights and weekends. As people begin feeling freedom to innovate, then they have to reward it, typically not through compensation, but with more time to innovate (30%) or more seed funding (22%).”

While some organizations may push for more tolerance for failure, explaining that it’s OK to fail fast is not something the organization is ever going to understand or embrace, according to the KPMG survey. What were considered enablers of success? Support from leadership, crafting the right strategy and vision for the innovation initiative, and assembling a team with the necessary skill sets to deliver on that strategy.

Bottom line: The longer an innovation program survives, and the more it shows it can deliver value, the more the broader company culture accepts it as an ally, rather than an adversary.

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