How to make innovation create profits?

Senior managers from all walks of life are trying to find new sources of income from the organizational structure of enterprises. On the one hand, they pursue more innovations and more achievements-immediate results; On the other hand, they are also worried about whether these efforts can bring performance growth and profit margin improvement to the company. For example, in many cases, the company increased the expenditure of scientific research funds, but the China Bank's online marketing of debt-paying assets made the return on investment unable to receive obvious changes. The crux of the matter is that innovation is an act, not just an idea. Many people believe that just having good ideas can win, but they are wrong. Successful innovation-innovation that can create profits is based on a series of actions that can turn creativity into cash flow. We call the process from innovation to income-generating returns ITC (innovation to cash) process. This process goes beyond the limitation of organizational structure and puts forward many difficult choices. ITC process needs to be well organized and managed, otherwise it will have a destructive impact on the company, such as loss of profits, waste of resources, slow growth or zero growth. For management, the real challenge is not to "link" the discrete steps of ITC with functional decision-making, but to establish a strict system to evaluate and manage various trade-offs within the process. Evaluation and management must be continuous and run through the combination of different innovative behaviors, which requires not only good function transfer ability, but also real cooperation spirit and problem-solving ability. Managing the "cash curve" Although there are many uncertainties in innovation, we can still obtain various possible results of managing the whole ITC process in different ways through the innovative "cash curve". The cash curve describes the cumulative cash investment and return of innovation from initial development to withdrawal from the market (see figure). Managers' decisions can affect the shape of cash curve and determine its dynamic development direction. Therefore, managers need to understand and discuss how to push the whole curve to move by "pressing" a certain position horizontally or vertically, and how other behaviors will help or hinder this movement. Innovation is an act, not just an idea. Many people believe that just having good ideas can win, but they are wrong. For example. A manufacturer tried to develop a new product. The company has its own manufacturing plants and strong design strength all over the world, and is very familiar with the customer base. In that case, why share the profits with others? So the company decided to develop its own products. However, because the product is a breakthrough innovation, the factory needs to reinstall some tools and master new key R&D functions, and the market and start-up costs are much higher than ordinary projects. In addition, the new technology required by the product will prolong the research and development time, and the customer's unfamiliarity with its application will also prolong the market penetration time. If all these factors are taken into account, the cash curve brought by this innovation does not look so good. Companies can also influence the cash curve in other ways to bring products to market. For example, can we share risks and accelerate market penetration by "coordinating" ITC processes? There are many ways to "coordinate": for example, buying some key technologies instead of developing them themselves, focusing on design and market; Another example is to let other enterprises be responsible for production and logistics. In fact, there are three basic ITC processes worth considering: integrator, coordinator and licensor. These three methods have their own advantages and are suitable for different enterprises, situations and innovative projects. By carefully simulating the different effects of different choices on the cash curve of innovation, managers can better understand the related role of value drivers. At the same time, this method provides a mechanism for asking risk questions. For example, a successful coordinator or a successful integrator, which image is more in line with the culture of our company? In addition, this method is the basis for managers to discuss the management intervention needed to reduce the risk of failure. For example, can project management help coordinate supplier relationships? Does the company need to strengthen intellectual property management? Can promotion build a good reputation and accelerate sales? These questions are often never asked, let alone answered. Innovative financial analysis is quite common, but it is rarely combined with the viewpoint of dynamic cash curve. We believe that this analysis should be combined with strategy and implementation. It can distinguish the development of another unreasonable product or service from profit. It provides a tool for top management to describe and evaluate financial risks, market risks and technical risks. It also provides a platform for decision makers to better weigh and break compromises. Not one curve, but many. Of course, making innovation create profits is not just a simple matter of managing the cash curve. Companies need to take sustained attacks, large and small, in order to achieve sustained growth. This means that we need to seriously deal with a set of innovation portfolio, at the same time clearly combine investment with overall strategy, and ensure that someone is fully responsible for the performance of the whole process. Inject new vitality into the portfolio In order to get more returns from innovation expenditure, management must successfully handle a set of cash curves. They must decide the reasonable balance of expenditure from a series of innovative behaviors. These behaviors include: maintaining projects (maintaining market share), increasing projects (seizing market share) and breaking through projects (entering new markets). In the current competitive environment, which combination is correct? where do you want to be? Where should you be? What will you get in that position? So, how do you arrange resources and more important employees according to different priorities? Of course, no one can do all this. Managers must make strict trade-offs regularly to maintain the ideal portfolio balance. Many times, the company let the "walking dead" (a long-overdue project) live for too long. On the contrary, some profitable projects are in trouble because of lack of resources. Under the banner of "balance", "fairness" and "betting on both sides to reduce losses", every company faces the problem of poor projects, which is also the most controversial issue. In reality, it often happens that a manager puts too much energy into a project to accept its failure. The cash curve is like a magnifying glass, which can make people see clearly some projects that will never pay off. There are still a few projects, each with greater return potential and faster growth trajectory, which should be the goal of companies in any industry. Connecting innovation and strategy The decision on innovation is related to the future of the enterprise and determines its cash flow and competitive position. However, enterprises often adopt a basic laissez-faire approach to manage innovation, rather than explicitly linking it with corporate strategy. Capital investment and talent investment (usually rarer and more valuable than money) are usually based on budget rather than strategic goals. There are many ways to "coordinate": for example, buying some key technologies instead of developing them themselves, focusing on design and market; Another example is to let other enterprises be responsible for production and logistics. In fact, there are three basic ITC processes worth considering: integrator, coordinator and licensor. These three methods have their own advantages and are suitable for different enterprises, situations and innovative projects. Like all important investments, innovation needs a clear goal and is closely related to it. This requires a clear understanding of where to innovate and to what extent. We must know whether innovation can be realized within the company or whether we must seek external help. Choose appropriate strategic methods, such as fast followers or market leaders, to adapt to different environments and goals. It is necessary to understand that different types of innovation require different inputs, such as breakthrough innovation, gradual innovation or sustained innovation, and make them match the overall strategy. The most important thing is to take the risk of failure and make every effort to succeed. In addition, companies need to accurately judge when and where to adopt what innovative methods. The three ITC methods represent three different ways of risk sharing and cash flow. Therefore, the choice of methods is very strategic and worthy of in-depth study. However, in reality, even if enterprises consider making the choice of methods, they only make a rough consideration. Although many leading enterprises are using these three methods at the same time, more enterprises need to learn how to do it. Clear responsibility lies in many enterprises, no one "owns" innovation, and many people are also responsible for innovation. This usually means that no one is really responsible for the "cash" part of innovation. ITC must have the same culture as other processes, and someone needs to be responsible for it and evaluate it. If an enterprise regards income generation as a serious task, it is very important to clarify the responsibilities and rights in the ITC process and clearly understand the current operation situation. However, it is impossible for us to manage things that cannot be measured. Innovation is often regarded as something that can happen at any time, and trying to track its development is often regarded as useless or a restriction on creativity. Management usually uses one or two easily measurable figures, such as the company's default revenue growth, to evaluate things. The evaluation requirements of ITC process are very strict. It needs to establish a detailed evaluation scheme, and carefully track and evaluate factors such as time, personnel and cash according to the classification of projects and products. In addition, it is also very important to evaluate the performance of the process itself (such as comparing the time to market with the market benchmark, etc.). ). Is the performance of the process consistent with the design expectation? Finally, the analysis of key data such as new cash flow, market share of new market segments and entry of real new market can provide important auxiliary information for decision-making. Finally, it is very difficult to evaluate innovation, and no evaluation index will be perfect forever. However, if an enterprise wants someone to manage and take charge of the process of the International Trade Center, it should evaluate the performance of the International Trade Center. It should be pointed out that we are not denying ideas and creativity, they do play a role. But ideas are not innovation. We hear too many managers talk about their grand ideas, but at the same time complain that they can't profit from them. Enterprises must make a basic choice about their own innovation efforts: whether to pursue innovative behavior or become an innovative enterprise. After all, the two are worlds apart. The former has created many great ideas but can't use them to generate income; On the contrary, innovative enterprises use their ideas to create competitive advantages, excellent shareholder returns and cash flow. Such enterprises are rare and often different.