Driving Higher Value and ROI on Growth and Innovation

By: Rob Mann

North Highland surveyed more than 200 senior business leaders about their growth and innovation (G&I) experiences. The results—presented throughout this report—spotlight the most prevalent challenges and their perceived impact on G&I returns.

“Someone, somewhere in a garage is gunning for us,” Google’s Executive Chairman, Eric Schmidt, is fond of saying. 1

Although disruptive innovation receives high-profile press and mindshare in business discussions, there is a much bigger and more common threat to realizing greater ROIs: an inability to address internal innovation failures that cut into growth and innovation (G&I) results.

G&I remains one of the most common and consistent strategic priorities amongst executives. Yet growth and innovation are tough by their very nature, as they entail risk, uncertainty and failure. Superior G&I results continue to be elusive as change comes at an accelerated pace from traditional and non-traditional competitors and sectors. However, our experience and recent research suggest that many of the most persistent causes and drivers of sub-optimized ROI come from within companies themselves.

By tackling their internal challenges and optimizing well-founded business strategies, organizations are capable of producing greater value, more competitive versatility and significant results. Conservatively, we believe that leaders can create a 10 to 30 percent improvement in realized or captured value from their G&I portfolios simply by solving for the most common and negatively impactful failure points. This represents a $100- $300 million improvement on many companies’ multi-year innovation portfolios.2 Additionally, if leaders stretch their targets, companies can realize multifold increases in G&I results.

Building on our experience leading clients through their own challenges, we researched the latest G&I challenges and resolution paths. We identified seven failure points—some acknowledged and well understood by growth and innovation leaders, others less obvious—that can be remedied through purposeful intervention led by corporate executives. In this piece, we shine a light on those G&I challenges, both established and emerging, in order to empower organizations to take control of their future as they proactively enhance returns on their G&I efforts.

Innovation Failure Point #1: Disconnected Valuation

You’re insufficiently aspiring, translating and stretching business strategy and financial goals into G&I contributions over time.

The Challenge

  • 83 percent of executives believe they could improve the way they value G&I to better forecast and understand options related to intangible and market value to be captured.
  • 72 percent of executives report that this deficiency negatively impacts their G&I performance and business results.
  • 47 percent of executives believe there are disconnects between their business and innovation strategies and the porfolios/roadmaps intended to deliver business results.
  • 87 percent of them indicate that the disconnect is adversely impacting their performance and business results.

The Solution

  • Link strategy and G&I portfolios/pipelines.
  • Proactively manage pipelines to achieve investment targets that deliver G&I’s contributions.
  • Acknowledge that traditional models don’t sufficiently value G&I.
  • Employ a combination of approaches to triangulate on a range of potential G&I value.
  • Proactively and entrepreneurially manage value capture and monetization options over time.

Aggressive growth plans coupled with anemic G&I portfolios are not uncommon. Too often, they are woefully disconnected, significantly limiting an organization’s ability to identify new opportunities to capture greater G&I returns. But alignment alone is not enough. To make the appropriate linkages, organizations must first identify the myriad of G&I value sources and then accurately value each.

Valuing innovation assets—from core technology platforms and unused technology to superior design and innovation byproducts—is hampered by traditional methods. To truly value G&I assets, a triangulated approach is needed in most companies to generate a range of potential values that can guide G&I investments over time. Thereafter, companies need to manage timely value capture and monetization instead of just making periodic investment bets with the hope of getting an eventual payoff.

While introducing the rigor of linking business and G&I strategy to portfolios, consider using two to three valuation methods to triangulate the true value of your G&I assets:

  • Traditional financial metrics: NPV, ROI, IRR, payback, etc.
  • Market-to-book analyses (e.g., Tobin’s Q)
  • Negotiable value capture (NVC)
  • Intangible valuation and comparable ratio analyses
  • Platform options value (“PlatOps”)
  • Opportunity cost and G&I asset recovery

Case Study

A major consumer packaged goods (CPG) company had pushed its innovation portfolio to rack up $1 billion in sales with a big box retailer. Unfortunately, it failed to backfill its innovation pipeline. The growth targets promised to Wall Street weren’t matched with a similarly aggressive innovation strategy. Its business strategy, G&I metrics and project portfolios were disconnected. The outrage was heard far and wide: Executives were fired, while shareholders and stakeholders loudly protested the mismanagement.

The new leadership team sought to rebuild stakeholder confidence and revitalize the G&I portfolio. They split expected profit contributions across G&I, cost reduction and other investments to pinpoint how they’d deliver against committed profit targets. Further, they aligned around key growth priorities (e.g., target markets, brands, science) and identified the types of G&I needed to drive future business (e.g., product, business model, process, etc.). The project pipeline was analyzed for its ability to deliver growth against three categories—transformative, breakthrough and incremental G&I—enabling leadership to assess the financial potency, risks and likelihood of meeting financial and strategic goals.

G&I platforms and a rejuvenated project portfolio were purposefully designed to deliver financial goals and market objectives. Priorities were translated into assigned project resources to mobilize operations with purpose. Not only was the company more confident in its ability to deliver its strategic and financial goals, but the clear G&I agenda demonstrated to key customers how its invigorated portfolio would translate into better sales on customers’ retail shelves.

To view the whole report and learn more about common innovation failure points, click this link or “Download” at the top of the page. 


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