Disruptive Innovations are Expensive

4 Mar 2017 Sandeep Mehta

Companies around the globe pursue breakthrough technologies to grow. Surveys show that executives remain dissatisfied with the return on innovation investment.

The article Source: The big costs behind Google’s moonshot start-ups provides some useful data.

The debate among tech analysts isn’t about whether the moonshots will lose money, but rather how large the losses will be. Estimates cited in a recent Wall Street Journal article range from as little as $500 million in operating losses to $4 billion a year — and separately, one analyst, representing the “high estimate on the Street,” has placed a $9 billion price tag on Google’s far-flung efforts.

We have discussed that generating and maturing innovation is hard. Managers have to provide the right environment so ideation can occur.

Once we have breakthrough ideas, we need to enable a culture that can sustain innovation and encouraging risk taking necessary to mature and deliver innovative products.

One approach is to set up a separate organizations structure focused purely on breakthrough ideas. Separate organizations ensure that the focus on maturing breakthrough idea is maintained. They can somewhat protect against not-invented-here mentality or the valley of death. However, spinning out organizations does not address investors’ need for predictability.

The biggest difference between Google and Apple is that it’s very clear what Apple’s business model is both today and tomorrow, and investors have a lot of clarity about how Apple’s individual product lines are performing, said Jan Dawson, chief analyst at Jackdaw Research.

As we have discussed in the past, disruptive innovations from an existing business are not viewed very favorably by Wall Street. So, what is a possible solution? Ensure that the breakthrough technologies have synergy with other product-lines and that there is a path to reuse at least some of the ideas developed. This is hard to do if the technologies are being developed in a completely separate organization, but there are frameworks and approaches that can help.

Another approach is to have multiple off-ramps for commercialization of technologies at intermediate milestones. Effective plans, roadmaps and metrics are key to making disruptive innovation successful. InspiRD’s tools can facilitate this complex process.

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