One of the primary questions that arise from beginning any innovation effort is, “What is the #return on investment (#ROI)?” It is important to be able to demonstrate that innovation has a positive ROI. To do this you must develop credible calculations based on sound financial principles.

ROI is a performance measure used to evaluate the efficiency of an investment. To calculate ROI, the return or net profit derived from the investment is divided by the total resources that were invested (the initial investment plus any subsequent costs), with the result expressed as a percentage. ROI = (Net Profit)/(Invested Resources) X 100. The primary advantage of an ROI calculation is its ability to quantify the benefits of investments and returns of varying size.

Most entrepreneurs view innovation as one of their top three priorities, but they’re increasingly frustrated with their returns on such investments. Strategic objectives are difficult to measure unlike an objective such as lower cost of goods sold, or improved revenue. How do you measure innovation as a strategic objective? What is the ROI of innovation? In the course of finding answers, the following questions should be considered:

How Are You Measuring Innovation ROI Right Now?

ROI measures the efficiency of an investment. To calculate ROI, the return or net profit derived from the investment is divided by the total resources that were invested, with the result expressed as a percentage. It is important to point out that not everything can be measured, tracked and quantified, the most important step is to define intended results for your own organisation’s innovation-based strategic objective. Examples include:

• Increased number of new ideas

• Improved quality of ideas

• Number of ideas in the pipeline

• More effective implementation of quality ideas

• Improved resultant success achieved

Are you Holding Your Team Accountable?

For many establishments, innovation is characterised by a strong level of accountability and teamwork across the #business. Profits are important, but they are not the end all be all. Financial metrics such as ROI give business owners the ability to justify the value of strategic initiatives and programs. However, sustainable innovation occurs when innovation is organised and driven through a culture that promotes a strong sense of shared mission.

Innovation might pay for itself – but it starts with accountability. Members of a business team need to feel responsible for their work – to meet deadlines and to deliver what was agreed upon. Holding others accountable begins with clear communication of what is expected. When you successfully establish accountability, it leads to great benefits for you such as being able to trust in your team, freeing up time for you to concentrate on strategy, and getting to lead a team that is confident, motivated and ready to take on the next “big thing”.

 

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