The Right Recipe for Innovative Tech Investments

By Brian P. Watson  |  Posted 06-05-2008

The Right Recipe for Innovative Tech Investments

It's nearly impossible for business executives to approve investments on technologies that haven't yet proven their value elsewhere, but that problem will go away soon, says Scott Anthony, president of Innosight, a strategic consulting firm.

In the meantime, CIOs and their teams need to focus on the tangible, immediate advantages emerging technologies can bring to their business.

Anthony, a former McKinsey consultant, joined Innosight after working for the firm's co-founder, Harvard Business School professor and innovation guru Clayton Christensen. With Christensen he co-authored  Seeing What's Next: Using the Theories of Innovation to Predict Industry Change (Harvard Business Press, 2004), and is the lead author of the soon-to-be-released The Innovator's Guide to Growth: Putting Disruptive Innovation to Work

Anthony spoke recently with CIO Insight Online Editor Brian P. Watson.

CIO INSIGHT: There are lots of goals for adopting innovative and emerging technologies. What are executives thinking now?

Scott Anthony: There's an interesting juxtaposition of the markets now, where people who intuitively feel they should spend their innovation time in coming up with new products and services that create new revenue streams and profit pools. But with the economic climate being what it is, there's also tremendous pressure to innovate processes to reduce costs.

So people are trying to walk this fine line where they know they can't cost-reduce or process-optimize their way to greatness, but economic pressure is making it hard--for at least some of them--to really focus on the revenue- and process-producing innovations that they know they need to do for the long term.

CIOs say the economic outlook isn't killing their plans, though some see potential long-term problems. Historically, does one goal trump the other? Is there a winning strategy?

Process improvements, along a lot of dimensions, are predictable. They're not tremendously fascinating sometimes, but they produce fairly predictable, fairly measureable results; whereas creating new products, services or business lines, when done right, can produce blockbuster returns, but the results are a bit more variable.

Along some dimensions it's scarier to push for the new creation because it just feels to some people like they're spinning a roulette wheel. The problem is, a lot of companies, through a 20- to 30-year investment, have basically done all the process improvement they can. So there's not much more room for marginal improvement. So if they don't turn the innovation lens to a different place, they're just not going to get anywhere.

That is one of the really interesting things we're seeing in the market here. I don't see any signs that the people who are really strategic about innovation are slowing down. In fact, along some dimensions, you see companies saying, "This is the time I should really double down and really create space between myself and my competitors. I know what I'm doing, and if I made the right investors when my competitors can't, I create a circumstance where it's hard for them to respond." 

Economic Considerations

Some experts strongly believe businesses need to invest heavily through an economic downturn or suffer competitive setbacks. So you agree?

One of the challenges, though, is you can easily measure the returns you get from slashing innovation programs--you can say, these things aren't going to pay off for a few years anyway, and we cut X percent of our budget. Knowing precisely what that catch-up figure is going to be, or what the contributions of those programs are going to be, often times is frustrating and difficult.

There's a whole general theme that because innovation is so difficult to measure, it can lead to companies making the wrong decisions. You'll take something that's measurable over something that's not, even if the thing that's not measurable has much greater long-term impact.

There are tools that are beginning to emerge that can at least put some parameters around what an early-stage innovation might be worth (prediction markets, etc.). In the long run this problem will go away. But it's a lot easier to focus on things you think you can control, even if you really can't.

CIOs say it's a challenge to justify new technologies because much of it hasn't been done. Is that a problem for IT folks or blunt reality?

It's a real problem, and it affects a lot of different parts of innovation. Markets that don't exist are incredibly difficult to measure and analyze; with technology that's never been used before, it's hard to understand exactly what kind of impact it's going to have. The thing you can reasonably guarantee: any spreadsheet you put together to show the impact of a new-to-the-world technology is almost always guaranteed to be wrong.

We advise our clients, in these circumstances, when they're trying to launch products into new markets, is to say, instead of relying on what are surely faulty forecasts, go out and create the data. So if CIOs are thinking about adopting a technology and have no idea what kind of return it's going to provide, run a pilot somewhere in the organization. Don't run it throughout the whole organization, but run a localized test so you can begin to see what happens once these things get into people's hands. For so many of these things, you can't predict what users will do; you can't predict what kinds of impact they'll have. The only way to know is by playing with the technology.

Some of the product-based companies we've worked with have realized that the only way to get reliable forecasts for a true disruptive innovation is to go out and have people pay money for it. Even if you do the best market research you can, the margins of error are so huge, because people can't really understand it until they touch it and play with it.

Focus on Immediate Benefits

Are there certain types of technologies companies are more inclined to experiment with?

There are probably three things that have the greatest chance of boosting adoption. The first is, it has an obvious measurable benefit--something that you can look at and it does actually work if you put it in a spreadsheet. The more obvious the benefit, the more likely it is to be adopted quickly.

The second thing is, the more the technology is a modular technology and doesn't have all sorts of unpredictable interactions with the rest of the systems that are deployed, the easier it is for it to find a foothold in an enterprise.

The third is, the clearer it is that the technology will help the end user do what they're already trying to get done, the more quickly it can be adopted. For example, think about the difference between basic instant messaging and cloud computing. Instant messaging makes it easier for people to communicate in ways they were already trying to do. For cloud computing, an end user can imagine what the benefit will be, but you can also imagine all kinds of headaches as well. So for a user, it's less obvious if this is something you've been clamoring for, whereas with instant messaging or unified communications, it's just clear from a user perspective.

So how do CIOs best sell the executive suite on a new technology? What do executives need to hear?

Two things. Executives need to hear the immediate benefit of the technology, Even if it's just a cover story and you think there will be a longer-term impact. In the era of belt-tightening, it's impossible to sell people on something they can't touch and feel immediately.

The more you can have your case be on tangible results--as opposed to promises--the easier the case will be. Those results can come from running small scale tests, where you try the system among a small group away from the core business. The more you can take about immediate benefits and immediately demonstrate those results, the easier it'll be.

Also see:

How IT Shops Should Attack New Investments

Research: Web 2.0, Mobility Gain Momentum

The Most Emergent Technologies

10 Revenue-Driving Technologies

Top Goals for Adopting Emerging Tech

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