Innovation profitability: how to calculate and why we need it

Innovation can be any new feature. For instance, you decided to implement security function into e-bikes, or build spaceships - these are all innovations for you. No matter if someone has done it before, the thing is you do it for the first time. Fresh ideas give an advantage to the company: boost its effectiveness, customer value, and reduce expenses. 

Innovation payback 

Any changes require investments. Therefore, it’s reasonable to wonder if an innovation pays off. On the one hand, a system can’t develop without innovations. On the other hand, it’s hard to predict what kind of innovation will bring profit. However, big companies actively invest in R&D (research and development). 

In order to estimate the profitability of investments in an innovation, we use ROI (return on investment). Frequently this indicator is negative by default. We can increase customer experience: spend money on research, change the consumer way, or educate staff. Though increasing sales may not return the investments for a while. However, without innovations your sales are likely to fall as your competitors will implement something new and attract client’s attention.

Types of innovations 

Product innovations. It entails improvements in a product or service on the basis of new technologies. For example, the ecological issue has resulted in e-bikes. 

Social innovations. They change the way consumers interact with a product. The development of banking sphere has led to the simplified access to stock exchange. 

Management or process investments. They often refer to changes in the methods of productions, delivering, and release of new products. Such investments can be related to HR or finances changes. 

Any innovation can be evaluated as a startup. You can use OKR (Objectives&Key Results). This system helps synchronize a team by means of clear objectives. 

It’s important to set the objectives that complement your general business aims. Ask yourself what you exactly seek to achieve through innovations. Besides, maintain balance between consistent and disruptive innovations. Fails and mistakes are an indispensable part of innovation success.

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