Perhaps we are failing to recognise the importance of our Innovation capital, stopping to ask how really valuable knowing this is to us?
Should we care, does it matter? I would argue it does, increasingly so. Within our innovation capital lies the future of the organisation and holds one of the really important ‘golden keys’ to the sustaining performance of the company and its future growth potential.
We need to find a way to unlock this as we are constantly being pushed for new business models that create, deliver and capture value. It is in the entire makeup, the value structure around the offering, and this is made up of distinct capitals that drive the new business towards success.
I’m a little tired of the lack of original thinking that goes into measuring innovation. Most trot out the same old chestnuts, including ‘return on investment’ as always, as near or at the top.
Leaders want to hear this, the sad truth is getting a ‘decent ROI’ for innovation constructed (note constructed) is really hard. If the innovation is new to the world, how can it have a clear financial return on investment until much later, much becomes an ‘educated’ guess?
We need to appreciate new innovation balance sheet thinking
Why a balance sheet thinking? There are hard and soft measures to measuring or judging our innovation. It goes way outside financial numbers. Would we have seen the emergence of Facebook, Apple Watches, Uber etc etc if those that were determining success from their investments had actually insisted on guaranteeing the ROI before launch or within short time frames, that many of our established organizations insist upon? No it was the belief and ‘seeing’ the potential that encouraged those investing to make the initial investment and then continue on ‘future’ returns.
If someone came to you and asked the question: “tell me what makes up your financial capital?” I expect you could answer this fairly comfortably. It might need a little added help from your finance department but you could produce and show significant details that we are all ‘schooled’ to understand and generally have accepted, as under common definitions and standard practice.
Our businesses are measured constantly on their financials, we produce a constant flow of reporting documents that provide useful insight and allow for a more informed judgement by present and future investors on the health of the company. We are ‘wedded’ to our financials and ignore the real value within our organizations of all the other critical capitals that generate and strengthen the business.
What if that same person came to you and asked instead: “what makes up the innovation capital of the company?’” could you answer this as clearly as the financial one – I would suggest most probably not. (By the way, if you feel you can then please let me know I would be more than interested). We are focusing more on past performance and not future generating potential by staying fixated on just the financials within all that makes up our organizational capital
So what makes up our innovation capital and why is it important to know?
Should we care, does it matter? I would argue it does, increasingly so. Within the innovation capital lies the future of the organization and holds one of the real golden keys to the sustaining performance of the company, or not.
I seem to be reading a lot about the concept of value creation recently. It seems to have the same ‘heady vaulted position’ as innovation in that we all talk far more about the ‘promise’ of it. So what is behind value creation? What drives it? What will allow us to stand out as the place to invest in?
So what is value creation?
Value creation is highly dynamic, it is going on all the time and can increase, decrease or transform in different ways when you exploit your different capitals that will change and reflect your organization’s business activities and eventual outputs. This is when you can begin to see the value created by the use of deploying all the capitals.
Today, it is the non-financial performance, made up of mostly the intangibles within organizations, that is accounting for upwards of 80% of present investors’ valuation of our organizations.
Yet do shareholders really have the knowledge to judge the real source of value creation inside our organizations? I think not but they should. Does Management actually?
We lack a real line of sight into the true value of our organizations.
Back in 1776 Adam Smith in his book “The Wealth of Nations” discussed the concept of the ‘work to be done.’ This has fascinated me for what we need to do for achieving any new innovation, it is the ‘work to be done’ that generates and pushes boundaries beyond the existing. This ‘classic’ book has become regarded as the one that described the birth of modern capitalism as well as economics.
Adam Smith also introduced the concept of ‘the Invisible Hand’ as a core part of his thesis, that man’s natural tendency toward self-interest – in modern terms, looking out for No.1 – results in prosperity, not just for the individual but for society. ‘The invisible hand’ is essential for free markets and capitalism, through how it generates wealth in competition for scarce resources. By maximizing their own interest as the direct intention, this ‘invisible hand’ also stimulates those around you and in the society you belong. As you seek to leverage your own assets, you are promoting society as a whole. Today this can be more by design, or through an unintended consequence of how knowledge flows.
Arguably the ‘invisible hand’ can today be seen as realizing all our potential, individual and collective, exploiting all available existing assets for benefit and gain. We call these our tangible and intangible assets. Often overlooked, or under-appreciated are those more intangible assets, that can significantly differentiate, are surely today’s ‘invisible hand?’ Continue reading