Connecting innovation to value and revenue

John W Lewis's picture
Chat Date: 
Thu, Oct 06, 2016

Let's consider what we can learn from a specific industry which applies human minds to the discovery, development and commercialisation of concepts, ideas, and opportunities. This might help us to clarify the role of innovation and to describe its relationship with value and money.

As background, the Chief Scientist of Australia, Alan Finkel, recently described the broad distinction between scientific research and innovative development, rather neatly. He said: "[And] if science turns money into knowledge – then innovation turns that knowledge back into money, and generally a lot more money than the taxpayers put in."

Advertising: creativity and business are connected

More specifically, almost 20 years ago, Martin Sorrell of WPP, the leading advertising group, gave a lecture, titled "Beans and Pearls",  on the relationship between creative activity and business.

In describing the advertising business, he said:

"What we sell are pearls. Whether we are designers or planners or writers or art directors or corporate strategists, our raw material is knowledge. We turn that knowledge into ideas, insights, and objects that have a material, quantifiable value to our clients.

They are all pearls: of wisdom, of beauty, of desire, of wonder. Only the human mind can perform this extraordinary alchemy. And only certain kinds of mind, at that."

This connects the thoughts of human minds to products for which customers pay.

Innovation and value have become disconnected

The conception and development of innovative products is a similar activity. Knowledge, understanding, opportunity and resources are turned into value and revenue, and it takes human minds to do it.

Yet, in most industries, that connection between the work of human minds and the value generated, that is well established for advertising creative work, is not established for innovation. And it is not even well established in the advertising industry or in WPP, itself, based on this recent quote:

"If you’re not attached to revenue you’re always in a precarious position."

from Nicole Yershon, @nicoleyershon, on the recent closure of Ogilvy Labs, their flagship innovation group.

But why were they "not attached to revenue"? That statement about a central innovation group is quite surprising to someone like me whose working life (proper) started, four decades ago, in the Central Research Laboratories of a multi-national company, EMI. Those labs, and presumably similar labs in other companies, had a connection between research and revenue. As I recall, broadly, a small percentage (of either revenue or profit) was siphoned off from each operating division for expenditure on central research, and they could also fund additional projects. Over some extended term, some track was kept of the benefits that were being generated.

Let's reconnect them

Innovation and value were connected in the past. And there are a small number of industries, notably energy, aviation, and pharmaceuticals, where they are well connected today.

Back to advertising and Ogilvy, the next phase is for innovations to be developed separately in multiple agencies, as described in these terms: "Ogilvy Labs’ job is now done as a separate Ogilvy entity, as each agency continues to innovate within their own specialist area and collaboratively across the Ogilvy Group.” by Annette King, @AnnetteKing.

For instance, and presumably in line with that approach, at Ogilvy UK, James Whately, @Whatelydude, has been appointed "Planning Partner — Innovation". The concept of the planning of innovation might raise eyebrows among some innovators. However it need not, when we consider that other industries (e.g. oil and gas) have exploration operations in parallel with their production operations, and their exploration is certainly not unplanned.

Nevertheless, James' mantra is "I make new stuff useful", which is right at the heart of our topic, as it connects innovation to value.

Questions

Let's discuss the relationship between innovation, value and revenue during #innochat on Twitter at 12 noon Eastern time (5pm in the UK) on Thursday October 5, 2016, triggered by the following questions:

  1. What relationships between innovation and revenue are available to organizations today?
  2. What can we learn from the R&D labs models of the past?
  3. What can be learn from the advertising industry which connects creative work to revenue?
  4. Is innovation fundamentally different from creative work, such as advertising, and, if so, how?
  5. Where can we start to bring innovation into the overall business models of organizations?

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