Hidden Costs of Innovation: Leader’s Checklist for Managing Risks and Trade-Offs

In today’s rapidly evolving business landscape, innovation is widely hailed as the cornerstone of growth and competitive advantage. Organizations pour resources into groundbreaking ideas, digital transformations, and disruptive strategies to stay ahead. Yet, while the rewards of innovation are celebrated, its true costs are often underestimated or misunderstood. Planning ahead in a Business Plan, a Project Charter, or a Strategy document, it’s important to think about every one of 9 components of innovation cost:

1. Time required to research, explore, test, develop, and iterate. Direct and indirect costs associated with this time, including the opportunity cost of employees not spending time on other priorities.
2. Cultural disruption: employees who prefer the “old” way of doing things may become disengaged and/or leave the company.
3. Short-term financial results: substantial up-front financial investment and an economic loss during their early years of operation.
4. Corporate innovation resources come with direct costs in terms of talent and resources.
5. Time and cost of Innovation Governance: innovation can occur outside of organizations’ standard processes; thus, it requires special governance processes that add time and cost. Some approaches to innovation involve large numbers of employees executing potentially high risk or not fully vetted projects. Such processes often involve greater-than-usual senior-level resources and leaders who can evaluate and make decisions on non-standard ideas.
6. Domain experts: a broad array of roles that include subject matter experts, sales and commercial experts, futurists, and researchers.
7. Administration and operations:Innovation requires significant resources to take actions. E.g. Business planning requires Finance resources; staffing requires HR resources; hardware and software platforms require IT resources; contracts require Legal resources; sales planning requires Operations resources; launch planning requires Marketing resources; and knowledge management requires Communication resources.
8. Technology: Innovation teams tend to underestimate the cost and time required to integrate and implement technology requirements with new solution testing, design, and execution.
9. Change management: innovation can require significant change management and prioritization to yield effective results.

Innovation requires making trade-offs between current and new priorities, between innovation benefits and costs. The nine cost components outlined here show that innovation demands more than capital and creativity. By acknowledging and managing these costs, leaders produce much more predictable outcomes with innovation. The path forward is clear: measure the hidden expenses, mitigate the risks, and embrace innovation as an investment.

References

1. John M. Bremen. Measuring The True Costs Of Innovation. Forbes.