How Does Innovation Fit into a Business Plan?

This is the third of four answers to questions I got in email last week from an MBA student asking my opinion as part of his research. The question is the title: how does innovation fit into a business plan? 

Innovation changes a business plan pretty much as a reflection of how it changes a business. It adds risk, uncertainty, and interest too.

Funny thing about risk: we usually think of it as a negative, but in this case it isn’t. Risk has two sides to it: up and down.

  • The upside risk in innovation is of course the benefits to a business when innovation leads to a more desirable offering: better product, suitable for a larger market, differentiated from competition, easier to build, and so forth. We get that immediately. It’s faster, cheaper, better; higher resolution, longer lasting, lighter, and so forth.
  • The downside risk is there too. Live by innovation, die by innovation. The business that depends on innovation usually positions itself on innovation and loses big time when somebody else comes up with the next new bigger, faster, and better.

Uncertainty comes along with innovation because, by definition, what’s innovative is new; and new means it might not work, might have a fatal flaw, might not be accepted by the market, might never be finished. New also means it could take off very fast — more uncertainty — or not at all. It’s uncertainty about when the product (or service) is available, will it work, will enough people like it, are there competitors out there in the bushes where you can’t see them yet.

And interest comes with innovation too. Market makers are interested. Opinion leaders are interested. Competitors are interested. And investors are interested. To the investor, innovation means defensibility and market advantage.

So how does all of this fit into a business plan? It’s all over the plan. It’s in the forecasts, the schedules, the marketing plans, the financial strategy. It’s part of the business’ DNA.

It starts with strategy, the heart of a business plan. Innovation is part of your company’s identity, we would hope one of its strengths, and certainly a key element in business offering. It directly affects the market, both in the higher degree of guessing required (educated guessing, we hope) and in how it affects target market and message. And it affects strategy focus, too, because it turns a company towards it like plants growing towards the sun.

From there it flows easily into the flesh and bones of the plan, all of the concrete, specific, and measurable details about who does what, when, and how much it costs, and how much it brings in as revenue.

Conclusion: it’s an oblique question, in a way. Something like asking how courage fits in a novel, or color in a painting. How does direction fit into navigation?


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  • Tim Berry says:

    Thanks Joseph. And that, of course, is what my book The Plan-As-You-Go Business Plan (see the sidebar here, on this site) is about too. Tim.

  • Joseph Flahiff says:

    If you know that innovation is part and parcel of your business, then select a planning methodology that is built innovation rather than one that merely accommodates it.

    The Agile development approach is built for environments where the outcomes are not all clearly defined and innovation is required. In these environments it is clear that the ship will change course many times. If you know you are going to need to change directions often, especially in the early phases of the business, don't get on a Cruise ship, get on a Skidoo.

    I never hear people telling entrepreneurs about the benefits of Agile development, so I am taking it on as my personal mission.
    See my website about it.

    Joseph Flahiff, PMP

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