Many people will read this title and immediately ask, how can you come up with a viable valuation from a bunch of people sticking their fingers in the air? Well, in terms of innovation valuation, you can and you should.
Increasingly we find that companies want to go beyond idea collection to rigorously vet these ideas against barriers to implementation, in order to develop the most robust ideas quickly.
And recently, the bar has been raised. Investors are requiring enterprises to be more transparent about their commitment to ongoing innovation in their capital expenditures in order to attract longer-term investment. The question then arises, how can an enterprise provide greater investor confidence from a range of speculative innovation investments with greater certainty?
Here is where crowdsourcing comes in. While the formula for creating a new version, model or franchise extension of a familiar product has a pretty well known set of parameters to evaluate, speculative innovation is more, well, speculative. More things can go wrong. There is no track record. No one has seen it all before, in order to get a glimpse of risk scenarios.
As an example, the CFO of an industry leading global company with a $2b+ innovation portfolio was challenged to find a way to even estimate when parts of their portfolio would become cash positive once the innovations proceeded into production. The company was stuck with a big budget number but left many revenue questions unanswered. The traditional methods of projecting value did not take into account some of the complexity of a single innovation effort, much less the entire portfolio.
Additionally, the company is also a recognized leader in sustainable development. The value of some innovations were measured in both financial realization terms and in units such as volume of fresh water usage and carbon footprint. Traditional valuation techniques focus only on financial variables. For this company, and for many more like it, the ability to half your fresh water usage in a process innovation may well be worth far more than a small reduction in your water bill; it may very well increase local political acceptance, enhance brand value and reduce infrastructure stress in third world areas.
In the above case, the complexity of the innovation portfolio entailed multiple research disciplines, multiple design disciplines, research institutions, market analysts, data scientists, and futurists. Adding to the complexity were the many dependencies between innovations: a delay in an upstream innovation would have a knock-on effect on time to market for multiple downstream innovations. In short, dependencies, different valuation types, and multiple failure scenarios were not known, nor predictable, much less actionable until failure loomed.
In circumstances like this one, tools such as capacity planning, program management and statistical modeling are typically applied. The knowledge derived from use of these tools usually requires a clearly defined linear path to a completion goal. They will tell you when the process strays due to delay or other failure, close to or after the fact. Financial planning and modeling tools offer a bit more flexibility in terms of creating different scenarios (for e.g. revenue expectations), but will not be able to show you carbon impact scenarios unless translated into monetary terms, which as indicated above, may simplistically undervalue an innovation’s real world value.
Given the multitude of possible failure points and dependencies, therein lies the need for a new approach: crowdsourcing.
Why? Because crowdsourcing accommodates a very large amount of success/failure scenarios to estimate when the innovation program reaches commercial viability. The traditional approaches to estimation however are deemed too narrow – both in terms of anticipating a wider range of changing and upsetting market condition scenarios as well as supporting new measures of value other than financial.
In short, leveraging crowd-sourcing technology’s as an off-label tool for innovation valuation makes sense. Crowdsourcing innovation also provides a wider range of possible business outcomes and risk areas from a wider range of professional expertise that previously would have been left unexplored.
Crowdsourcing technology can be particularly useful if your innovation programs have:
• A complex ecosystem of innovation development partners (not internal departments)
• Multiple modes of value (financial, sustainability, diversity)
• Success / failure scenarios due to cross program dependencies and multiple domains of expertise
• A need to be transparent regarding capital expenditure on innovation to investors
So, next time you are using a crowdsourcing tool, or are thinking about using one, consider leveraging it’s off-label uses for more accurate real world value and risk assessment.
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