Boards often don’t understand what they’re asking for when they demand more innovation, and they also don’t recognise the length of time it takes to see returns on new product development.
Mark Ridley, technology director at recruitment website reed.co.uk, told Computing recently that some boards demand innovation simply because they need to be seen to be trying something new, without really considering the commercial implications.
“When boards talk about innovation, what do they really mean? Sometimes they’re not even sure. They want to see innovation because lots of people are talking about it at CxO level, and a business is supposed to be seen to be innovative. But what does it really mean and what’s the real cost to the business?”
He pointed to Airbnb as an example of a truly innovative firm, but explained that even with its success it doesn’t expect to turn a profit for several years.
“Airbnb is seven or eight years old, and most non-tech CEOs wouldn’t believe that – they’ve been around for a bit longer than you’d expect. Airbnb is now suggesting that they’ll be profitable for the first time in 2020, and that’s on a billion dollars in revenue.
“So when someone says ‘I want you to be the Airbnb of X market’, it’s an easy trap to fall into. They may be saying they want to disrupt a market, but they may not realise that it’s one thing to develop a product, but when you’re asking for something so new, the vast majority of the costs you’ll bear is educating the market about what the hell your product does, and the return on that investment is a really long way away.
“You can start building the marketplace, but it’ll be hard, and you’ll need to chase early adopters, spend a lot on marketing, and you won’t see revenue on this for many years down the line, potentially even then on razor-thin margins and you won’t get profit without massive scale.”
Ridley added that his team focuses on the commercial aspects of product development, so that if a decision is made to try something new, it’s made with an understanding of how long it may take to see a return. He previously told Computing that his product development teams always involve sales people to advise on the commercial viability of new products.
Discussing his own business practices, Ridley said: “We’re now focusing much more on commercials as a technology team than ever before. Advising on development becomes advising on business models, becomes advising on the way you’re going to produce not just new products, but all the research to validate the ideas as they come through, so you see where challenges are before you start.”