So, should management focus resources on generating innovation or
ensuring optimal efficiency? This is a dilemma, to which there is no easy
answer. The answer may be a hybrid solution attempting to balance innov-
ation with operational effectiveness. A key maxim is that innovation
should be fostered, but never allowed to disrupt activities. Clearly, the
nature of the industry and/or product life cycle is important. So called
‘sunrise’ industries which are research and design lead (e.g. telecommuni-
cation, biotechnology, etc.) will have a different innovation profile from
more mature industries, or service sector industries. Such industries tend
to be affected more by process and customer service-based innovations.
Innovation and operational effectiveness cannot be seen as mutually
exclusive. They are inter-linked, with one supporting the other. Given
these factors, innovation should lead to operational effectiveness – however
this is defined. Remember, innovation is invention plus commercial
exploitation, and there is little point in pursuing innovations that do not
lead to operational effectiveness. The question is not should we innovate,
but rather how we support and resource the process, given other often
more immediate demands.
Assuming organisations have the right factors in place (as outlined in
section Managing innovation) it can be argued that innovation will even-
tually pay for itself several times over. However, in order to stimulate the
process, forward looking organisations allocate funds to such activities.
A number of methods are commonly used for this purpose:
● Gap analysis is used to establish the difference between desired and
projected future revenue requirements. Management then examines
how much of the ‘gap’ can be closed by innovation. This provides an
‘innovation target’. Resources can then be allocated to the NPD areas
and innovations most likely to close this gap.
● An alternative is to allocate a percentage of sales revenue to an ‘innov-
ation fund’ and request internal bids for this money. These bids are then
evaluated and screened, with funding being given to the strongest.
● Additionally, we can seek collaborative ventures, partnerships and
external funding (e.g. government grants, venture capital, etc.).
Organisations, and individuals, need to balance the risk associated in
innovation with the potential return. Higher-risk projects invariably need
to demonstrate greater potential returns. Pearson (1991) developed the
concept of an uncertainty map. This helps to understand the concept of
risk and uncertainty in innovative projects. Pearson identifies two key
variables. Firstly, uncertainty about the endpoint – what is the project is
likely to result in? Secondly, uncertainty about process or approach – how
will the endpoint will be achieved. The model is adapted (see Figure 10.5)
to reflect the importance marketers attach to market reaction and product
development issues. High degrees of uncertainty relating to market reac-
tion tend to exist when organisations are dealing with: (i) Innovative new
technologies, with the potential to create markets or (ii) Diversifying away
from core customers/markets in order to find new applications/markets
for our existing products. In terms of product development it is important224 Strategic Marketing: Planning and Control