What is the Right Trade-Off for Your Company?
Denise Harrison, President & CEO, Spex, Inc.

How much time should your company spend on “blue sky” opportunities and how much should you invest in opportunities with a short-term ROI? Many teams face this question as they select the projects they want to focus on for the next several years. Often a short-term results focus causes the “blue sky” opportunities to be put on the back burner. This may work in the short-term – but will it position your firm for long-term success?

In 1996, Apple faced a devastating loss of $816 million – did they pull back and focus on the short-term? No, in 1997 they launched an initiative that was to transform how people bought, sold and listened to music. There was no clear path for how this would happen, no easy technology solutions, no short-term ROI – just a lot of questions and a vision.  Even with poor financial results, Apple invested in a vision and transformed the way we buy and listen to music with the iPod ™ and iTunes ™.

Strategic planning teams are often confronted with various and often competing investment decisions as they select the “few” things that need to move forward. It is often easier to select product enhancements and product line extensions with low risk and short-term payoff, rather than investing in the higher risk “blue sky” alternative. The “blue sky” alternative can require significant investment in both time and money and often has a lower probability of success – but if successful, it is often transformational for both the company and the industry. Breakthrough innovation will give your company a sustainable competitive advantage that will give a significant boost to your bottom line – but do you and your investors have the patience?

What should you do?

There is no one simple answer that fits all companies, but here are some ways to think through the choices that your company faces. Yes, it is important to select the few projects that need to move forward; simply adding a few “blue sky” projects to an already long list of “to dos” is a recipe for disaster. By choosing too many projects you will simply lower the probability of success for all projects. Instead, you should look at your choices as a portfolio. Much like investing, you will want short-term, medium term and long-term returns.

• Short-term: often product line extensions and enhanced features are the quick hits. These have clearly definable direction and lower risk and offer short-term return.
• Medium-term: often new platforms can offer significantly enhanced performance/lower cost/greater ease of use. These typically require higher investment, more time and have higher risk because the outcome is less certain – but the benefit of a new platform that offers significantly enhanced capabilities is typically rewarded in the marketplace.
• Long-term: the “blue sky” innovation targeting a problem with no clear solution, but if one is found will allow your company to leapfrog the competition.

What mix is right for your company? Well, again there is no easy answer – some companies, particularly technology companies, must invest heavily in the “blue sky”. Look what has happened to RIM, with its Blackberry eclipsed by Apple’s iPhone. RIM once provided the new platform that leapfrogged its competitors, but that advantage did not last long. Other industries may select a different mix of short/medium/long-term projects; but remember even an industry with a slower rate of change, can still be transformed. Look how Amazon changed the way we buy and read books with its Kindle. Yes, Barnes & Noble has copied the technology and was first to come out with a color version – but Borders, unable to keep up, is out of business.

How do you ensure that investments are made for the long-term “blue sky” projects?

Many companies take their long-term projects and earmark a certain percentage of their development budget to be spent on “blue sky” projects. This way the projects are not “voted off the island” because their returns are far into the future and uncertain at best. But once you set the money aside, how do you decide what projects to fund? Some companies look at a technology and think of ways to commercialize it – but this often results in a solution looking for a problem. A better way to manage the long-term portfolio is to define the problem(s) to be solved. Don’t provide the solution – this will stifle the creativity. Instead nurture the ideas and let them grow. “The fastest way to kill an idea is to criticize it,” says Scott Crump, Chairman of Stratasys. Stratasys is a market leader in the world in 3D printing – taking CAD drawings and turning them into functional prototypes, assembly tools (jigs, fixtures, patterns) and production parts, enabling their customers to accelerate their time-to-market. Crump credits Stratasys’ investment in long-term projects for developing the transformational platforms/technology that continue to position Stratasys as a technology leader in this market. These projects reaped rewards after traveling through a maze of twists, turns and dead-ends – and finally victory.

For short and mid-term projects, quantifiable selection based on risk and reward makes sense. For longer term “blue sky” projects, you should consider putting a certain amount of money aside to work on clearly defined problems. Finding these solutions will allow you to leapfrog your competition. But keep in mind the journey will not be straight and will require perseverance.

How does your company balance long-term opportunities with short-term quick hits?

For more information on innovation please read: Innovation: Where to Look for It. If you are looking for ways to add more innovation to your strategic planning process please contact me at harrison@thestratplan.com

© Copyright 2015 by Spex, Inc. Wilmington, NC — Reprint permission granted with full attribution.