The time of year when people everywhere write up their wish lists, hope to gain favor with those who can bestow gifts, and dream of the bounty that will greet them in a few weeks’ time.
Yes, it’s Annual Planning and Budgeting time.
The process of setting annual goals and budgets can be frustrating and even demoralizing for employees and managers alike as their visions and budgets get slashed in each round of management reviews.
This process can be especially painful for Innovators who feel like they are expected to do more with less and, as a result, can’t even try to do anything new or game-changing because they barely have the resources to operate the current business.
Resource constraints are a reality in every organization. The trick is not to give up when you run into them, but to figure out how to work with them and, more importantly, the people who control them.
1. Acknowledge reality
Yes, we all know that, when funding innovation, corporations should act more like VCs and follow a milestone-based approach to releasing funds. But the reality is that the budgeting processes in most companies are so rigid that you get your budget at the beginning of the year and you don’t get a penny even if circumstances change and additional investment could yield wildly positive results.
Instead of trying to change the system or asking only for what you’ll need in the first quarter or the first half of the year, work with the system and ask for your annual budget up-front.
2.Know where there’s flexibility
During my first year at Harvard Business School, my accounting professor would often run around the room yelling “No Rules! No Rules!” which often left me more confused than when the class started.
I’m still not certain what point he was trying to make but I like to believe that he was trying to shock us out of our rigid black-and-white thinking about accounting and to see that there is room for flexibility (while staying on the right side of the law).
As you draft your budget, understand which line items are more flexible than others. For example, a client of mine had to break her budget request into Fixed (salary, benefits, and overhead) and Flexible (travel and project-specific) costs. Fixed costs were locked in, but she had almost complete autonomy over how Flexible funds were spent. As a result, given the uncertainty of staffing required for innovation projects, she maintained a skeleton crew of FTEs and relied on temps, interns, and consultants to staff up projects when needed.
3. Channel your inner Mick Jagger
The Rolling Stones said it best when they sang, “You can’t always get what you want/ But if you try sometimes, you might find/ You get what you need.”
As you look at your innovation projects, estimate what you want (i.e. the resources you need if everything goes perfectly) and what you need (the bare minimum to required to operate if a project runs for the full year). Assuming that what you want isn’t a laughable number, ask for it. When the inevitable cuts are made, acted pained until you get to about halfway between your Want budget and your Need budget then, once you reach the halfway point, start talking about tradeoffs and highlighting the things that won’t happen if budgets continue to get slashed.
4. Make your case
Even if you do everything listed above, the fact remains that there are only so many dollars to go around. This means that a dollar allocated to your project is a dollar NOT allocated to another project.
Large companies crave certainty and they reward executives who are able to consistently deliver results. This system of rewards and incentives amplifies our already innate tendency to prefer avoiding losses to acquiring gains and drives most managers to fund “Safe Bets” and “Sure Things.”
As a result, it’s not enough to pitch your idea and request for funds, you need to emphasize the potential gains, explain how you’ll minimize losses, and make the case for why your project is a better investment than others.
Annual Planning and Budgeting season is stressful for everyone and, inevitably, there will be brilliant ideas and game-changing projects that go unfunded. But by acknowledging the reality and constraints of the process and learning to work within them and with the people making resource allocation decisions, you can significantly increase the odds that some of the items on your innovation wish list will become a reality.
Nothing drives my husband more insane than when the “80/20 Rule” is invoked. Whenever we’re doing something and I wave my hand and say “Eh, it’s good enough,” I watch, mildly amused, as he takes a deep breath, tenses his shoulders, and tries his very very best to find a way to explain to me that it is either right or wrong and that there is no such thing as “good enough.”
When you consider that he spent 6 years as an officer in the US Navy’s nuclear submarine fleet, learning how to run nuclear reactors, and occasionally sleeping on missiles because they offered more room than his bunk, it’s easy to understand why he approaches the world with an All-of-Nothing mindset.
But most of us don’t live in a metal tube, deep under the ocean, side-by-side with nuclear warheads, knowing that the smallest spark could result in a long, agonizing death from suffocation, starvation, or melting (seriously, he has a story of nearly melting to death. It’s one of my favorites).
So why do we act like it when it comes to innovation?
Don’t believe me?
Every innovator working within a big company has had at least one moment in which they have very promising news — fantastic customer feedback on a new concept, promising early revenue from a small in-market test, genuine interest from a potential partner or acquisition — and it’s time to go to the powers that be and ask for more money and/or people.
They enter the meeting, bursting with optimism because they’ve always been told by the bosses that “We know innovation is more risky than our current business” and “we know we need to fund experiments because that’s how you de-risk innovations” and “we’ll find the money when we need it.”
They sit down, present the great news, share the data, outline the next steps, and make the Ask for the money that they were promised would be found the moment it was needed.
The bosses are silent. Squirming uncomfortably in their seats, they start talking about the current business. Maybe it’s not doing so well so they need to funnel all the extra resources to it. Or maybe it’s doing great and they want to allocate all the extra resources to capitalize on the momentum. Or maybe it’s going exactly as expected but you never know what could happen so we need to hold on to the extra resources, just in case. And, by the way, you’re scrappy innovators, so see what you can do with what you’ve got.
This is when innovation runs into the Winner-Take-All Effect and, more often than not, it’s not the winner.
“Not everything in life is a Winner-Take-All competition, but nearly every area of life is at least partially affected by limited resources. Any decision that involves using a limited resource like time or money will naturally result in a winner-take-all situation.”
All businesses face the challenge of limited resources. In fact, one could argue that business strategy is fundamentally about resource allocation decisions and that businesses succeed because they allocate resources better than their competitors.
The issue here is not that resources are limited and that they are, more often than not, allocated to existing business operations. The issue is that often they are ALL allocated to existing business operations.
Situations in which small differences in performance lead to outsized rewards are known as Winner-Take-All Effects.
Admittedly, the differences between innovation and core business projects are greater than the 1/100th of a second Olympic medal example Clear gives in his article. But given the context of a world that is transforming ever faster and in more unexpected ways, businesses can scarcely afford to commit all their resources to their existing businesses and treat the creation of new businesses as if it were fun little hobby.
There are countless reasons why this Effect seems to have taken hold — the need to deliver short-term quarterly results even at the expense of long-term investments, performance incentives that encourage people to adhere to the status quo, the ever-present demand to do more with less so the company can show higher profits. What’s important is not tracing the root causes. What’s important is figuring out how to overcome the root causes and shift towards a Results-Get-Rewards model.
This is probably the hardest part of working in innovation. Yes, there is a lot of advice (create a growth strategy, quantify the business results required from innovation, invest like a VC), many frameworks (70/20/10 ratio of innovation investment), and tons of tools and most of them are incredibly useful and very on-point. They are also not sufficient to escape the Winner-Take-All Effect.
The reason is that, ultimately, these frameworks and tools are applied by humans who are juggling more demands, decisions, and pressures than are accounted for in the frameworks and tools. Most business leaders have to juggle the tangible demands of sustaining the current business with the felt need to create new businesses. If they succeed at the former but fail at the latter, they will likely still be rewarded with performance bonuses and maybe even promotion. But if they succeed at the latter and miss on the former, they’ll be questioned, put on probation, and maybe even fired.
Your job, as someone trying to make innovation happen, is to help your boss to move past his or her risk aversion by addressing the risks (real or perceived) to the business AND to your boss individually.
In addition to pitching all of your great learnings (increased confidence from tests, and early revenue) you also need to tell your boss what’s in it for him or her. Perhaps the CEO has just announced a key strategic priority and this project is an example of how your boss/team/business unit is on the cutting edge (and can get your boss some face-time with the CEO). Perhaps someone was recently promoted because they “exemplify our company’s values of innovation and initiative” and this project positions your boss in a similar way.
To be clear, this is NOT manipulation and you should NOT say anything that is untrue. This is simply knowing your customer (your boss), knowing their important and unmet needs (build the business, feel secure in my job), and pitching a solution that addresses functional, social, and emotional needs.
Admittedly, this doesn’t work all the time but it works more often than you might think. They key is to be thoughtful, honest, and truly committed to advancing your innovation project AND the people working on it (your team) AND the people investing in it (your boss).
How your boss will look when you help him or her invest in building the existing business and creating the net new business