Value Creation: The Ultimate Goal of Innovation
Some would argue that companies innovate to achieve a heightened competitive advantage, streamline the organization, or create intellectual property – including patents, trademarks and other protected property – that create value in the portfolio.
Many reasons and rationales can be argued for the pursuit of innovation. Yet no purpose for or result from innovation can be more compelling than Value Creation. This metric is the ultimate measure of return on investment when measuring innovation’s role in creating value.
Simply put: Innovation done well drives value creation – for the organization, its customers, its internal stakeholders and its external shareholders.
Successful innovation turns ideas into money. All the processes, creativity, time, sweat, research, dreaming, refining, modeling and retesting transform effort into tangible, valuable results.
This includes innovation that touches all sectors in the company or organization – not just in the creation of a new product or service. Enhancing the business model or networking, enabling a new core process, creating a new channel, brand or customer experience delivery model, or offering a new product system, boosting product performance, or providing a new service each creates value.
Nowhere is this more relevant and apparent than in the acquisition process. If one were to look at acquisitions with and without a patent portfolio, I would argue that a well-created and -managed patent or IP portfolio can double company value. My former company, Airspray, created of the novel packaging and dispensing process that turned liquid soap into foam. It was a company with a typical value of 7-8x EBIT. Yet, the addition of this patent to its portfolio resulted in 15x EBIT paid when the company was acquired in 2006.
This is especially important in today’s market. Current economics continue to hold down already devalued corporate stock prices. Companies are challenged to find ways to boost their value to stakeholders – as well as to keep customers and prospects engaged and purchasing goods. Value creation borne from innovation can be critical indeed. As evident in the Airspray example, one item in our patent portfolio almost doubled the EBIT paid at acquisition. This example is not unique, but was the result of painstaking and thoughtful focus on value created by innovation.
Moreover, value creation and innovation done well can immeasurable enhance the corporate brand. Between adding new products, reviving the corporate dress, even launching new marketing creative or advertising campaigns, customer value can be created through the value-added components and enhanced public face of these endeavors.
Of course, it’s essential to find that delicate balance between cost, price, and return. Balance is found, in part, by seeking stakeholder input and customer feedback during development of any innovation process.
The arguments for innovation are, frankly, inarguable. Value, brand enhancement, share price and perception among various stakeholders can be elevated by innovation done well. Add to the equation the inclusion of intellectual property derived during the process, and the overall ROI can be well worth the investment.
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