This article originally appeared in The CEO Magazine Jan 4, 2018
By Kumar Mehta
Every business leader wants to bring transformative and world changing innovation to their customers. They want to bring new and novel value to the world, and in doing so reap the vast rewards that come with being a trailblazing innovator. They often have multiple ideas and plans in front of them that show promise or sound good on paper, but they don’t know which ones to support and which ones to pass on. CEOs need a consistent and systematic approach to determine which ideas to pursue. In other words, they need a currency to effectively invest in innovation.
Typically, business leaders invest in the plans that look best on their financial models. They build out long-range models for every initiative they are considering. These models, often referred to as discounted cash flow (DCF) models, show managers, in a stepwise manner, how each investment will play out. While these models may be useful for a lot of things, they are futile for predicting the outcomes of groundbreaking innovation. They are very likely to lead you down the wrong path and prompt you to make a wrong decision.
This is because there is simply no concrete knowledge on who will buy an innovation, how it will be used or how it will be monetized. There are far too many unknowns and assumptions that can lead you astray. Imagine being presented with the idea of a printing press, a machine designed to ease the process of printing books at a time when the vast majority of the population was unable to read. Most business leaders would very likely laugh this idea out of the conference room. Who would want to invest in a product that eased the process of printing books at a time when most of the population could not even read? The total addressable market was virtually zero and would remain nonexistent for the foreseeable future (during the years it would take each user to become literate). There is no way any financial model would have predicted its success. The same is true with just about every great innovation in history. Few people know that shortly after its creation, the founders of Google were ready to sell their company to Excite (a leading search engine at the time) for under a million dollars? Luckily for them, Excite refused. There was simply no way any analysis could have shown either Excite or the Google founders how the company could have grown to transform the world.
The only thing common across all great innovations is that they remarkably alter experiences. The printing press did that, Google has done that and every innovation throughout history has done that. Innovation creates societal value by altering experiences, or delivering a remarkable change from how things were done before to how they are currently done through innovation. And in just about every case, when experience-altering innovations are released to the world, the world has figured out a way to handsomely reward the innovators in ways that they least expected.
The Experience Delta, or the change in experience between how something is done today, vs how it could be done through a new idea or innovation is a consistent and valuable way to determine which ideas to invest in and which to pass on. The bigger the change in experience, or the larger the Experience Delta, the more impact an innovation is going to have, regardless of what your financial models show you today. So, if you are clear about how every idea in front of you alters experiences, you can invest in the ones providing the largest Experience Delta. This is a simple, repeatable and efficient way to judge the value of an innovation. If you are able to alter experiences, even at a small scale, the impact you can have and the rewards you can achieve are extraordinary.
Innovation changes experiences, and understanding and articulating these changes effectively is the key to innovating consistently. The Experience Delta helps you identify the winning ideas from the rest.