Do you need to write an innovation business case?
In this article, I show you how to get started with creating a business case for your innovation, and how to overcome some of the challenges you’re likely to experience, such as dealing with risk and uncertainty.
What is an innovation business case?
An innovation business case captures WHY you want to action your innovation. It’s usually a short, written document that includes the tangible and intangible risks and benefits of the innovation, and the rationale of why the innovation should be actioned and supported.
An innovation business should contain all the key financial and non-financial data needed so that the reader can make an informed decision on whether or not to proceed with the innovation. It justifies the investment decision – investment in time, money and opportunity cost- in the innovation, taking known and “known unknowns” into account.
Overall, the fundamental purpose of an innovation business case is to stack up whether or not your proposed idea worth doing.
Trust and your innovation business case
When you present someone with an innovation business case, you’re asking them to trust in you – your idea, judgment and capability for achieving the results that you say your innovation will achieve. Your innovation business case needs to be reliable, credible, transparent and directly aligned to the strategic and tactical objectives of your organisation.
It’s essential that you invest time, care and attention in creating your innovation business case. Its quality is a reflection of you and your personal brand.
How long should an innovation business case be?
An innovation business case should be as long as it needs to be, and no longer. It’s important to make sure that you only include information in your business case that is material to the decision-making process, and leave out superfluous items. The reason is that by excluding information that is not influential in the decision-making process, you’ll make your business case much clearer to your reader. Present extra information in an appendix if you need to, but you should be able to articulate your argument clearly and succinctly.
I’ve presented business cases successfully valued in the tens of millions of dollars to just a few thousand. In my director and leadership roles, I have also been a decision-maker at the receiving end of other people’s innovation business case proposals. For many, even complex, long-term and high-value innovation proposals, the idea, rationale and supporting evidence can be communicated effectively in just a few pages.
What should you include in an innovation business case?
Each innovation business case is different, or course. That said, my starting point is always this list of heading prompts that I created. Expand on the ones that are more relevant to you, and skip over any that don’t apply.
BUT beware of not including something simply because you don’t know what to write, or don’t know the answer.
One of the great benefits of going through the process of writing your innovation business case is that you are prompted to consider factors that you haven’t thought of so far. In this case, make sure you explore it and see how you can get the answers – or at least some of them – that you’re missing.
A “known unknown’ is something that we know that we don’t know. If something is genuinely a “known unknown”, don’t skip over it. Address it head on, and show how you’re going to mitigate, or reduce the risk. Doing so actually increases the credibility of your innovation business much more than simply trying to brush the risk or gap under the carpet.
An innovation is, by definition, something that hasn’t been done before, in this way and at this time. Therefore you should expect to find that you have some questions and “known unknowns” about what might happen.
Prompts for writing your business case
- Purpose of the innovation business case
- Summary of the opportunity
- Customer need
- Why do customers need this right now?
- Competitor review
- What are competitors doing?
- Market attractiveness
- Where’s the gap in the market?
- How attractive is the market?
- Strategic fit
- How does this fit with your wider business and strategic goals?
- Definition of success
- What’s your definition of success?
- Key risks and mitigations
- Non-tangible costs and benefits
- Impact on the value chain or the wider business
- Will you need to bring in people from other departments or teams?
- Proposed implementation approach
- Key assumptions
- What assumptions are you making? Why?
- Three financial scenarios, for cost savings and /or revenue growth from the innovation: best case, most likely & worst case.
- Cashflow implications
- NPV & payback period
- Opportunity costs
- What are the other things that you could be doing instead of this particular innovation? Why are you recommending that this innovation takes priority right now?
- Next steps
What are some of the challenges of writing an innovation business case?
The most common challenges that I see people struggling with when aiming to build an innovation business case are:
- They have no clear definition of success, so find it difficult to build an argument as to why their innovation is investable. Identifying the purpose and target outcome right from the start is essential.
- They have inaccurate or incomplete information. If this applies to you, focus on what you really need to know to make a decision, and leave the rest. Do your best to find the information you need, and demonstrate best endeavours in your business case write-up. Remember, though, that we rarely have a perfect set of data to base our decisions on, so you’ll have to step back and evaluate your innovation in the round. Also bear in mind that the past definitely doesn’t always project as a straight line into the future, so allow for that too.
- Forecasting how the innovation will perform, for example sales forecasts, timings, costings. Do your research and idea testing, and be prepared to make some judgment calls. An assumption is something that you assume to be true for the purposes of developing your business case for innovation. Write down your assumptions, as you can go back, test and learn from these later. It’s also good professional practise to do so because it helps others to follow your rationale and consider those assumptions.
- Risk aversion / gung-ho thinking. Everyone’s appetite for risk is different, it’s a very personal thing. Equally, some people are much more optimistic or pessimistic than others about potential likely outcomes. Try to be as objective as you can, and let the work you’ve done in gathering the numbers, facts, customer responses and so on build the story for your innovation business case. Avoid letting your emotions or personal agenda influence you too much.
- Multiple stakeholders with different interests and views. It can be challenging to navigate a range of perspectives and agendas, but if you think positively about it and actively listen to your key stakeholders, you can use diversity to actually strengthen your innovation business case. Other people will spot things you’ve missed, and make suggestions that you might not have thought of. It can feel like herding cats, sometimes, but as long as you use your leadership skills and remain true to your purpose, leveraging multiple viewpoints is a healthy thing to do.
- Time (aka procrastination). Sometimes we are genuinely super busy, but if the innovation is important to you then do create the time to do a great job of your innovation business case. I often see people putting off getting started with it because the innovation business case is so important to them! They want to do a great job, but perfectionism and self-imposed pressure prevent them from getting started. Use the heading prompts I’ve given you above to get going. They’ll help you as you won’t be starting with the dreaded blank sheet of paper!
How to reduce uncertainty?
Innovation comes with inherent risk. Make sure you try to identify and discuss the unknowns clearly in your business case. Whatever you do, don’t just brush them aside. Make sure you address them head on. This will actually give your innovation business case far more credibility than if you just pretend that all these risks don’t exist.
Next, make sure to gain as much clarity as you can on the things that you can. Focus on the issues that make a material difference. You don’t have to go down every rabbit hole to find every little bit of information.
Zoom in on finding out the things that really matter. What are the levers? What are the inputs and the outputs, and the costs and the revenues that are going to make a material difference?
Consider using the bullet proofing technique and work on those risks that are the most probable, and that could cause the biggest problems if they were to occur.
Think about those and then work out a strategy for dealing with those risks.
To accompany your written innovation business case, create a spreadsheet that shows the timing and amounts for all the cost efficiencies (savings) and revenue. Here’s a checklist of items for you to consider.
- Each item of capital expenditure needed
- Employee costs
- Ongoing operational costs
- Legal, admin, accountancy, insurance, intellectual property protection
- Projected sales from the innovation; and / or projected cost efficiencies / savings from the innovation. Show when they will start, and how they will build.
If you don’t know where to start with projected sales, I suggest you have a think about what your sales per week or month could be. What would be a realistic sales volume for you?
And again, remember to use the worst case, most likely case, and the best case scenarios. This is also called sensitivity analysis. When you do this, you can plan for each scenario from a financial or reputational perspective, and then plan for what you might put in place to gear up for each different scenario.
Evaluating your innovation business case
Next, it’s really important that you take a break from your business case for a while and focus on something else.
Then, come back and ask yourself…
- Do the potential benefits truly justify the efforts, risk and investment?
- When is this investment likely to pay back?
- How will this investment impact our cash flow?
You’ll find my guide Do your reports make your business ideas shine? super helpful, too.
Lastly, you should have everything in front of you then that you need to make a decision, but make sure you adapt this to your needs.
You can find more information on this subject, as well as other innovation related topics on my website at www.bigbangpartnership.co.uk/resources.