Introduction
Most successful companies plan and prioritize new initiatives and expenditures using business cases. Most compare a project's projected cash inflows and outflows to those of other projects. Failing to demand business cases is a common mistake in failing companies, but common business case process stifles innovation. It promotes projects with highly-predictable near-term cash inflows, which innovative efforts do not have.
Business Cases Are Vital for Incremental Growth
Successful companies have resources—talent, cash, data, and others. And they face constant pressures from customers, directors, and others to spend those resources on whatever those people think is valuable. But those resources have a limit, and companies without defined processes quickly spend resources in ways that don't meet the goal all companies share—to (at least someday) bring in more cash. A good business case evaluation process forces expenditures to justify themselves based on the additional cash they will bring in.
Smart companies demand that expenditure be justified by positive cash results. On average, they bring in more cash which can be spent on even more projects or returned to shareholders. Less demanding companies spend their resources in ways that don't bring in additional cash. They fail to prioritize. Costs mount, revenues lag, and eventually they painfully restructure or cease operations.
No, business cases don't always bring in their promised cash flows. Still, over time companies that demand business cases outperform those that don't.
Business Case Processes Can Stifle Innovative Efforts
OK, so Company A has a solid business case process. The efforts it funds typically bring in more cash than they spend with an acceptable return on investment. Business cases that don't promise better financial results don't receive scarce resources. And Company A is growing at, say, 5% per year. So far, so good.
But Company A is facing increasing competition from smaller rivals who meet its customer needs in different ways. And it would like to realize faster growth or at least break out of its 5% linear growth from time to time. And it has struggled to do either. Why?
Perhaps specifically because Company A has such a solid business case process, it starves efforts which have difficult-to-define returns and gives those resources to those that have easy-to-define returns. It's a common problem most executives will be familiar with: initiatives with difficult-to-define cash outcomes are frequently bad ideas that don't benefit the company, but a rare few are critical new ways of doing things. Those rare few critical ideas might not know themselves what revenues they will bring in have difficulty judging when the market for the new thing will be ready, or both. In short, they're envisioning five years or more from now instead of tomorrow. Our solid business case process is starving them of resources, just like it's designed to do.
Innovation Fails When We Can't Separate Bad Ideas From Risky Ideas
Not enough companies have a business case process that separates solid business cases from speculative business cases. Even fewer have a process that can separate speculative business cases that are bad ideas from speculative business cases that are innovative and enable discontinuous growth.
When companies can't separate solid business cases from speculative ones, they stifle incremental growth. When companies can't separate speculative bad ideas from speculative innovative ideas, they stifle breakout growth.
What do organizations look like when they stifle breakout growth?
- Lack of Vision. The organization cannot describe how it's changing its industry for the better
- Investments Don't Drive Meaningful Change. Small efforts are defunded. In the near term, we think ourselves wise for stopping "off strategy expenditures". But we later wonder why our investments don't produce meaningful changes.
- Innovative Employees Cause Problems. Innovative teams and employees engage in undesirable behaviors:
- "Repurposing" funding for mundane efforts toward innovative efforts
- Writing business cases that promise nearer term revenues than they can be sure of
- Giving inaccurate descriptions of what they plan to spend the money on
- We Can't Retain Innovative Employees. Innovative teams and employees depart the company to work with seemingly more innovative competitors
- Growth is Slow and Linear. All the while, the company continues to grow, albeit more slowly than desired.
Conclusion and Further Discussion
The same business case processes that are vital for linear growth kill innovative growth. Companies with solid business case processes need a process change to separate bad speculative ideas from innovative speculative ideas.
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