Why Social Innovation Is Not What You Think It Is

Almost all organizations are intrigued by the possibility of Social Innovation to increase the volume of new product ideas, come up with the next blockbuster, or to tap the minds of the customer to find new products and services that address their core needs.  However, there is another benefit of Social Innovation that most of you have not considered, and that is how it might actually be better and cost less!  Although the cost effectiveness of Social Innovation has not been widely published, we have found some intriguing evidence in our most recent benchmarking study of leading Social Innovators.

We have identified nearly a dozen organizations that are leading practioners of Social Innovation with the help of professors Tammy L. Madsen, Kumar Sarangee, and Jennifer L. Woolley of Santa Clara University.  These organizations include Autodesk, Cisco, Farmers, HP, IBM, NetApp and SAP.  In the study findings we identified ten best practices that these organizations employ to yield Social Innovation programs that make a difference to the bottom line.  In the process of writing this study, we noticed a significant insight that has not been published before – and that is the tremendous potential cost leverage that can be gained by Social Innovation.  This is important because many CFOs are missing the justification they need to sign off on the small investments to fund the initiative.

Anyone familiar with product development and R&D budgets know that organizations invest 2-20% on R&D, with the best reserving 10% of the base percentage for advanced development.  This 10% is typically not for blue sky research, but to explore new technologies and new categories that can help grow the company in new ways.  A way of looking at Social Innovation is that it potentially augments, or ultimately replaces advanced development because it leverages ideas from everywhere, including those outside the company.

Innovation comes from all directions & best practice, starting with 3M in th 80’ of making innovation everyone’s job. This was recently re-popularized with Google’s adoption of this imperative.  Still the reigns are tightly held by management, which only allows ideas that who survives the normal prioritization process.  An idea is nothing if it is not funded.  Social Innovation provides an organization and a process for turning these ideas into supported, funded, programs.

Think about how organizations can provide an alternate form of R&D but augmenting this process by a very cost efficient social innovation front end.  Social innovation is extremely cost efficient because it: uncovers ideas from everywhere, uses the passion of the inventors to get ‘free time’ since they are so passionate about their ideas, and it provides a method to focus ideas.

In the dozen organizations we have studied, all have formulated some kind of social innovation center, staffed with just a few individuals and some relatively inexpensive technology.  We are talking about teams of 3-7 full time equivalents and software that is on the order of $100K to purchase.  These innovation centers collect energies that are already existing, sunk time if you will, and convert that into output directly or combine them into a composite idea that extracts the best from several concepts.

The innovation centers have put into place product ideas that range from a few at the lower end, to up to sixty at the high end.  These ideas augment the core idea stream and don’t compete with it. In the case of P&G they have been able to downsize the marketing department as a result of Social Innovation.  In other cases we have seen one to four very large ideas converted into best selling products, or products that each has potential for $100M in sales.  So there is demonstrated return on the investment in these social innovation centers.

When looking at the SI possibilities, don’t just consider the novel ideas that would not have been generated before, but consider this a way to save the cost of advanced development, or 10% of R&D.  You can calculate the cost savings for the Fortune 500 by looking at the total R&D budget, and saving nearly 10% of it.  It would amount to $13B of savings in the Fortune 500 alone.

Not only does Social Innovation impact the number of ideas you can pursue, but also can impact time to market.  One study participant reduced their time to market by 30% by SI techniques from ideation through market testing.  And they saved money in product definition and market testing, too.

So when you are justifying your next Social Innovation effort, do the math.  Not only do these organizations generate great new ideas, shorten time to market, but they also can provide profound savings.