The Hidden Cost of Poor Innovation Execution

by | Feb 13, 2012 | Uncategorized | 0 comments

Executing and launching new products takes financial and human resources.  When poor execution delays a product launch, companies are hit with another cost, one which often goes unnoticed.  Poor execution delays the revenue stream that a new innovation will earn.  Given the time value of money, that financial loss can be staggering. Consider one of the most famous innovative product – the Post-it® Note.

3M scientist, Spencer Silver, invented a note size paper with a weak glue backing. The company saw no market application for it.  One day, Art Fry, another 3M scientist, was singing in the church choir.  Paper bookmarks kept falling out of his hymnal, so he began using the sticky notes instead.  With the weak adhesive, the notes stayed in place, yet lifted off without damaging the pages.  3M began distributing Post-it® Notes in 1980 — ten years after Silver developed the super weak adhesive.  Today, it’s one of the most popular office products available.

What if 3M cut that execution time from 10 years to 5 years?  What is the value of better/faster execution?  Let’s make some simplifying assumptions.  Assume the Post-it® Note franchise turns out $1 billion in annual revenue and nets a profit of $100 million in perpetuity. (3M’s consumer products and office division, which includes Post-it®, posted revenue of $3.47 billion in 2009 according to public financial filings.)  Using a discount rate of 5%, that yields a net present value of $2 billion.  Now what if that cash flow is delayed just five years due to poor execution.  Using the same discount rate of 5%, the new NPV is $1.6 billion, a whopping $400 million in lost cash!

Could 3M have spent money on ways to speed up the launch of the Post-it® Note?  It is certainly plausible.  Investing in market research and other experimentation might have led 3M managers to see the potential of the product sooner.  It certainly would have cost less than the $400 million lost due to slow execution.

Some might argue that execution is more important than creation, but both are necessary to succeed.  Applying systematic methods to create great ideas increases your odds of success.  Great execution is what helps your company realize the full financial value of those inventions.