Innovation ROI – how to measure it

Buzzwords

Innovation, Digitalisation, Blockchain, AI – we all hear these words every day, yet they still hold some kind of magic for many of us. There are numerous webinars and articles on these topics  – everyone invites us to join some kind of revolution but without a clear agenda or instruction on how to achieve it or overcome their inevitable obstacles. On the other hand, we see that market leaders are playing with different technologies and spend a lot of money on them. Some fail, some achieve great success. How can we start working with new technologies and verify whether the applied solutions are profitable for us in the long run?

What is ROI and why should you care?

ROI is the efficiency of an investment. There is a very simple equation: 

ROI = (Net Profit)/(Invested Resources) X 100

If the result is positive then you are a winner – you have invented (or bought) something that provides you with you more money than its costs. If negative, it means that you are burning cash and the situation is “unclear”.

Example:  Positive ROI on chatbots – a ready-to-go solution 

Imagine you have 100 people in a customer support program and they are all using chat support. Much of their job is quite repetitive – clients usually ask the same (or similar) questions. Hiring and managing customer support teams is expensive. The job becomes boring over time, so they leave and the business has to start the recruitment process over again. It costs time and money, and creates difficulties for managers. What if we used some automatisation here to solve this issue? Let’s focus on AI chatbots that can cover 30% of all chat conversations written manually.

It’s time for some math and comparison. Let’s make it simple and use the following parameters:

  • Number of employees
  • The monthly cost of each employee
  • The monthly cost of an automated chatbot

Cost of the customer support department

100 employees X  $2,000 (US) monthly = $200,000 (US) monthly 

What happens if we cover 30% of customer support with a chatbot? Let’s crunch the numbers:

Cost of the customer support department:

70 employees X  2000 USD monthly = 140 000 USD monthly (the number decreased from 100 because chatbots automated 30 % people so they could be moved to other departments). 

Cost of the chatbot: 

70 seats * 200 USD monthly = 14000 USD monthly

Total cost of human + machine = 154 000 USD monthly

Total savings: 200 000 USD – 154 000 USD monthly = 46 000 USD monthly

We’ve just generated saving for our company! 46 000 USD monthly!

Naturally, some people will say that a machine will never be as good as a human, but a chatbot is available 24/7, can have a very high level of empathy and answers questions very fast.  It has the potential to solve all of the problems we currently have in trying to reach customer support of any kind.

Things to consider when starting your innovative experiments

Always make a careful comparison between what makes sense of what not in term of innovation implementation. Applying technology or innovation just because it’s popular isn’t always the best idea. Start with WHY? Why do I need to innovate? Which part of my business needs it most? WhereWhat are my bottlenecks? How can I gain the competitive advantage with new technologies? 

Don’t build dedicated software from day one. Try to use existing tools, possibly even get in touch with some startups. Keep your costs low so even if you fail, you don’t lose too much money. The most important part of this process is the lessons you learn. Innovation is hard, but it pays off in the long run. 

Remember: Always measure your innovative activities! It will give you an overview of your spending and clear outcome regarding what works, and what doesn’t.

Further reading:

https://www.viima.com/blog/how-to-measure-innovation-kpis

https://grasshopperherder.com/the-roi-of-innovation/

https://www.rocketspace.com/corporate-innovation/how-to-measure-the-short-term-roi-of-innovation

https://www.spigit.com/blog/innovation-leaders-show-impact/

https://www.forbes.com/sites/theyec/2013/12/27/analyze-the-roi-of-your-innovation-idea-step-by-step/#24598c624c76

https://www.information-age.com/roi-is-decreasing-says-accenture-123478678/

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