Understanding the innovation funnel and its stages

Innovation is fundamental to business success. We can’t simply regenerate the same ideas into our processes and expect new results. Fresh thinking and creativity are what make a business stand out amongst competitors, and create sales and tangible results. But how do we know what ideas are worth investing money and time into? Naturally, they involve risk. That’s where an innovation funnel enters the equation. Let’s explore what this is and the various stages of an innovation funnel.

What is an innovation funnel?

An innovation funnel serves as a systematic process to determine the viability of your ideas and sift out those that are unlikely to succeed. It acts as a cornerstone for idea generation, preventing the pursuit of projects destined to fail or yield little revenue upon launch. By reducing uncertainties, it enhances focus and, when utilised efficiently, becomes a pivotal driver of business expansion.

What is the process of an innovation funnel?

The innovation funnel is a structured process that guides organisations through a structured process of idea generation, screening, concept development, feasibility analysis, prototype development, testing, market launch, commercialisation, and ongoing monitoring and iteration. Ideas are generated from various sources and filtered based on criteria such as feasibility and market potential. Selected ideas are developed into detailed concepts, tested through prototypes, and launched into the market. Continuous monitoring and iteration ensure that innovations meet customer needs and remain competitive. Ultimately, the goal of the innovation funnel is to transform ideas into successful innovations that create value for the organisation and its stakeholders.

Example of an Innovation funnel process

A technology company may start by brainstorming ideas for a new mobile app. Through screening, they select an idea for a productivity app that aligns with market demand. Concept development involves defining features and target users. Feasibility analysis ensures technical and financial viability. Prototypes are then developed and tested with potential users. After refining the app based on feedback, it’s launched in app stores. Continuous monitoring and iteration refine the app’s features and user experience post-launch, ensuring its success in the competitive market.

A breakdown of the stages of an innovation funnel

With a systematic mechanism, you can transform that great idea on your phone notes or a post-it note into an actionable strategy with visibility that delivers success. The standard stages in the innovation funnel are as follows:

Stage 1: Situational Analysis

A great way to spark ideas is to consider what problems there are in your industry, and what solutions could solve them. What are your customer needs? Challenges double up as opportunities. These useful insights will help spark ideas.

Stage 2: Idea Generation

The process begins with the generation of ideas from various sources such as employees, customers, partners, market research, or technology trends. These ideas can be generated through brainstorming sessions, hackathons, suggestion boxes, customer feedback mechanisms, etc. Be imaginative without limits as these will later be filtered. Some of the most innovative and successful projects have started with a brainstorming session.

Stage 3: Idea Screening

This is where you evaluate each idea critically. The generated ideas are evaluated against predefined criteria such as feasibility, market potential, alignment with organisational goals, technical requirements, scalability, and competitive advantage. Ideas that meet the criteria move forward in the funnel, while others are filtered out.

Stage 4: Prototyping

Selected ideas undergo further refinement and development to create detailed concepts or prototypes. This may involve conducting market research, feasibility studies, design iterations, and technical assessments to flesh out the ideas into viable concepts.

Stage 5: Testing and Evaluation

Developed concepts are tested and validated through pilot programs, prototypes, simulations, or small-scale experiments to gather feedback from target users or stakeholders. This helps in assessing the practicality, usability, and market acceptance of the concepts.

Stage 6: Development and Implementation

Once the testing and ideas are approved, the chosen concepts are developed into full-fledged products, services, or solutions. This stage involves detailed planning, design, engineering, and manufacturing activities to bring the innovation to reality.

Stage 7: Launch and Commercialisation

The final stage involves launching the innovation into the market and executing a comprehensive go-to-market strategy. This includes promotional activities, sales efforts, distribution channels, customer support, and monitoring performance metrics to ensure successful commercialisation.

Throughout the innovation funnel, there should be mechanisms for continuous feedback, iteration, and refinement to improve the quality of ideas and increase the likelihood of success. Additionally, clear communication, cross-functional collaboration, and leadership support are crucial for effectively managing the innovation process and driving organisational growth.

The benefits of an innovation funnel

• Prevents wasting your precious time — an innovation funnel eradicates ideas that would be futile in the long run, and cancelling these out early in the process keeps your team focused.
• Creates a better chance of success — a defined testing stage as part of the innovation funnel stops you from getting carried away with speeding along an idea before ensuring it is right first. Carefully narrowing down ideas helps you find a solution that has a fixed purpose and therefore the potential for commercial success.
• Encourages better ideas — through a systematic approach and taking into account the needs of your market, you can build a foundation that encourages collaborations and brand-new thinking.
• Ensures you stay competitive — an innovation funnel provides focus to enhance outside-of-the-box thinking while making sure you don’t stray from what’s important for your business. For example, it helps you to stick to a budget and not cause any financial problems for your business.

How can R&D tax credits support your ideas?

Innovation comes at a cost and you don’t know if your ideas will work until you’ve invested into the project. Through the government’s R&D tax credit initiative, you can claim for the R&D costs including:

• Staff costs — Claim for total employee salaries, National Insurance contributions, and contributions towards a pension plan
• Subcontractor costs
• Costs for Externally Provided Workers (EPWs)
• Cloud computing and data costs — This includes licence payments for datasets and costs for computation, data processing and software.
• Clinical trials
• Materials and consumables — This involves the costs for the transformable items of your project including water, fuel, and power

The current R&D tax rate, as announced in the Autumn Statement 2023, is 20%. This means for each £1 you’ve spent on qualifying R&D activities, you can get 20p back. The purpose of the R&D tax credit initiative is to reward innovation and actively encourage it by reducing the financial burden.

Final thoughts

Having a comprehensive understanding of the innovation funnel with an open mind and its stages is paramount for businesses striving to stay at the forefront of progress. Take your ideas much further with R&D tax credits. As you work through the stages of the innovation funnel, keep R&D tax credits at the forefront of your mind as you innovate. Contact our team to discover how we can assist you in recovering R&D costs incurred throughout your innovation journey.