Helping businesses secure and maximise R&D tax credits and grants

What Is An Innovation Funnel?

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Sorting the great ideas from the not-so-great ones

Mention innovation funnel to most people and they’ll look at you blankly. But actually, the basic idea is pretty simple. 

Essentially, it’s the process by which a company’s pool of R&D ideas is examined and whittled down before being shaped into concepts and tested. Then, a final product can be selected before being launched and marketed. Here we look at this in more detail.

So what is it?

The innovation funnel is a mechanism that means a continuous stream of innovative ideas and prototypes can be screened for viability. Often also called a “funnel management process”, it’s a popular approach used by many companies to decide what ideas are realistic and which aren’t. Strategies and action plans can then be finalised.

At the heart of the innovation funnel is the idea that large numbers of innovative projects, including those that are in their very early infancy, are scrutinised and refined. Think of it like a physical funnel, where there are loads of different innovative ideas floating around at the top, and far fewer lower down. Only the best, most viable ideas will remain whilst the others are filtered out. As well as working out viability, it’s a great way of prioritising objectives.

The thinking behind the innovation funnel is that unlimited brainstorming can be put in the top, and out the bottom comes more valid ideas. It relies on input from individuals right across the organisation, as well as external customers and suppliers.

What are the different stages of an innovation funnel?

Below are the main parts of the typical innovation funnel in more detail:

Stage 1: Opportunity assessment

This is where the organisation examines customer and market data and other information to analyse what opportunities there are for a new product or product line.

Stage 2: Insights-based ideation

If an idea comes up that is in keeping with the company’s overall R&D strategy, the next step is to work out how this opportunity could be capitalised. There’s a fair amount of brain storming and customer insight needed here, as well as market research involving target audiences, crowdsourcing and focus groups. At this stage many companies will also look to see what R&D grants may be open to them as well.

Stage 3: Conceptualisation

This is the stage where the best, most viable ideas are mocked up as prototypes ready for testing. Several mock-ups are likely to be made for the same product, as different upgrades and iterations are considered.

Stage 4: Evaluation and benchmarking

Now is the time to test out the prototypes on the relevant consumer groups. Based on the feedback, further opportunity is created for the product to be tweaked and re-tested.

Stage 5: Plough on or cut it loose?

After testing has been done and all the feedback collaborated, only at this stage will it be clear if the product really is likely to fly. This is the time to make a decision, either to plough further money and resource into the product or actually to abandon it altogether. When making these considerations, executives and R&D teams will need to factor in manufacturing costs, marketing and advertising costs and other expenditure required.

It’s at this point we strongly recommend companies consider claiming R&D Tax Credits to help with the cost. The eligible projects and costs are incredibly varied, with many claims totalling tens of thousands of pounds and the scheme is open to UK companies of any size and in any sector. Find out more about R&D Tax Credits.

Stage 6: Launch

Now it’s time to launch the winning product onto the market! The innovative idea has become a reality.

Are all innovation funnels the same?

No. Whilst what we’ve described is the most traditional type of innovation funnel, there is some variation. Technology innovation for example relies more heavily on agile development and open development. But in general terms, the traditional innovation funnel is popular because it’s simple and adaptable across different industries.

However, it’s worth pointing out that the funnel-type process isn’t perfect. Indeed it has often criticised for getting rid of ideas too early on, and only moving on the ‘safer’ ones to the next stage, thereby stifling creativity. But in this dog-eat-dog world where resources are stretched and every area of product development must bring about maximum returns, the innovation funnel model is by enlarge standing the test of time.

Maximising the innovation funding opportunities available

Over the course of this year, the government has provided a range of COVID-19 supports for businesses. But did you know that long before coronavirus took over our lives, innovation has actually been high on the government’s agenda. This is because not only do innovative companies grow, they also take on more staff and help strengthen the economy. One such example we’ve already mentioned briefly is R&D Tax Credits.

How R&D Tax Credits work - and what they’re worth

R&D Tax Credits allow UK companies to claim back a proportion of their expenditure on innovation. This is done either as a cash lump sum or as reduction in their Corporation Tax liability (if the company made a profit).

The key is that the innovative project makes an advancement in science or technology that benefits not just the company itself but the wider field it operates in. It doesn’t have to be a large or expensive project, and it’s open to all companies regardless of industry. As long as the criteria are met then a lucrative tax relief could well be award - and it’s generous too. In fact for SMEs as much as 33 pence in every £1 of R&D expenditure can be claimed back, with qualifying costs including staff wages, materials, overheads and much more.

To find out more about the relevant criteria and how to apply, we strongly recommend reading our R&D Tax Credits page.

Looking to claim or just need some further advice?

Get in touch today and make sure your company receives the R&D tax relief it deserves with our professional, hassle-free service.


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