The slush fund
Speaking with a large firm recently, we tracked the process of an idea from initial capture to final implementation. Generally speaking an idea went through three gates or phases before it could be considered for funding. If it could be considered for funding, the idea then had to proceed through the annual planning process. Miss the window for the annual planning process and the idea waits till the following year unless some special funding was made available. This meant that an idea generated in February or March didn't get funded until November or December, and the funds to support the idea were not released until the first quarter, or at least a year after the idea was generated. In a market where new products and services are introduced daily, how much does your idea age before it gets funded?
If innovation is to be innovation, we should determine to implement good ideas when the time is right for the idea, not based on an existing ponderous annual planning process. I like to call these idea killing machines, since that's what they are. The time and effort required to move an idea through an annual planning process, especially given the difficulty of measuring the costs and returns of many ideas, means that too much time goes by before the funding is available. Other competitors are moving more quickly. Product lifecycles are getting smaller and smaller.
To keep innovation from getting crushed in the maw of the annual planning process, your firm is well advised to create a slush fund or innovation fund available outside of the traditional annual planning process, to provide just enough oxygen for good ideas that are out of phase with the planning process. Again, we can't expect the world to sit and wait for our great ideas to work themselves through a planning process that's based on a calendar year - good ideas need the funding necessary when the time is right. Too many times the window of opportunity closes before an idea can even be considered using a traditional planning process.
Several firms I've spoken with or worked with use an internal Venture Capital approach to solve this problem. Ideas can receive funding but have to apply to an internal VC fund to gain the money necessary to ripen the idea to the next step. This process is often much faster and more attuned to the lack of information and higher risks associated with innovative ideas.
Regardless of your innovation approach, find a way to provide some funding for ideas without having to pass the ideas through the annual plan, or you'll find the opportunities passing you by.