Measurement is critical to maximising return on innovation

12 Aug 2014

By Tara Rivkin  –  Part 1 of 2 part series on measuring innovation

The question of how to quantify an organisation’s innovation* performance is an exceedingly complicated one. There are a myriad of factors involved and varying methods that can be used. And, the challenge of course is to make measurement a priority and stick at it.

“The best solutions,” Soren Kaplan, founder of InnovationPoint, writes, “create simplicity from complexity.” This makes sense, but it’s not as easy as it sounds. Indeed, as a Business Week article identified,“many companies have too many metrics and try to measure everything with different criteria. ”Understandable, considering that in many cases, it is not one department controlling the innovation. Innovation experts have suggested that you choose between 8-12 metrics that matter and that measure inputs; processes and outputs – then make sure you communicate with stakeholders and understand what your metrics are telling you. For example:-

• Inputs
  • Can be financial resources, People, Time
• Process
  • You could consider the number of ideas, How many ideas progress, How many don’t proceed
• Outputs
  • Financial benefit, Indirect benefits such as knowledge gained, Improved client experience; quality: safety

Innovation is a different ballgame in different systems. Most typically in a business context when we think of innovation, we think of new products and the obvious examples of Apple and Google. Creativity and innovation are inherent in these powerhouses’ business models, of course. But innovation also means new services or improved customer experiences, business models and organisational practices.

The point of innovation in a business context is, naturally, to maximise financial reward and to stay ahead of competitors. It would therefore seem a logical move that companies measure innovation by looking at the end of the line: ROI. However, the following is written in a post on the Global Innovation Centre blog: The results of global studies suggest that emphasising seemingly ‘absolute’metrics is still the modus operandi in many companies. However, measuring at the very back-end of innovation also has its drawbacks: huge time lags, the challenge of isolating driving forces or a general lack of granularity required for managing innovation on a day-to-day basis.

Some of the most common measures are as follows:

• Number of patents filed annually
• The number of ideas employees propose
• Annual R&D budget as a percentage of sales
• Organisation outcomes from new or existing technologies
• Percentage of sales from new products
• Number of active projects

Ideally, a company will devise a way to design a seamless, integrated system of metrics including input, output and process while also taking notice of the broader picture: “…the learning of new techniques, the stimulation of new ideas and the increased ability to adapt and harness new knowledge, not just in new areas, but in existing parts of the business. To leave these elements out of the innovation equation would be akin to ignoring the nutritional properties of food and simply measuring how much goes in one end and out the other.”

* Innovation is commonly defined as the “implementation of a new or significantly improved product ( goods or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations” (OECD, Oslo Manual, 3rd ed. 2005)

Follow Soren Kaplan on Twitter: https://twitter.com/sorenkaplan