Measuring Innovation?
Measuring innovation presents a conflict of interest. If you build a measurable process around innovation are you not destroying the openness needed to fuel innovation? Maybe so, but when trying to instill a culture of innovation in a large, successful corporation it will be hard to change anything that isn't measured. So a CEO has two options: 1) Let the final performance of a business unit be the ultimate judge of successful innovation or 2) Find some metrics that will provide indications of how well a business unit is executing in all phases of innovation.
The first option demands that business units meet a threshold level of Revenue and profitability growth (GE sets it at 8% per year) . The problem is that a CEO will never know there is a problem until they miss their numbers. After heads roll, getting the business unit back on track will be a 2 - 4 year process. I know of few CEOs who could survive such a setback. The second option tries to find a delicate balance of measurement without dictating process. Measuring innovation provides a second challenge that most innovation will take multiple years to come to fruition (often with losses in the front end). As Robert Louis Stevenson said, "Don't Judge each day by the harvest you reap, but by the seeds you sow."Any interpretation of innovation metrics must keep this statement as the overriding context. A fair innovation metric exercise should try to incorporate a balanced scorecard approach - there is no dominant innovation metric. Try to look at innovation in multiple phases. I propose Inputs, Process, Execution, and Value Creation.
- Inputs - Are you putting sufficient resources and generating enough ideas to fuel your target growth (see my post on innovation math)? Track the number of ideas you generated, how much resources you had dedicated to innovation (not evolutionary product developement), and what types of opportunities do you have in your pipe (is your pipeline evaluating enough ideas of a sufficient market opportunity).
- Processes - How quickly are you processing ideas through each stage of your pipeline from early evaluation through to launch?
- Execution - How many launches have you had this year? How many launches attack large market opportunities? How accurate have your forecast efforts been?
- Value Creation - What is the contribution margin of your recent years' launches? What percent of revenue growth is contributed by innovation projects?
You can find the best measures for the four headings based on your company environment. The goal of these metrics is not to judge the success or failure of a business unit. It needs to be a collaborative effort to help business units identify any red flags in their innovation processes so that they can course-correct before it becomes a big problem.
