Innovation – Measuring innovation
In the previous article I discussed the role of project management in the innovation process. To summarise, project management is the “execution tool” of innovation and brings structure to an inherently unstructured activity. The process has started out with an idea, the idea has been delivered, and now it has to be determined if the innovation delivers the value that has been envisioned in the ideation stage. This is not a straightforward measurement, because innovation can take on so many forms, the benefits can be tangible or intangible, and sometimes it takes a long time before the actual benefits are realized.
How can you measure how well your organisation is doing with innovation? What metrics can you use? Most organisations find it difficult to measure innovation in any satisfactory way.
The most common method to measure innovation has been to measure Research and Development (R&D) spending. However, this view (or method if you want), has been challenged over the last couple of years. In my view, this measurement is more applicable to manufacturing and product development environments. I also want to make the statement that I have not come across many organisations in Namibia that has a R&D budget. Another widely used measurement is Return on Investment (ROI). Criticism on this method with regards to measuring innovation is that ROI-based assessments tend to embrace short term thinking and to exclude the development of long term, breakthrough, and discontinuous ideas and projects.
Measurement of innovation underwent a transformation and it is much more refined now. Measuring innovation has been split between different stages of innovation, namely input metrics, process metrics and output metrics. Input metrics include measures such as: Number of ideas submitted and resource allocation to innovation – people and budget. Process metrics include measures such as: Average time from idea approval to implementation; Number of ideas approved and number implemented; Stage-gate pass rates; and Value of the innovation pipeline. Output metrics include measures such as: Number of new products or services launched; Revenue from new products or services; ROI on innovation spend; Market Perception; and Number of new customers.
There are many other metrics for innovation and based on some of the articles I have read from the more well-known consulting firms, some of these measures can be downright complicated. I am a firm believer of the old maxim “you have to measure to manage”, especially with something as “fuzzy” as innovation, but my advice would be to keep it practical and to make sure that the effort of collecting the data, does not outweigh the benefit of having the data.
It is useful to draw flow-chart diagrams of the innovation approval and pipeline processes and ask some searching questions. Are we getting enough ideas coming in? Is it taking too long for good ideas to be implemented? Are we getting enough innovations out of the process? Are our approval processes too complicated or too difficult? There are no perfect measurements for innovation. Each metric gives a part of the picture. By choosing and applying a small number of metrics appropriate for your business you can add innovation to your balanced scorecard and give it the high level attention that it needs if you are to succeed.
I have laid down some basic metrics for measuring innovation, but please view it as guidelines only, it will be different for every organisation and you have to be pragmatic about it. I also seriously recommend some “minimum” measurements at least, especially if your innovation efforts are still in the beginning stages and the organisation needs to pin down where the bottlenecks in the process exist. Next time I will discuss some practicalities around establishing a sound process for innovation. I conclude with a quote from James Harrington: “Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it”.