What Are the Best Metrics for Measuring Innovation?
How can you measure how well your organization is doing with innovation? What metrics can you use? Most corporations find it difficult to measure innovation in any satisfactory way. But there is help at hand. There is some useful information in a piece of Boston Consulting Group research on the subject. The British Quality Foundation carried out an innovation metrics web survey. These surveys show that the most common measurements are backward looking - e.g. % of revenue from products released in the last two years. The BCG report recommends that you select a small number of metrics appropriate for your business and have some for inputs, process and outputs. Here are some of the best yarsticks to use:
Process Metrics
Output metrics
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?
Input metrics:
- Number of ideas generated
- Resources allocated to innovation - people and budget
Process Metrics
- Average time from idea approval to implementation
- Number of ideas approved and number implemented
- Stage-gate pass rates
- Value of the innovation pipeline
Output metrics
- Number of new products or services launched
- Revenue from new products or services
- ROI on innovation spend
- Market Perception
- Number of new customers
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.
Paul Sloane writes and gives keynote talks on innovation.
Published by Paul Sloane
I am a Speaker & Author of books on lateral thinking puzzles, leadership & innovation. I help organisations to improve creativity and innovation. I give keynote talks and I facilitate brainstorms and worksh... View profile
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3 Comments
Post a Comment(Continued part 3 of 3)
This comes down to analyzing the balance between the added costs of market failures versus the foregone revenues and profits from additional new products. (And if the company has too many failures and too few introductions, then something else is wrong.)
Properties of the innovation process also modulate the optimum pass rate. If a company suddenly finds a gold mine of new ideas (e.g., via open innovation or crowdsourcing) then they can afford to lower the pass rates to let only the cream of the crop through. And if a company can reduce the cost of each stage (including the cost of product launches), then if can raise the pass rate to really bring a lot of new fresh products to market.
(sorry for the formatting & order. Your comment system doesn't make it easy)
(Continued)
We've seen that problem too, especially in large mature or financially-stressed organizations. Thus, an innovation manager or executive cannot simply seek "improved" the pass rates.
Yet pass rates aren't meaningless even if it's not obvious whether they should be higher or lower. Pass rates do tell managers something about the shape of their innovation funnel. Low pass rates beget a steep funnel with many ideas going in and very few coming out. High pass rates beget a shallow funnel with almost every idea going in also coming out. That makes pass rates more a diagnostic for analysis rather than a scorecard metric for improvement.
The values of other metrics help managers know if their pass rates are too high or too low. If a company's new products have high marketplace failure rates (compared to the competition), then pass rates might be too high. If a company isn't introducing enough new products (compared to the competition), then pass rates may be too low. Thi
Nice article, Paul. I agree that innovation needs more measurement to help managers and executives guide the process.
What's interesting is that most of these metrics belong to the "more-is-better" category of scorecard/dashboard item. We can all agree that more new products, more new customers, more ideas, faster cycle times, and more ROI are really nice to have. That makes management easy because one can simply ask for a little more each quarter, see if one is getting better or worse, and acheive continuous improvement.
The biggest odd-man-out, though, is "stage-gate pass rates". Higher pass rates don't always equal better pass rates because it might mean that too many bad ideas are passing for the sake of political politeness. I'm sure we've all seen examples of pet projects that get green-lighted due to less than rational "top management support." And lower pass rates aren't better, either, because it might mean that risk aversion and cost-cutting have sabotaged innovation.