How do you measure innovation?

Innovation distinguishes between a leader and a follower. - Steve Jobs

In today's market, either you keep up with disruptive innovation or you risk falling way behind. In fact, companies who don’t have systems for innovation as a core strategy are behind already. It has never been easier or faster for new disruptive technologies or services to upset the status quo.

We all know that what gets measured gets managed. The problem is, how do you measure something as elusive as innovation?

Measuring something not only lets us perceive value. It drives behaviour. So if you want to pursue innovation, as we know is necessary, what exactly do you measure? In order to reach the innovative heights set by groundbreaking companies like Apple, Google and 3M, what metrics should you pursue?

The Problem With Measuring Innovation

The are some issues. Innovation is:

• New and ambiguous - Companies have only started adopting systematic driven innovation relatively recently. When trying to make innovation systems repeatable and scalable there can be teething problems.
• Inherently full of uncertainty - It’s hard to both quantify and communicate the potential value of new ideas. A traditional metric is ROI. But it is not refined enough on its own. It can stifle valuable ideas that are in their early stages. Companies must get comfortable with ambiguity and risk for high potential rewards.
• Slower than comfortable - Although when it breaks out into a stale market it can feel rapid, the timeline for innovation can feel painfully slow. Large doses of patience are often required for the long wait to see any ROI.
• Complex - It can require different and fairly unacquainted parts of a company to be on board and motivated. However, one of the fruits of doing this successfully is that it can create that special synergy and creativity in a working culture that makes great things happen.

What To Measure In The Early Stages

To begin with it can help to keep things simple. Measuring a few simple metrics around financial returns can be useful, like:

• New revenue generated
• Costs saved
• Efficiencies gained

Why these? It can help to make decision makers and stakeholders feel more comfortable and secure. Tracking the progress of solid metrics like these at the early stages can help deflect objections and fear.

On top of this it can be useful to use metrics relating to productivity, like:

• Ideation volume
• Number of new projects launched
• Engagement levels

These can be used to status check the health of innovation in a company.

The Next Level

At this point companies need to take their systems up a gear. Pedestrian innovation programs have a ceiling on the impact they can have on a company. It’s important to create a well rounded portfolio of metrics that keep up with how the market is evolving. A company must respond to the direction the competitive landscape is going and get in front.

This takes a more sophisticated approach than relying on just the traditional metrics like:

• Annual R&D budget as a percentage of annual sales
• Number of patents filed in the last year
• Total R&D headcount
• Number of active projects etc.

Why? Because companies must utilise new approaches, like open innovation. This means sourcing ideas and technology from places other than your own company. Metrics drive behaviour. And the wrong metrics drive the wrong behaviour.

Goals Of New Metrics

It’s hard to pinpoint exact metrics that will work for every company. But we can start by brainstorming the specific goals for the new innovation metrics to achieve. Such as:

• Grow a culture that nurtures and drives strategic innovation
• Establish critical capabilities in areas where the competitive market is heading
• Create feedback systems for learning and incremental improvement
• Drive profitable growth

New Framework For Innovation Metrics

A well rounded portfolio of metrics may measure input and output metrics distinctly. The inputs can be defined as the investments, resources and behaviours that feed innovation. And outputs are the desired results. Finding a balance to these is what companies have to explore and refine.

These input and output metrics must be each measured within the following areas:

• ROI metrics - Resource investments, so you can monitor the support initiatives. And financial returns so you can measure value.
• Organisational capabilities - Measure the infrastructure, so you build repeatable and sustainable approaches to innovation.
• Leadership - track the behaviours that leaders must display to grow a culture of innovation.

How is innovation done in your industry? Comment below with your thoughts on how to tackle innovation metrics.