Innovation Performance Metrics

Some things are inherently easier to measure than others. For example, an objective to measure Improvement in Revenue is fairly easy to measure, but other strategic objectives, especially those in the Internal Business Process and Learning & Growth perspectives have been historically more difficult to measure. One such difficult-to-measure objective is “Innovation”. Innovation is one of the most popular acts in business, but one of the hardest to pull off. As a matter of fact innovation is a process that is best managed with a long term perspective.

Innovation results are difficult to measure because of two main reasons (A) completion of ideas and projects in the innovation pipeline and (B) the expansion of innovation capacity at the firm.

How to measure innovation?

There is no best metric because single measurement processes can sometimes negatively impact the innovation processes they are attempting to measure. Therefore, a suite of metrics should be used to measure the innovation process In order to mitigate this negative impact and increase the value of the innovation measurement process, management should use these reviews as “teachable moments” to reward, correct or guide innovator performance appropriately. We can summarize this by concluding that there are objective and subjective metrics. The most popular metrics are described below:

1. Innovation and creativity are not exclusive to a select group of design engineers. Innovation and creativity can come from any employee. Most of the ideas may be very small, not like the new spectacular new iPhone, but the accumulation of these small ideas from all employees would represented the real success of companies. And one of these small ideas might become the next “Post-it-Notes,” or “Q-Tip.” Therefore one important key measure of innovation and creativity is how many ideas per month are you’re getting from all of your employees. For example this practice is very common in Japanese’s companies like Toyota. According to a recent article in the New Yorker magazine the average Japanese company receives 100 times more written ideas then the average American company.
2. Another metric is called “bottom up” management in which you ask the worker. You continually ask the worker but you don’t tell them how to do it. Thus by simply asking you force him to use either his common sense or his best knowledge of possible solution. Finally the innovation and creativity work of the employee will come up, the basic rationale behind this logic is that a person who faces the problem only he can come up with the best possible solution.
3. Innovation Sales Rate: This is a simple calculation of percentage of sales of new products, it has nothing to do with the type of innovation or any other factor. If the product has good figures in terms of sales quantity then the product is called an innovative one.
4. Number of ideas per person: A majority of companies in order to promote the culture of innovation are rewarding employees who contribute regularly by giving new ideas, suggestions and dare to do something new or innovative even if it is a very small initiative.
5. “Innovation Balanced Scorecard” (I-BSC) organizes the key measures into leading, in-process and lagging indicators.  It measures the (a) risk adjusted value and size, shape and speed of innovation projects pipeline, (b) investment in new platforms, partners, and competences, (c) new earnings and revenue contributed by the pipeline
6. Speed to market is valuable because it ties in all of a company’s operations.  Everyone understands the need to get something out before the competitor launches a competing product. Therefore if products are launched in a reasonable and considerable time ahead of the competition it is innovative. It increases the net present value of the project and helps in creating a competitive advantage in the market.
7. “Number of new products” metric which leaves open the possibility that some of the new products may fail. That is what innovation is about.  Sometimes you may even flop. The fast food industry is great with this metric. This industry has new offerings all the time, as well as some offerings that fade away. 
8. Increase in value of ideas at top of funnel simply measures the total number of ideas generated by everyone even if only one or two of them make sense.
9. Number of new ideas implemented takes into account how many ideas generated in a given period of time were implemented. As most of the time focus is on ideas generation but rarely implementation by the company.
10. Risk adjusted net present value of pipeline provides guidance for adding new projects, slowing or speeding projects or killing bad projects
11. Number of projects killed removes negative value projects out of the portfolio.
12. Lessons learned from failures and successes is a simple way by which companies tend to improvise them on a regular basis.

There are a lot of new metrics being used today but most of them are considered to be garbage. Things that need to be considered include overall portfolio performance and the “funnel.” Moreover the top of the funnel with new ideas should increasing constantly.  But the quality of what comes out of the funnel should be main focus for improvising. And most importantly, companies need to kill projects when it’s clear they’re not going to deliver value. Bottom line being we only measure the final result but in the case of innovation we must be measure the intermediate steps also.