order gabapentin cod It seems that everywhere I look, there is a magazine article, or an add, or a conference about innovation. I know it is my professional bias, similar to new parents that start noticing all those babies around them as soon as they have theirs.
According to Google Trends, interest in “innovation” peaked in 2004, but stayed at a respectable 80% up to today. I also wrote about managing innovation in the past : about managing the innovation process, about measuring innovation, and again about measuring innovation. And still, as I continue to be a practitioner of the art of managing technology innovation teams, my thinking has evolved. This post is an attempt to document my current thoughts about measuring innovation activities in the enterprise – for the ones too scared to question the conventional KPI-based wisdom, as well for the ones scarred from previous attempts to force metrics that are not applicable to innovation activities.
Metrics for Technology Innovation in the Enterprise
The subject of measuring the technology innovation process has been heavily researched recently, with many academics and practitioners offering their insights into what and how to measure to properly manage a technology innovation process.
Our focus here is on measuring the technology innovation effort for enterprise innovation teams, with the aim of defining a framework for measuring both the “process” in order to improve it, and the “output” in order to monitor the value that the innovation team is bringing to the enterprise.
As a general management rule “what gets measured gets done”. The corollary is that management teams have to be careful about what they measure to avoid a misread of strategic intent derived from improperly chosen metrics. The measurement system has to be aligned with the enterprise current innovation process maturity stage – there is no need to measure today outcomes that will be valid in three years from now. A much better approach is to define a simple set of metrics, valid for each stage, that provide alignment between the strategy and the business model for innovation, and a clear picture of performance.
Last, we have to emphasize the importance of designing a good measurement system, as a poor set of metrics, demonstrated time and again in management practice, will do more harm than good. As in many other fields of human activity, less is better than more.
The Roles of a Measurement System
The purpose of the measurement system is to help the management team in fulfilling their job, and should never be perceived as a solution by itself. The three roles of the measurement system are:
Plan
Define and communicate the innovation strategy. Address the selection of intended source of value, select the strategy, and communicate the strategy throughout the organization.
Monitor
Track the execution of technology innovation efforts to assess changes in the environment, intervene only if necessary, and evaluate performance.
Learn
Identify new opportunities. Learn about new solutions to achieve performance goals, new business or technology opportunities.
A Framework for Innovation Process Measurement
Many innovation models have been developed, addressing, at various level of detail, the elements composing it. For a measurement system, it is useful to work with a high-level, conceptual model that allows for an evolving measurement framework, in line with the progress made by the measured organization, as well as it is surrounding corporate environment. The high-level elements of the innovation measurement framework are: inputs, processes, outputs, and outcome.
Inputs
Inputs are resources devoted to the innovation effort. They include both tangibles (people, money, equipment) and intangibles (company culture, motivation). A more detailed classification follows:
- Tangible resources: capital, time, software and hardware, physical infrastructure
- Intangible resources: talent, motivation, culture, knowledge, brand.
- Innovation structure: internal support and/or interest groups, corporate venture capital
- Innovation strategy: innovation platform capabilities, strategic positioning
- External networks: partners, lead customer groups, key suppliers/vendors.
- Innovation system: systems for recruiting, training, continuous learning, execution, value creation.
Processes
Processes combine inputs and transform them. They measure current activities, and track progress towards the creation of outputs.
- Ideation process: tracks the quality of ideas, the ability to explore them, and the conversion rate into projects and value.
- Project execution: tracks the evolution of projects currently under way in terms of time, cost (effort), technology performance, and estimated value generated.
- Balanced innovation portfolio: tracks the mix of projects for alignment with strategy.
Outputs
Outputs are the results of the technology innovation efforts. These are “lagging measures”, in the sense that they inform after the effort is done.
- Technology leadership: technology adoption by business units, number of patents, citations, technology licenses.
- Project completion: execution metrics vs. expectations or commitments and industry or competitor benchmarks.
- New product introduction: if applicable, number of new products, market share, sales.
- Business process improvement: measured indirectly through business process improvement metrics.
- Market leadership: customer acquisition, market share, customer loyalty.
Outcomes, or Value Created
While outputs describe quality, quantity and timelines, outcomes describe value creation. Outcome measures capture how the technology innovation effort translated the outputs into value for the company.
- Project profitability: estimated value generated during project life cycle compared to expectations/commitments and industry benchmarks.
- Customer and products profitability : estimated value of innovation from a market and product perspective
- Return on investment: estimated value of organization profitability.
Selecting the Right Measures
By now, it should be clear that innovation measurement matters, and what it is expected to be achieved through innovation activities must be clearly measured for the benefit of all concerned.
It is difficult to know whether innovation efforts are effective and resources wisely applied without first defining the measures and target values. As described before, there are several goals to be defined for innovation efforts.
Measuring innovation is difficult and necessary, and innovation teams that don’t measure their efforts risk wasting resources and ultimately being out-competed. Using a mix of leading and lag indicators to measure key factors in the innovation environment (inputs, or leading indicators), key steps in the innovation process (focusing on projects throughput), and key outputs and outcomes (lagging indicators) creates valuable management insights early enough in the process to better guide the company strategic technology innovation direction and resource allocation.