Chapter 6: Innovation Metrics and Performance Measurement Flashcards
is a key driver of organizational success, helping businesses adapt, grow, and maintain competitiveness in a dynamic market.
Innovation
ensures that organizations can assess the
effectiveness of their innovation strategies, allocate resources efficiently, and improve continuously.
Measuring innovation
Importance of Measuring Innovation
- Alignment with Goals
- Resource Optimization
- Risk Management
- Improvement
Ensures innovation initiatives are aligned with business objectives.
Alignment with Goals
: Identifies which projects or processes yield the highest returns.
Resource Optimization
: Helps in recognizing early signs of potential failure.
Risk Management
Provides insights to refine strategies and drive better
Improvement
Types of innov metrics
Input Metrics
Output Metrics
Process Metrics
Impact Metrics
- Focus on the resources dedicated to innovation.
Input Metrics
Input Metrics example
o R&D expenditure
o Number of employees involved in innovation
o Training hours for innovation teams
- Measure the results of innovation activities.
Output Metrics
Output Metrics example
o Number of new products launched
o Patent applications filed
o Revenue generated from new products
- Track the effectiveness of innovation processes.
Process Metrics
Process Metrics Examples
o Time-to-market for new products
o Idea-to-implementation ratio
o Percentage of projects completed on schedule
- Assess the broader outcomes of innovation efforts.
Impact Metrics
Impact Metrics examples
o Market share increase
o Customer satisfaction scores
o Sustainability impact
Frameworks for Innovation Measurement
- Balanced Scorecard
- Innovation Accounting
- KPI Dashboards
Challenges in Measuring Innovation
- Intangibility
- Time Lag
- Complexity
- Customization
: Incorporates innovation into strategic goals across financial, customer, internal
processes, and learning perspectives.
- Balanced Scorecard
: Focuses on tracking metrics during the different phases of innovation (e.g.,
idea validation, scaling).
- Innovation Accounting
: Uses key performance indicators (KPIs) to visualize and track innovation
performance.
- KPI Dashboards
: The benefits of innovation may not be immediately visible.
Time Lag
Innovation often leads to intangible outcomes, such as brand reputation or employee
morale.
Intangibility
: Measuring non-linear processes and outcomes can be difficult.
Complexity
: One-size-fits-all metrics may not suit all organizations or industries.
Customization
Best Practices for Innovation Performance Measurement
- Define Clear Objectives
- Use a Mix of Metrics
- Benchmarking
- Regular Review
- Engage Stakeholders
: Continuously refine metrics based on organizational changes and market trends.
Define Clear Objectives
: Combine input, output, process, and impact metrics for a comprehensive view.
Use a Mix of Metrics
: Align innovation metrics with strategic business goals.
Regular Review
: Compare performance against industry standards or competitors.
Benchmarking
: Involve teams across departments to ensure relevance and buy-in.
Engage Stakeholders
provide insights into an organization’s innovation performance.
Innovation metrics
Adapting Metrics
Adapt and Adopt
Context Matters
: Avoid blindly copying metrics. Instead, modify proven metrics to align with your
organizational goals and test their effectiveness.
Adapt and Adopt
: Metrics should reflect what is important for your specific industry or organization
(e.g., government agencies or non-profits might focus less on financial metrics).
Context Matters
Key Innovation Metrics (core set of tested innovation metrics)
- Output-Based Metrics
- Time-to-Market
- Customer Impact Metrics
- Return on Innovation Investment (ROII)
: Measure tangible results of innovation, such as patents filed, products
launched, or services improved.
Output-Based Metrics
: Evaluate the efficiency of bringing new ideas to the market.
Time-to-Market
: Assess how innovations influence customer satisfaction or acquisition.
Customer Impact Metrics
: Gauge the financial return generated by innovation efforts.
Return on Innovation Investment (ROII)
Avoiding Bad Metrics
The Flawed Metric: R&D Spend as a Percentage of Revenue
Compares revenue to R&D expenditure.
The Flawed Metric: R&D Spend as a Percentage of Revenue
why The Flawed Metric flawed?
o It lacks predictive power for future success.
o Spending more on R&D does not necessarily result in better innovation outcomes.
o Metrics vary significantly by industry and company context.
Building Your Metric Framework
When designing innovation metrics, consider these steps:
- Define Objectives
- Customize Metrics
- Iterate and Test
: Understand what success looks like for your organization.
Define Objectives
: Tailor metrics to align with your goals and industry needs.
Customize Metrics
: Continuously refine metrics to ensure they drive the right behaviors and outcomes.
Iterate and Test
- are essential in tracking the effectiveness of innovation efforts. However, not all metrics are
meaningful or useful. One example of a flawed metric is the market share relative to competitors, which can be
misleading and detrimental.
Metrics
helps an organization ensure that the innovation process is being nurtured at
the right stages and that it leads to meaningful results.
well-balanced metric system
: Once ideas are generated, how many of them are actually selected for funding and development? A high acceptance rate (over 50%) could indicate that the bar is too low, while a low rate could point to overly stringent filters that could stifle innovation.
The Idea Acceptance Rate
is essential for fostering creativity and ensuring that good ideas aren’t prematurely dismissed.
balanced acceptance rate
: Not every idea will be successful. Innovation processes often involve a “kill rate,” where ideas are rejected at various stages of development. For instance, at HP, we observed a 50% kill rate between each stage of the development funnel. This means out of 10 ideas, only 1-3 would successfully make it through to the market.
The Idea Kill Rate
helps maintain focus
on high-potential ideas.
kill rate
Input Metrics
The Idea Acceptance Rate
The Idea Kill Rate
Impact Metrics
o Revenue from New Products
o Quality of Patents
One important impact metric is the percentage of revenue that comes from new products. Companies like 3M track this metric to ensure they continue developing innovative products that contribute significantly to their overall revenue. For instance, 3M’s metric focuses on products introduced in the last three years. This forces the company to constantly innovate and diversify its product lines, maintaining a competitive edge.
o Revenue from New Products:
: In many high-tech organizations, patents are a key indicator of innovation.
However, rather than just counting patents, companies should focus on the quality of those
patents. The more times a patent is referenced by others, the more valuable it is in the
innovation ecosystem. This shows that the company’s innovations are foundational and
impactful.
: These metric measures how much additional gross margin is generated from innovative products. Essentially, if a company develops a highly valuable product, customers will be willing to pay a premium for it, which leads to a higher margin. The higher the gross margin impact, the more successful the innovation is perceived to be in the marketplace.
o Gross Margin Impact from Innovation
: At HP, we used the 70-20-10 rule to balance our innovation investments. 70% of the innovation budget was focused on core products and services, 20% on
adjacencies (new products for existing customers or existing products for new customers), and 10% on truly groundbreaking innovations (new products, markets, technologies). This balanced approach
ensures that companies don’t lose sight of both short-term needs and long-term breakthroughs.
Innovation Investment Balanced Model
As an innovation leader, it's important to adapt these metrics to your own
organization. Set realistic targets for input metrics (e.g., how many ideas should be in the funnel) and measure the impact of innovation efforts. This should be done regularly—quarterly or bi-annually—and
results should be tracked to identify trends and areas for improvement.
Metrics in Practice
