Over the past couple of months, I received multiple requests to explain how innovation can be measured. The Covid19 pandemic has caused managers at many organisations to consider innovating for the first time, as established business models were threatened and they began exploring new markets, products or services.
Here is a short note I thought I’d share for those interested. If you have thoughts, comments or resources to share, please post them in the comments section.
Measure dilligently, but be careful what you measure.
- If you want to measure innovation, understand you need multiple measures because innovation consists of multiple facets: fostering idea generation, having the right employee culture, the right management culture, appropriate incentives, processes for testing and scale up and commercialisation, teams to embed the results into business-as-usual (BAU). I would measure each of these aspects separately.
- Innovation measures are highly dependent upon the industry and setting. In some industries it is patents (drugs), others it is algorithms, others it is new processes, etc. So don’t believe anyone who offers a ‘one size fits all’ solution.
- Some measures are at the individual level, others at the team level, others are about the products/processes being invented or created, yet others are at the organisational level. Each of these measures different things. Why does this matter?… because:
- Be careful of what you choose to measure. It is what you will obtain. Like other complex activities (‘research’, ‘education’, ‘kindness’), what you choose to measure is just a proxy, and a highly imperfect one. For example, if you measure teaching ratings instead of student learning, what you end up with is a measure of how popular teachers are, and teachers will do things to make themselves popular to get better scores. One company that spoke with me set their Innovation KPI as having 3 innovation events per year. So that is what they got. No actual innovations emerged from those events, but each was a blast and they really knew how to throw a party.
Now for the measures
- Common measures of innovation output include new IP created (new patented inventions within x years, new copyrights, new designs, trademarks generated, etc.).
- Another popular approach is to measure new products and processes generated in the past x years. Be careful to categorise ideas that are new to the world, versus those more incremental. Also measure standalone versus modular versus systemic innovation.
- Measures of organisational-level support for innovation activities, e.g., number of days set aside for employees to explore new things, percentage of workforce that is working on innovation related activities, R&D and other dollars invested into experimentation and commercialisation, existence of dedicated teams to bring new ideas to market, presence of incentives such as bonuses, rewards, awards and prizes for innovators.
- Measures of activity, e.g., measures of ideation volume, degree to which people are brokering or recombining knowledge to generate new ideas.
- Financial measures such as the percentage of revenue generated from new products or services in the past x years; cost savings from process innovations; service efficiences; measures of productivity improvement not related to capital or labor; income from licensing new ideas or commercialising them in other ways. In short, ways to measure value-capture.
- Innovation comes from outside as well as from inside the firm. Be sure to measure innovation generated from both internal and external sources. Consider open innovation, ecosystem sources, corporate venturing and other engagement activities.
Sources and references
- European Community Innovation Survey including questionnaire.
- Tidd and Bessant textbook Section 2.8 (Measuring Innovation Success).
- Consulting firms like BCG and Accenture have measures and surveys of innovation.
- Deloitte innovation survey see pg 13.
- Anne Marie-Knott has a summary of existing measures and proposes her measure (“RQ”) in her book How Innovation Really Works. See also https://hbr.org/2012/05/the-trillion-dollar-rd-fix.