1.1.3 Innovation measures

How to measure your firm's innovativeness? Would you like to find out if your firm is innovative? You haven't done it before ? Let's start to learn about innovation measures, because this topic is fundamental for sustained performance and growth within firms!

Innovation metrics are organizational measurements that help classify the organization's ability to innovate and its record of success -- are valuable for several reasons.1

Innovation metrics are important for either a small start-up company or a stable international company, because metrics affect a company's operation in line with its goals and best interests and assist managers to make decisions based on objective data.

Measuring success in innovation depends on the type of innovation and the firm's approach to measuring success. Since each innovation is different and all firms have different priorities, the methods will vary. Some will focus totally on the quantifiable financial expectations, while others will use a blend of the quantifiable and the qualitative. Specific, measurable and actionable measures of innovation facilitate the innovation process and produce significantly more innovative outcomes.
The following figure and Flash presentation will show you why innovation metrics are valuable: (Figure 9)

Now let us have a look at the following Flash presentation, which demonstrates In details "Why innovation metrics are valuable".

Figure 9: Why innovation metrics are valuable2

Innovation can be viewed as having three distinct but related components: inputs, or resources, such as people and money; these get fed into processes, which act on and transform the inputs; and outputs, or the end results, which include both cash returns and indirect benefits, such as a stronger brand and acquired knowledge that can be applied to other offerings and purposes. All three components can, and should, be measured.3

Please stop and think:
What types of innovation does your organization need to reach your objectives? Use your judgment, based on your innovation objectives and strategy, and decide what deserves your full attention and what does not! As a general starting point, however, consider tracking at least some of the metrics listed below. In addition, remember - the balance between the different metrics, both within and across the three categories, remains the most important factor.

For example, you can measure following inputs:4

  • Financial resources being committed. Firm's finances, funds, loans, grants, risk capital, etc.
  • Human resources. You need to track the total number of people committed to an innovation, certainly. However, you also, more importantly, need to monitor how your key people are being used. Make sure you know how, and where, these people are spending their time.
  • The number of ideas generated and the expected payback for each. Ideas are an important input - the fuel for innovation. While many firms think they have a shortage of ideas, most don't. Nevertheless, if you do not measure, you will never know. Moreover, if it turns out that you really don't have enough big ideas, you'll need to know what you need to do in order to put in place the necessary steps to resolve the shortfall.5
  • R&D spending. How much the firm is spending per year for acquisition of external R&D competence?

For processes, you can measure:6

  • Resources expended per individual project and on average. A process needs to be both effective and efficient. Most firms can readily measure efficiency, so you can start there - but don't stop there.
  • The number of ideas that are moving from one stage of the process to the next. If a process is supposed to be working, is it working? What is happening inside the process at any point in time?

For outputs you can measure:7

  • The number of new products or services launched. While the absolute number of new offerings is not a financial output, you need to know what is coming out at the end of the process.
  • Incremental gains in revenues and profits. Whether the innovation is a process change, a new product, or an improved customer experience, an innovation needs to impact profits.
  • The ROI (Return on Investment) of your innovation activities. This is what it's all about. Are you earning a sufficient return on your innovation spending? Innovation ROI is a key metric to use to determine how much to invest in innovation.
  • Indirect, non-cash-generating outputs that are important to track. The number of patents filed or the number of trademarks, scientific articles written by staff, can track knowledge gained, for example.

Remember, not all innovation measures are quantifiable!

The most commonly used innovation metrics are:

  • Percent of current year sales due to new products released in the past N-years. One study indicates that about 50% of firms are using this metric.8
  • R&D spending. This metric assumes that the amount of money spent on research and development directly correlates to the amount of innovative products, processes and services that get to the public.9
  • Patent creation (trademarks, copyrights, articles). Some firms create patent after patent and boast of their innovative capabilities. While this may be well and true for a few firms. Many firms do not patent their products and processes but instead treat them as confidential. Once a patent is issued, knowledge of the innovation becomes available to all who choose to search the patent literature. Counting the number of patents does not provide much security for beating off the competition. The optimal solution is to have patents that add significant value.

Regarding the number of metrics to use, obviously you don't want to use too few. You also don't want to use too many, since time, effort, and resources go into the tracking of each. Innovation experts suggest that the ideal number, across all three elements of innovation, is between 8 and 12. More important than finding exactly the "right measures," though, is beginning to use measures that are merely not too "wrong."10

Please stop and think:
Pick a few metrics from the examples above and get start to experiment! Look at them over a period of time and you will soon see whom and what is being successful.

 


1 www.innovationtools.com/Articles/EnterpriseDetails.asp?a=146
2 lbid
3 The Boston Consulting Group (2006). Measuring innovation 2006, p. 6
4 Ibid., p. 13
5 Please see component 4.6 of this guide for details
6 The Boston Consulting Group (2006). Measuring innovation 200, p. 13
7 Ibid., p. 13, 14
8 www.triz-journal.com/archives/2003/03/d/04.pdf
9 www.realinnovation.com/content/what_is_innovation.asp
10 The Boston Consulting Group (2006). Measuring innovation 2006, p. 14