Posted in Blog, Innovation by Jo North
Introduction: How to Measure Innovation in Your Business
Innovation today has become an indispensable pillar in the business world. It’s the engine that drives growth and competitiveness, helping us address major global challenges, such as climate change, and redefining the research landscape. However, the question that often perplexes many business leaders and innovators is – how do we effectively measure innovation?
Measurement of Innovation and Your Business Goals
Measurement of innovation is not a one-size-fits-all concept. It requires a finely tuned set of metrics designed to reflect the unique nature and organisational goals of your business. This set of metrics forms the basis for understanding and improving your innovation portfolio – the collection of all your innovation activities and investments.
Global Innovation
The new geography of innovation has opened our eyes to different approaches at a country level, further complicating the task. Policy makers and businesses across the globe are grappling with determining the best metrics for innovation. A look at the United States, for instance, reveals a diverse, expansive innovation landscape fueled by a robust mix of corporations, startups, and research institutions. On the other hand, the Nordic countries, despite their smaller size, impress with a powerful concentration of innovation in technology and social policy areas, often outperforming much larger economies.
Meanwhile, the European Union is taking a coordinated, multi-country approach, focusing on creating synergies between different member states to foster a pan-European innovation ecosystem. These diverging approaches to innovation underscore the need for a flexible and adaptive set of metrics, tailored to individual situations and contexts.
In this article, I will help you to explore how to tailor these metrics to your own business, shedding light on the path to measuring and, therefore, improving innovation.
Why is it Important to Measure Innovation?
Why is it important to measure innovation in your business? This question is becoming increasingly critical for both public companies and private investment portfolios. Across large organizations and smaller entities alike, the ability to gauge the effectiveness of innovation is instrumental in driving sustainable economic growth.
Innovation performance is the yardstick by which you can assess your business’ capacity to survive and thrive, especially in difficult times. It shows how well you’re navigating the early stages of product development, how effectively you’re identifying and responding to customer needs, and how rapidly you’re adapting to change.
Innovation – Turning the Intangible into Tangible Assets
Innovation measurement allows you to see these dynamics in action. By quantifying the often intangible aspects of innovation – the new ideas you’ve sparked, the unique processes your business has developed, and the human capital you’ve created – you turn the intangible into tangible assets. These new ways of looking at your business give you a more precise understanding of where you stand, helping you to fine-tune your approach, mitigate risks, and seize opportunities.
Employees and Innovation
Your innovative employees are the basic input of innovation. Their creativity and problem-solving capabilities are fundamental to driving the innovation process. However, without a robust framework for innovation measurement, the valuable contributions of your colleagues could be overlooked or undervalued. By tracking and analyzing their involvement in innovation projects, you can better recognize and nurture their talents, and ensure their potential is fully realized.
Innovation measurement also helps you to establish innovation leaders, or intrapreneurs, within your organization. It allows you to identify those teams and individuals who excel in ideation and execution, providing you with benchmarks for success. These innovation teams set the standard, inspiring others to follow suit and fostering a culture of continuous improvement.
Innovation Measurement as a Tool for Growth
Measuring innovation is not a mere academic exercise, but a practical tool for growth. It offers a compass to help navigate the uncharted territories of the future, keeping your business on course towards your strategic objectives. And it is the lens through which you can better appreciate the valuable work of your team, recognizing their efforts and fueling their motivation to keep pushing the boundaries of what is possible. Measuring innovation plays an important part in unlocking your business’ potential.
How to Measure Innovation Performance
Measuring innovation in your business is a strategic exercise that requires careful thought and continuous refinement. It begins with the recognition that business models vary, as does the innovation strategy that fits them best.
The steps to measurement involve defining your strategic innovation goals, identifying appropriate metrics, integrating these into your performance measurement system, and then monitoring these metrics regularly to track progress and make necessary adjustments. It’s a process that can lead to significant competitive advantages and growth opportunities for your business.
Step 1: Understand Your Innovation Goals
The first step is to establish a clear understanding of your innovation goals, which should be rooted in your overarching strategic goals. It is essential that senior leadership is involved in this process, lending their expertise and strategic vision.
Step 2: Identify Metrics that Align with Your Innovation Goals
Once you’ve defined your innovation goals, the second step is to identify the most appropriate metrics that align with these objectives. Here, the best way is not a universal solution, but rather an approach that resonates with your specific business context. For instance, a company heavily reliant on technology might consider R&D investments and patents as key performance indicators (KPIs), whereas a company that prioritizes process innovation might focus on efficiency metrics.
The starting point could be adopting best practices from your industrial sector, but remember, the correct metrics for your organization are those that best align with your specific objectives and context. For example, if your business prioritizes disruptive innovation, you might consider the number of new products introduced to the market as a primary metric.
Step 3: Create a Performance Measurement System
A balanced scorecard could be a great example of a performance measurement system to use, as it allows for a holistic view of your innovation efforts. It involves developing a series of indicators – both traditional and experimental – that capture different dimensions of innovation, such as innovation kpis, process efficiency, customer satisfaction, and financial performance.
Step 4: Monitor Your Innovation Performance
Use your innovation metrics to monitor your innovation performance on an ongoing basis and track your progress over a specific time period. Regular assessments will provide insights into how effectively your business units are delivering on your innovation strategy. For instance, if you have innovation labs, their output could be a part of your innovation measures, tracked alongside the other metrics.
Step 5: Review and Refresh Your Innovation Metrics
Remember, measuring innovation is a cyclical process rather than a one-off task. As your business and the broader market landscape evolve, review and refresh your innovation metrics to reflect this. By doing so, you keep your finger on the pulse of the innovation cycle and remain agile in the face of change.
Input Metrics
In measuring innovation, there are different types of metrics. One important category is Input Metrics. As their name suggests, these metrics pertain to the resources invested in innovation at the start, essentially the ‘fuel’ of the innovation engine.
Input metrics provide a vital perspective on the early stages of the innovation process. They offer a glimpse into the ‘raw material’ of innovation. They capture the upstream activity that feeds into the innovation process and provide insights into the initial stages of innovation, shedding light on the potential future outcomes of your innovation efforts. Here, ‘upstream’ refers to activities that occur early on in the innovation process – these could be idea generation, brainstorming sessions, or early-stage R&D activities.
Examples of Input Metrics
A few common examples of Input Metrics include the number of ideas generated, the number of innovations introduced into the development pipeline, and the number of projects launched. Each of these metrics provides a snapshot of your organization’s innovation activity at its earliest stages.
The number of ideas, for instance, can reflect the effectiveness of brainstorming sessions or ideation initiatives. It’s an indication of how prolific your organization is at generating potential solutions and concepts. Meanwhile, the number of innovations measures how many of these ideas have been sufficiently developed to qualify as ‘innovations’ – that is, ideas that are not only novel but also valuable and feasible.
Similarly, the number of projects can provide insight into how many of these innovations your business is actively pursuing. This could reflect your company’s capacity to bring ideas to life, or its strategic focus on certain types of innovations.
Process Metrics
Another vital input metric is the average time taken for an idea to progress through the innovation funnel. This can provide a useful measure of the efficiency of your innovation process. A longer average time might suggest bottlenecks or inefficiencies that you need to address.
Process metrics can also shed light on your organisation’s culture of innovation. For example, if the number of ideas generated is consistently high, this might suggest that employees feel encouraged to think creatively and take risks. Conversely, a low number of ideas might indicate a need to foster a more supportive environment for your innovation process.
Output Metrics
Output Metrics are another essential element in the spectrum of innovation measurement. These metrics are designed to capture the innovation output, that is, the tangible results generated by your innovation activities. They offer a perspective on the success and efficacy of your innovation processes, allowing you to gauge the returns on your investment.
Most Common Innovation Output Metrics
Among the most common Output Metrics are the number of patents obtained, the number of new products or services launched, and the introduction of new technology. These metrics provide concrete evidence of your organization’s innovative activity and its ability to transform innovative ideas into market-ready solutions.
For instance, the number of patents reflects the extent of your organization’s technological and intellectual property advancements. It’s an indicator of how many of your ideas have not only been developed but also deemed novel and valuable enough to warrant legal protection.
The number of new products or services launched, on the other hand, provides an indication of how many of your innovations have reached the market. This metric, when paired with measures like additional gross margin from new products and total revenue from new products, gives a more comprehensive picture of your innovation’s financial impact.
Moreover, measures such as ROI from new products offer a clear sense of the financial return your organization is getting from its innovation investments. This helps to answer the question: Are your innovative activities contributing positively to your bottom line?
R&D Spend: New Product Sales Ration
Another metric that can provide valuable insights is the R&D spend to new product sales ratio. This indicator compares the amount of money invested in R&D with the revenue generated by the resulting new products. It helps you understand how effectively your organization is turning R&D investments into profitable sales.
You Need A Balanced Approach to Measuring Innovation
In essence, Output Metrics offer a way to assess the ‘fruit’ of your innovation efforts. They provide tangible evidence of the successes (or failures) of your innovation processes and offer invaluable insights for improving future innovation performance. Remember, though, these are just one piece of the puzzle – a balanced approach to innovation measurement should include Input, Process, and Outcome Metrics, as well.
Measuring Sustainable Innovation
As businesses worldwide are increasingly recognizing the urgent need to address climate change and other sustainability challenges, the lens through which we view innovation is also shifting. Traditional metrics of innovation performance may not suffice in capturing the nuances of innovation aimed at decarbonization and sustainability. Here, the innovation measures need to take into account the environmental impact, social implications, and long-term resilience of the solutions you’re developing.
Sustainability-Oriented Metrics
Innovations that Directly Reduce Carbon Emissions
Innovation performance can be measured through a variety of sustainability-oriented metrics. For instance, a key measure could be the number of new products or processes, or eco-innovations, that directly contribute to reducing carbon emissions, such as renewable energy technologies, energy-efficient devices, or carbon sequestration solutions. You can gauge the effectiveness of these products by the amount of carbon emissions reduced per unit of product or service produced. This requires rigorous lifecycle assessments to accurately quantify emissions reductions.
In addition to the number of new low-carbon technologies or services, another significant metric would be the percentage of total revenue derived from these sustainable products and services. This offers a measure of the commercial success of these innovations and indicates how central sustainability is to your business model.
Energy and Waste Reduction
Other performance metrics might include the reduction in energy use or waste production achieved through process innovations, such as changes in manufacturing methods or supply chain management. Again, you’d need to quantify these based on robust data on energy consumption and waste generation.
Society and Circularity Benefits
Innovation in sustainability often also involves societal changes, such as developing new business models that promote circular economy principles or social equity. Metrics here might involve measures of resource circularity (the percentage of materials recycled or reused), or socio-economic impacts (such as jobs created in low-income communities).
Sustainability R&D Investment
Investments in sustainability R&D can also serve as a critical metric. Tracking the amount of funding allocated to sustainability-focused research and development activities signals your commitment to sustainability innovation.
Measuring Collaborative Innovation
Additionally, you could monitor knowledge exchange, strategic partnerships, your innovation eco-system and collaborations for green innovation. For instance, the number of partnerships with external stakeholders (like universities, NGOs, startups, or government agencies) working on sustainability issues can be a valuable metric.
Track Long-Term Success
Lastly, recognising that sustainability innovations often have longer development and payoff timelines, it’s important to track long-term success measures such as the resilience of new products or services in the face of environmental changes, or the ability of these innovations to deliver a sustainable business model over time.
In conclusion, measuring innovation performance from the perspective of decarbonization and sustainability requires a broader and more nuanced set of metrics that can capture both the environmental and social impacts of innovation. As with any innovation measurement framework, you need to tailor these metrics to your specific strategic goals, monitor and adjust them as needed over time.
Broader Measures of Innovation
When it comes to measuring innovation in your business, it’s important to look beyond the typical metrics related to products, processes, and technologies. Broader measures of innovation offer a more holistic perspective on how innovation impacts your business and creates new value across various dimensions.
Innovation Types and Levels
It’s helpful to measure the different types of innovation your organization is working on. These could include not just product and process innovation, but also business model innovation, organizational innovation, marketing innovation, and more. You could also consider your portfolio of innovations by level: incremental, differential and more disruptive innovations.
By tracking the variety and balance of innovation types, you can ensure that your innovation efforts are diversified and aligned with your strategic goals.
Employee Involvement in Innovation
The involvement of different roles in the innovation process can also serve as a broader measure of innovation. For instance, are your employees across all levels and functions actively participating in innovation activities? Do they feel empowered to contribute their ideas and take part in decision-making processes? This measure can provide insights into the inclusiveness and accessibility of your innovation culture, which in turn can fuel a more robust and sustainable innovation engine.
Value Creation
Another important aspect to consider is the new value created through your innovation activities. This includes not just financial value, but also social and environmental value. Are your innovations contributing to societal well-being, environmental sustainability, or other broader goals? Are they enhancing the reputation of your company or increasing its competitive advantage? Metrics in this category can help you assess the overall impact and success of your innovation efforts.
Customer Satisfaction
Finally, customer satisfaction is a crucial broader measure of innovation. After all, the ultimate aim of most innovations is to better meet customer needs and expectations. Regular customer feedback surveys, net promoter scores, and other customer-centric metrics can provide valuable insights into how well your innovations are resonating with your target audiences.
In essence, broader measures of Innovation allow you to capture the wider impacts and implications of your innovation activities. They help you ensure that your innovation efforts are not only driving financial success, but also contributing to broader organizational, societal, and environmental goals. This balanced approach to innovation measurement can ultimately lead to a more resilient, sustainable, and successful business.
Case Study Examples
Case Study 1: A Pharmaceutical Company
A global pharmaceutical company wanted to stimulate and measure innovation to accelerate drug discovery and development. The company recognized that successful innovation required both technological advancements and a culture that encouraged innovation.
For input metrics, the company measured R&D spending, the number of new projects initiated, and time to market for new drugs. It also monitored the percentage of employees engaged in innovation training programs to foster a culture of innovation.
The output metrics included the number of patents filed, the number of new drugs approved, and the total revenue from new drugs. The company also monitored patient outcomes and patient satisfaction levels, as these are critical indicators of the real-world impact of their innovations.
This balanced approach enabled the company to measure not only the financial success of its innovations but also their societal impact, thereby providing a holistic view of their innovation performance.
Case Study 2: An Automotive Company
A large automotive manufacturer had to reinvent itself to stay competitive in a rapidly evolving industry, where electric vehicles and autonomous driving technology are becoming key drivers of innovation.
The company established several input metrics, including investments in electric vehicle technology and autonomous driving research, number of new ideas generated, and number of partnerships formed with tech companies and startups.
The output metrics were primarily the number of electric vehicle models launched, the sales figures for these new models, and the progress made in autonomous driving technology, demonstrated through successful test drives and permits obtained for autonomous vehicle testing.
The company’s ability to measure and track these indicators allowed them to strategically allocate resources, fostering a culture of innovation that helped them pivot to new technologies and market demands.
Case Study 3: Measuring Innovation in Manufacturing
A leading company in the manufacturing sector aimed to improve its operational efficiency and sustainability through innovation. To do this, the company had to establish effective innovation measurement systems.
Input metrics included R&D expenditure, the number of employees involved in continuous improvement programs, and investments in green technologies.
The company’s output metrics consisted of the number of process improvements implemented, the reduction in production time and costs, the decrease in energy consumption, and waste reduction.
In terms of broader measures, the company monitored the impact of their sustainable innovations on environmental factors like CO2 emissions and water usage, as well as societal impacts such as job creation in local communities.
By using these metrics, the company was able to foster and track innovations that enhanced both operational efficiency and sustainability, thereby aligning their business operations with broader environmental and societal goals.
Next Steps
In an ever-evolving business landscape, the ability to measure innovation effectively and efficiently is not just an option, it’s a necessity. Innovation powers growth, solves complex problems, and gives your business a competitive edge. By understanding and employing a comprehensive set of metrics – from input and output measures to broader indicators – you can ensure your innovation initiatives align with your strategic goals, whether they relate to technological advancements, sustainability, or customer satisfaction. As I’ve illustrated through the case studies above, these principles hold true across sectors, from pharmaceuticals and automotive to manufacturing.
Navigating the complexities of measuring innovation can be challenging. That’s where we come in. Here at The Big Bang Partnership, we’re committed to helping you to develop a robust innovation strategy tailored to your unique business needs. We invite you to reach out to us for a discovery call, where we can explore how to enhance your innovation measurement systems and drive your business forward in the face of change.
Innovation is not a destination, but a journey. Let’s embark on that journey together, creating a future where your business doesn’t just survive, but thrives.
