The Complete Guide to Innovation Metrics – How to Measure Innovation for Business Growth
The first step to measuring innovation is to agree internally on which activities represent innovation in the organization and select key performance indicators to use as leading indicators. There are several areas that lead to innovative approaches, some of which can be translated into leading indicators for innovation by way of example. In innovation, you can measure progress, outcomes, effort, key learnings, pipeline, sales, customers, how many innovation projects are in the hopper and much more. How to measure innovation. Getting to an answer on how to measure innovation takes effort. It’s dependent on your business strategy, work context and desired outcomes for innovation.
Innovation is the new app! Bots, chat bots, IoT With so much changing so rapidly, our heads are spinning; organizations still rely on us, their IT partners, to help grow the business, our reach, and our successful operations. On the flip side, we all know that you get the results that are measured and reviewed regularly: metrics drive behavior. Yet how do you measure for innovation? It could be difficult to find and select the right measures, and the ability to do so may be guided by overall process maturity.
It also requires organizations to begin innovating metrics programs: stop producing the same old metrics that have been produced for the past 20 years. To drive innovative solutions, organizations need to what channel is the white house correspondents dinner ready for innovation, and many are, charging forward into new technologies at the speed of light.
But measurement of innovation might be difficult. Do you measure investments in new technology? Projects to introduce technology? Success of these initiatives? Without a good set of definitions and direction, these become subjective and might lead to a false set of security.
The first area to address when developing a metrics program for innovation is defining what innovation means to the enterprise. Wikipedia uses the following definition of innovation :. Innovation can be defined simply as a "new idea, device or method". However, innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs.
This could be done with any type of technology, some of it not innovative at all, but rather applied in an innovative way. Not a bad approach and one that should be considered and included in your innovation metrics. In addition to looking only at the definition of innovation, perhaps the definition of innovative technology works as well, but is harder to find.
One way to approach measuring an outcome that is difficult to measure it is to develop and use leading and lagging indicators, selecting leading indicators that drive the outcome of creating innovative solutions. To measure success in this area therefore, leading indicators must first be identified and agreed upon, then reported and used over a period of time to measure the results of an innovation initiative and to help drive innovation in the organization.
The first step to measuring innovation is to agree internally on which activities represent innovation in the organization and select key performance indicators to use as leading indicators.
There are several areas that lead to innovative approaches, some of which can be translated into leading indicators for innovation by way of example:. These are just examples. Ultimately, stakeholders interested in measuring innovation need to determine what shops are in nottingham innovation looks like for the organization, identify areas in which initiatives should be undertaken, and apply this list to selection of leading indicators expressed as key performance indicators which will later be used to measure innovation in the organization.
The best way to approach this would be to gather executives from business units and technology services, how to micro braid hair the technologies thought of as innovative, and discuss how they might benefit the organization.
The goal of the discussion is to create a list of technologies that are considered innovative and how to measure innovation in your business they would support.
Later, when chartering projects, the organization will have an opportunity to indicate if the technology used for the initiative is standard technology currently in how to measure innovation in your business or a new, innovative technology.
Innovation does not always involve new technology, it can just as often involve a new approach to doing business. Just like building a list of new technologies that will be considered innovative, projects that transform these areas should be considered innovative or transformative. After considering these three steps, the organization will have a list of objective measures that can be used as leading indicators based on the examples used in this article :. In some cases, the ability to measure these areas will lead to policy adoption and may drive changes to administrative procedures:.
Project categorization may need to have some additional criteria tracked during how to create a wireless network between two computers charter process:. The indicators selected should then be tracked, along with the revenue produced by the initiatives undertaken. The result becomes the ability to track the revenue produced through innovation, whether technical or transformational process-driven, which was the lagging indicator selected.
Ultimately, during the process of developing a mechanism for measuring innovation, several innovative measures are introduced. They change the way success is communicated to the business by introducing terms the business uses. Understanding how much time employees spend on ideation, the revenue that results from successful ideas, and the revenue produced through use of new technologies and what difference does it make hillary gives the organization new ways to continue to grow and transform operations.
Phyllis has more than 20 years of experience in the disciplines and frameworks of IT service management, as both a practitioner and consultant. SincePhyllis has helped to advance the profession of ITSM leaders and practitioners worldwide by providing her experience and insight on a wide variety of ITSM topics through presentations, whitepapers, and articles and now her book on the service request catalog, Online Service Management: Creating a Successful Service Request Catalogue International Best Practice.
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How Do You Measure an Intangible?
The specific process for establishing innovation metrics can include the following steps: Clarify enterprise strategic business objectives Define innovation goals to support growth objectives Identify required innovation capabilities for the future Identify desired innovation-related leadership. New Patents. The number of new patents is amongst the oldest ways to measure innovation. Patents can be dangerous as a primary goal because they aren't necessarily valuable to your business. It is common for leading companies by number of patents to be large, well established firms that have moderate revenue growth. Apr 12, · Innovation is key to enable future success and to be prepared for future growth. But how to define the relevant strategy and what to focus on? Pick from three options to adjust your business strategy! Depending on the individual situation of a company, there are .
In the latest episode of our Inside the Strategy Room podcast, senior partner Erik Roth and associate partners Guttorm Aase and Sri Swaminathan speak with Sean Brown about how companies can gain valuable insights into innovation performance from a pair of metrics that have been hiding seemingly in plain sight. Subscribe to the series on Apple Podcasts or GooglePlay. Welcome to Inside the Strategy Room. To start off, Erik: often when people think about measuring innovation performance, they think of things like the number of patents the company has registered or the new-innovation pipeline.
Your latest article focuses on a pair of innovation metrics. Can you say a little bit more about that? Erik Roth: We get the question about innovation metrics quite often. We see a lot of quantification of the number of ideas and the size of the portfolio. Oftentimes an organization will get very caught up with patents and the number of patents that they are filing.
I think in many ways the reason why no one has used these is because the belief had been that it was just too complicated; it was just too hard to do. This is really a methodology that allows you to benchmark using three simple metrics that are typically available from publicly reported data, which is quite unique in this context.
And those are usually available. Sean Brown: Thank you. Can you please share a brief overview of the two metrics and how they are constructed? Guttorm Aase: There are essentially two conversion metrics that we look at. And we look at new-product sales over a time period of a number of years, which can vary by industry. The second metric is our product-to-margin conversion metric, which looks at each dollar of new-product sales and asks, how many new dollars of gross margin am I generating?
We find these quite useful as portfolio measures. Erik Roth: This portfolio look is really important, because what we find is that companies just get metrics wrong. They consistently measure at a project level instead of a portfolio level, even though they talk about portfolio.
This came out of a challenge question from a CEO. And so this notion of getting it wrong and trying to correct and get it right with simple ways of measuring is a little bit of what was underlying our approach or our intent.
Sean Brown: How did you come up with the five-year rolling averages? Did you look at all of the different time ranges? What makes five years special? Guttorm Aase: The five years are in some ways tied to the innovation cycle of the industry. Whereas if we go to the specialty-chemicals industry, or specialty materials, then, typically, a five-year number is more common.
For that industry, it would be more appropriate to look at five-year averages, so you can get a sense of how your spending is evolving over a similar time period as the innovation activity is taking place and also translating into margin conversion over the same time period. Is that right? Erik Roth: Yes. There are two ways to answer that question. And is it a significant investment in order to do so? It is not a huge investment to benchmark yourself using these numbers to get a sense of how you place yourself relative to peers in the industry.
One, the company needs to gather the data on its own new-product-development revenues and compare that as a percentage of sales. The second step is then to compare that to the performance within the industry. This data is often published in annual reports, in investor day presentations, and in other formats.
And how does that compare, most critically, to peers in our industry? And how do I compare against peers in my industry? Some companies are highly effective at converting their new-product sales into margin. This indicates they have a healthy innovation pipeline and that their products are truly transformative and command a margin in the marketplace.
For others, we have seen that they might be producing many new products, but those new products are not generating high gross margins, which can indicate that the new products are actually quite incremental compared to competitors. Or perhaps that the cost to produce those new products is higher than you would expect. Sean Brown: For the new-product-to-margin conversion, many folks will look at disruptive innovation as something that they might invest in.
But often disruptive innovations can lead to a lower-margin product that could come in and undercut the existing players and incumbents. So how do you square the usage of new-product-to-margin conversion and the potential implications for investments in disruptive innovations that are coming out of a given organization? Erik Roth: I think we need to separate the innovation strategy from the metrics of performance.
If the strategy for innovation is explicitly to do more disruptive innovation, then the portfolio has to accommodate that.
And how you evaluate the metrics also needs to be in line with those strategic decisions. This makes perfect sense. And I appreciate the opportunity to really dig in on that. I think many of our disruptive innovators will be pleased to hear how they can still leverage these metrics. Did you look at how much these measures change over time? For the industries that you studied, did you see any wide variations in year-to-year performance? Especially given that this is a five-year rolling average, you would not expect them to not change that much, but were there any that stood out in terms of the leading performance indicators over time?
Guttorm Aase: We did see interesting examples of evolutions over time. As we started to look at performance across five- to ten-year periods, we would see that companies actually had the potential to improve on these metrics. And there were a handful of examples where low performers, say ten years ago, now were transformed into high performers either on both metrics or on one of the dimensions.
And that was typically associated with a change in their innovation strategy that was publicly reported. This whole notion of consistently successful launch and scale is not pervasive across companies. Sean Brown: Have you found clients use these to compare the productivity of portfolios amongst business units? Guttorm Aase: Absolutely.
Sean Brown: On the new-products-to-margin conversion, how do you incorporate the notion of pricing strategy? And therefore, its new-product-to-margin ratio looks low.
There could be a good reason behind that, a deliberate reason behind that, such as a price point that is designed to generate adoption. When we look at this at a portfolio level, what we do is take the conversation away from one or two individual projects. Sean Brown: Before we wrap up, one final question. Have you thought through how these routine metrics tie into that work? Erik Roth: Measuring innovation performance is critical to understand if the investment—the time, all of the activity, and all of the capabilities being built to push innovation—is actually amounting to anything.
If you think about the eight essentials, one of the core principles of the very first essential is, you need the aspiration. And if we look at each one of the essentials, I know we would find there are metrics embedded in all of them. And what the eight essentials really are trying to do are help a company reflect on its current performance relative to innovation, and also give it the opportunity to benchmark against others, and, more importantly, reorient the activity around innovation toward value creation.
At the end of the day, a company that performs well across the eight essentials is one that consistently creates new products, services, experiences, and business models over time that create substantial value relative to its performance.
Erik, Sri, Guttorm, thanks again for joining us. Never miss an insight. We'll email you when new articles are published on this topic.
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