Constantly finding new and better ways to serve customers well, which can confer a competitive advantage or be a USP, is what drives every organization.
Innovation-active firms have higher sales profitability and productivity, increased turnover growth, and higher employment growth. Along with balancing the innovation portfolio and everyday operations, finding actionable metrics is also a top business priority. Failing to measure it makes no business sense when millions of dollars are set aside as innovation spend.
From using the sales of new products as a percentage of the total sales or the number of patents filed to the number of novel ideas generated per 100 employees or the effect of culture on creativity, organizations have their own ways of defining the index to measure innovativeness, a task that was once considered next to impossible. Some employ predictive input metrics, while others go by output metrics.
For example, if an innovative process (say automation) can save time and money and up efficiency by X%, it can eventually be passed on to the customers in terms of shorter delivery times or savings in the cost; this could be what makes one a cut above the rest.
How innovation happens
After analyzing close to 1000 innovation campaigns we conducted, we identified five basic principles that guide every successful innovation process:
Good ideas can come from anywhere.
The more the ideas, the better they are in terms of value.
The more diverse the source of ideas, the more superior and varied the idea quality.
Better employee engagement and cross-functional collaboration spawn better ideas.
The open/ hybrid innovation model yields quicker results than the closed innovation approach.
No universal metric
What is the ultimate measure of success? There is no perfect metric for what most people consider an intangible concept beset by much uncertainty. Innovation is difficult to define and typically takes a long time. The choice is based on what is most appropriate for an organization. It is industry-specific. What works for Apple may not necessarily be right for Alphabet.
Unless management understands what its existing measurement practices are and improves them before deploying across, an effective system is unlikely to emerge. To design good performance measures of innovation, it is important to know.
How well the measures align with the overall business strategy
How much risk they carry
How realistic they are
What the trade-offs are
Top innovation success metrics
Choosing the right innovation metric
Measuring innovation performance helps
Discover flaws in a company’s innovation capabilities through continual assessment of innovation performance.
Focus the workforce’s attention, from an innovation performance perspective, on the right behavior, activities, and projects.
Select the right outcomes and incentives to keep employees engaged to improve the efficiency and effectiveness of innovation.
Framework for measuring innovation
Dan Ostrower, CEO of Accenture subsidiary Altitude Inc., a design and product innovation firm, believes that an “Innovation Measurement Framework” can help choose the right metric.
It is only in the impact zone, measuring outcomes against the initial objectives comes into play.
Examples of input metrics
Number/diversity of ideas shared, number of pilots/patents, extent of employees engaged, percentage of leadership commitment, percentage of employees trained to be innovators.
Examples of output metrics
Improved employee retention, improved customer satisfaction, cost reduction/avoidance, revenue from new products /services, number of new partnerships or customers, IP licensing or royalty.
What needs to be measured
Ideas matter because they have the power to change the world. The importance of ideas is beyond question, and innovation stems from ideas. Ideas that are plausible and convincing generate influence. Simply expressed, new ideas give rise to novel products and services and drive growth.
In their paper, Karan Girotra, Christian Terwiesch, and Karl T. Ulrich say “the success of idea generation in innovation (unlike in, say, manufacturing) depends on the quality of the best opportunity identified.” If the initial ideas are not of commendable quality, then the chosen few are unlikely to be either. Also, the more ideas (and variance), the better they are in terms of quality (as discerned by an expert group).
For example, we hosted a hackathon, #UnitedByHCL Hackathon, for HCL Technologies in 2017 at Manchester United’s home stadium, the Old Trafford. The event had an online idea phase, an online submission phase, and an onsite hackathon. HCL leveraged a 1.5 million plus global developer community to solve 17 business challenges for 11 clients in domains such as automation, AI, AR/VR, blockchain, predictive analysis, and UI/UX. The hackathon saw 13,500 skilled developers build 299 prototypes of which the best four were chosen.
The multitude of ideas that come from internal (e.g. employees) and external sources(e.g. customers) go through an innovation funnel. Ideas are assessed on commercial feasibility, novelty, practicability, etc. and the best are taken into the prototype and field testing stages. However, good ideas will go nowhere if they are not nurtured and if proper KPIs that assess the input, process, output, and outcome are not in place. (Check out how United scores its ideas here.)
Measuring engagement, collaboration, and diversity
Another metric is tracking how many employees are involved in case of internal innovation. How engaged are they and how much do these efforts sustain for the long term? While some may be creative and submit ideas, others contribute by commenting or voting. Surveys, feedback systems, people analytics software, and other solutions help track how involved the employees are, how much learning there has been, and how much cross-functional collaboration has contributed to innovation. When the innovation challenge is open to people everywhere, employees, customers, suppliers, vendors, the the number and the quality of ideas see a vast improvement. (Check out an interesting example from Owens Corning here.)
Companies such as the Michigan-based Whirlpool Corporation use an interactive innovation dashboard, which only people who have innovation accountability in each business unit can access, during shareholder meetings. The company uses three metrics: the innovation pipeline, innovation revenue (after product goes to market), and EOP lift (External Operating Profit, which is earnings), which means that “innovations should deliver higher EOP than a base business.” The objectives of measuring innovation are to assess the benefits and the efficiency of the campaign. Hence, when a campaign does not yield results, the root cause can be identified and dealt with.
Stages of an innovation campaign
This stage covers the events from idea submission to evaluation to idea launch.
There are three important metrics to be measured.
a. Engagement rate
A high engagement rate is essential for better ideation. Also, diversity in terms of participation results in a diverse set of ideas. A low engagement rate could mean less motivation, ineffective communication and marketing, or a lack of a solid innovation culture.
b. Ideation rate
Ideation rate measures the number of ideas submitted and the quality of the ideas. A lower ideation rate could mean either a low engagement rate, improper matching of target audience and innovation challenges, or not providing enough context on the problem statements and support.
c. Campaign efficiency
When running multiple innovation campaigns in a year, this metric helps identify the best-performing campaigns.
To demonstrate what these metrics mean, we take two of our innovation campaigns, labeled 1 and 2:
In the post-launch phase, it is important to measure the ROI and benefits as opposed to the ideation metrics in the pre-launch phase.
In this phase, the measurement shows just one thing.
How well does your innovation/R&D budget convert into one of the following?
New product sales
Conversion of R&D/ Innovation spend
Innovation accounting is tricky. However, understanding how much value innovation(a core competency) has created necessitates the endeavour.
With a well-designed innovation contest such as a hackathon, a company can take market insights that have been identified, translate them into themes and problem statements and open them up for ideation; this is followed by the development of prototypes and then taken to the market for validation. All these phases of the innovation process have specific KPIs.
For organizations looking for short-term innovation initiatives, hackathons or ideathons, for example, are tools with much potential to drive successful business outcomes in the long term. George Krasadakis, Senior Manager at Accenture’s Global Center for Innovation, gives a good working definition of a hackathon: “it’s an intensive, software-centric ideation, prototyping and presentation challenge on known or unknown problems or opportunities.”
One of our clients, a global tech leader driving billions of transactions in commerce, found that ideation went from 7 ideas two years ago on average to over 35 ideas every quarter since introducing innovation challenges (hackathons). Out of 130 ideas submitted by over 700 employees, the company saw 28 ideas segueing into product roadmaps and another 9 hacks resulting in process improvements.
The company witnessed significant and measurable impact in five major areas over a period of two years.
Rate of meeting product launch deadlines
Contribution to product and process roadmap
No matter what the key performance indicators of innovation (operational, tactical, and strategical) for a company, assessment is important. For different phases of the innovation journey (exploratory/radical and exploitative/incremental), the metrics will naturally be different. With the right numbers measuring business impact and the culture aspect, companies can identify the best approach to manage innovation and move forward.