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Show me the numbers: A look at innovation metrics
By Mark Turrell
It's an old adage: What gets measured, gets done. Our research at Imaginatik has found that innovation groups that adopt measurable targets are significantly better supported by management than groups without targets. Moreover, groups without targets are rarely considered as serious by management, and the lack of metrics can imperil the very survival of innovation activities within an organization.
Several firms studied by Imaginatik Research reported that metrics were not necessary, but then proceeded to describe the problems they have had attracting resources and management attention to further their cause. Occasionally we found innovation groups supported by a visionary executive, but it is rare that an executive can continuously protect an initiative from more skeptical colleagues.
Why are innovation metrics valuable?
Innovation metrics -- organizational measurements that help classify the organization's ability to innovate and its record of success -- are valuable for several reasons:
Gain management support: Solid metrics, addressing tactical and strategic corporate objectives, help align innovation with the business and build trust between the innovators and the executives.
Allocate appropriate resources: Metrics can establish a baseline expectation for performance and identify current resource gaps. Tools like the Financial Impact of Innovation (F-IOI) and the Innovation Gap can help companies allocate resources in a timely and responsible manner.
Motivate stakeholders: Well-chosen targets can be highly motivating as people are encouraged to aim towards a goal, and change their behavior accordingly.
Prove the benefits: The best organizations define metrics up front and then test the results over time. This allows the top innovators to prove the benefits and gain commitment for ongoing, and often more extensive, support.
Diagnose problems and identify solutions: Metrics can be used to identify patterns of behavior, such as the poor uptake of an idea management system. A detailed enough set of metrics can also help pinpoint potential solutions to the problem.
The challenges of innovation metrics
Unfortunately, corporate innovation is a relatively immature area, and companies have little experience in determining suitable metrics for innovation. Metrics can be one-sided, such as tracking patent submission while ignoring non-patentable innovations. Some specific metrics can be misleading, such as the volume of ideas generated from an idea management initiative.
In our research, we found one airline that appeared at first glance to be highly successful with over 3,500 submissions from 30,000+ employees in a 12 month period. However, only 13% of the ideas were considered both novel and beneficial, yielding a mere 0.01 good ideas per employee. In this instance, companies need to focus on the volume-quality balance, not volume alone.
Many organizations are surprisingly unambitious for innovation metrics. A large U.S. paint and coatings manufacturer set itself the goal of doubling idea submission through their formal process in a 12-month period. They succeeded, going from 150 ideas to over 350 ideas. The illusion of success was shattered through external company benchmarking. With over 20,000 employees, their submission rate of 0.0175 ideas per employee, very low indeed. Similar firms using more advanced idea management techniques, such as Grace Performance Chemicals, have reached over 1.75 ideas per person, with a significantly higher number of implemented projects.
Metrics for measuring innovation
There are a number of metrics that are commonly used as a basis for measuring innovation:
Revenue growth from new products: This is the most widely used metric by the leading firms. It is based on strategic targets set by the business and an understanding of how the company can achieve its growth targets (the Innovation Gap).
Patent submission: This is an increasingly popular approach that is widely abused by many firms outside of the high tech and pharmaceutical industries. Patents are only one form of protectable intellectual property and many firms focus more on the legal aspects of protection than the business upside.
Idea submission and flow: The ideas flowing through an idea management system provide a visible reference point to the volume and quality of submissions.
Innovation capacity: Companies measure innovation capacity using survey tools such as KEYS, the Innovation Climate Questionnaire or other tools and use the information on a 12- to 24-month basis to determine whether the company has become more innovative.
Best practice: The innovation index
Our research has found that the leading companies appreciate that a single metric, such as revenue growth or idea submission, is a poor indicator of innovation performance. According to our research, the best organizations are developing composite measures of innovation performance -- a so-called “innovation index.” The index combines a series of metrics that provide a more balanced view of innovation.
Dow Corning, for example, uses an innovation index that combines idea generation, employee participation, revenue growth, and patent filing. The index, developed with the sponsorship of the CEO, is based around an ideal 100 point score. It is discussed at regular management meetings to set targets, track performance and look for gaps.
The Dow Corning Innovation Index used historical data points at the initiation of the project, and in so doing they were able to demonstrate growth from an accepted baseline. Other companies have gained executive credibility by using past results to justify future innovation investments. A $50 million target for organic revenue growth focuses the mind, especially if history indicates that the group has achieved past growth through acquisitions alone. Some companies, such as Procter & Gamble, have used this type of analysis to help executives understand the importance of investing in major new product platforms.
Conclusion
As you can see, metrics need to become part of the daily routine of corporate innovators. Innovators should not be afraid of metrics, but should instead welcome the challenge that performance measurement brings. Like it or not, innovation is an executive issue and executives want -- and need -- numbers to make decisions.
Mark Turrell is a co-founder and CEO of Imaginatik, a leading supplier and thought leader in the enterprise idea management market.
Published on 6/23/2004
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