Develop Process-Based Measures of Innovation
Innovation as an intuitive and creative process is a difficult process to measure. Innovation, which is considered an art, is measured historically in terms of financials or counts. Financial measurements include new product- or service-specific sales or revenue growth, and count-type measurements include items like the number of patents, trademarks, articles, and product or service versions produced. However, experience shows these measurements do not correlate to the innovation activity; therefore they do not appear to be sufficient measures of innovation performance for a business.
Process-Based Measures of Innovation
In order to establish a set of working measures of innovation, one must identify common characteristics of the innovation process, their inter-relationships and well-defined deliverables. In order for an innovation process to be standardized, its inputs, in-process activities and outputs must be identified. An innovation process includes many process steps and dozens of possible metrics. The challenge is that people want to devise magical measures that can tell the whole story and serve as predictors of innovation. Immediately establishing an adequate and accurate measurement system is unlikely to succeed;starting with an initial set of measures is a better approach.
Effective Measures of Innovation
An organization attempting to develop measures of innovation initially must clearly state its objectives. Given the presence of a glut of measurements with no use in most organizations, an addition of nice-to-know measures is often perceived as “additional” work and not received well within the organization. The following steps help establish innovation measures:
- Define the purpose of innovation in the organization.
- Establish expected innovation deliverables (basic and specific) and their contribution to business performance, including growth and profitability.
- Determine the measures of success of key innovation deliverables.
Determining Business Performance Measures
The business performance index (BPIn), shown in Table 1, consists of seven elements and ten measures for monitoring business performance. BPIn measures include idea management, sales growth and employee recognition for exceptional improvement – the measures of a company’s performance at various stages. The most critical resource, with minimal financial impact, is the effective intellectual participation of employees in developing innovative solutions as a way of doing work. This requires a robust employee idea management system that can enlist employee ideas daily, filter criteria continually, and escalate the value-driven ideas for improvement or innovation for further implementation.
|Table 1: Business Performance Measures|
|Six Sigma Business Scorecard Elements||BPIn Measures|
|Leadership and profitability||• CEO recognition of employees for exceptional value creation*
• Corporate profitability
|Management and improvement||• Managing rate of improvement|
|Employees and innovation||• Employee ideas for improvement and innovation*|
|Purchasing and supplier performance||• Suppliers performance (sigma level)
• Cost of goods/supplies
|Operational excellence||• Aggregate process performance (sigma level)
• Cycle time variance
|Sales and distribution||• Sales for new products, services and/or solutions*|
|Service and growth||• Customer satisfaction (experience and loyalty)|
* Initial measures of innovation
CEO recognition of employees and incentives acts as a catalyst (input) for innovation, idea management is the activity, and sales of new products, services and/or solutions is an output of innovation processes. Combining these three (or similar) measures to develop a corporate innovation index is simple and allows for the assessment of key aspects. The objective of innovation measures is to identify trends in performance and identify areas for adjustment to accelerate innovation.
Additional Innovation Measures
Copying another company’s measures of innovation is not sufficient, as they may reflect different environments, priorities in performance and resource commitment. Table 2 shows a variety of measures that can guide thinking in the right direction and facilitate development of appropriate measures of innovation. Good measures of innovation, being specific, measurable, and actionable, catapult the innovation process and produce significantly more innovative outcomes.
|Table 2: Additional Measures of Innovation|
|Elements of Innovation Process||Business Innovation Measures||Process Innovation Measures|
• Culture of risk taking
|• Excellence in research
• Innovation management
• Time allocation (%)
|In-process||• Targets for innovation
• Process of innovation
• Extent of institutionalization
• Idea management
• Internal and external publications
• Knowledge management
• Internal and external collaboration
|• New idea deployment
• Extent of improvement or change
• Degree of differentiation
• Disruption or innovativeness
• Time to innovate
• New products, services or solutions
• Sales growth
• Market position or ranking
• Customer perceptions
|• Rate of innovation
Put Measures Into Practice
The initial measures must be CEO recognition (for inspiring innovation), employee ideas (for involving more brains) and revenue growth (to ensure economic benefits). These three measures are relatively easy to implement, represent elements of the innovation process, have potential to drive improvement in the innovation process and may help predict the mastery of the innovation in a business.
|Table 3: Initial Business Innovation Index (BIN)|
|Measures||Initial Monthly Goal||Monthly Score (% of goal accomplished)||Measure Weight|
|CEO recognition for significant, unique value creation (CRE)||0.5% of employees per month||= (% of employees * 100) / .5||30%|
|Number of innovative ideas per employee (IPE)||1 per idea per employee||= (average number of ideas per employee *100) / 1||40%|
|Revenue growth – % of sales for innovation (MRG)||2.5% of annual sales||= (% revenue growth* 100) / 2.5||30%|
|Business Innovation Index (BIN)||= (.3 * CRE) + (.4 * IPE) + (.3 * MRG)|
What would a BIN look like in the real world? Let’s look at an example of a company of 1,000 employees with annual revenue of $80M in Table 4.
|Table 4: Example of BIN Measures|
|Measures||Company Data||Company Goals||Company Score||Weighted Score|
|CEO recognition for significantly unique value creation||Number of employees recognized = 2||5 employees recognized per month||= (2/5) * 100 = 40%||=.3 * 40 = 12|
|Number of innovative ideas per employee||Number of ideas for the month = 40||1000 ideas per month||= (40/1000) * 100 = 4%||= .4 * 4 = 1.6|
|Revenue growth (% of sales for innovation)||$1M for innovative solutions||$2M revenue for new products||= (1/2) * 100 = 50%||= .3 * 50 =15|
|Business innovation index (BIN)||= 28.6%|
This example shows that the BINis 28.6%, which can be improved by involving employees more through soliciting their ideas, encouraging more employees to develop breakthrough innovation solutions and having a sales team hit the road for higher sales of new products or services. Businesses can establish goals based on their industry position and knowledge to make them meaningful. As the organization advances in the innovation process and matures their innovation process, they can select additional meaningful measures at input, activity and output levels and revise the Business Innovation Index for its suitability to the organization.
Establishing measures of innovation for predicting success requires better understanding of the innovation process. Businesses already have some measures of innovation, including revenue growth, number of innovations and investments – but so have proven insufficient in accelerating innovation and achieving excellence in innovation. Starting with a few, but effective measures, of innovation sets the right foundation for maturity of the innovation process.
The author would like to acknowledge Arvin Sri for his critique of the article and ideas for improvement.
Praveen Gupta is the lead author of Business Innovation in the 21st Century that organizes various aspects of innovation from concept to commercialization. He is the president of Accelper Consulting, which provides training and consulting services in innovation and teaches business innovation at Illinois Institute of Technology, Chicago. Contact Praveen Gupta at praveen (at) accelper.com or visit http://www.accelper.com.