Much has been said about the need to measure innovation and how companies must have input and output measures for their innovation programmes. Yet, only about a third of Fortune 1000 companies have any formal metrics for innovation. As more and more companies institute innovation programmes and focus on making innovation an integral part of their strategy, the appearance of innovation related metrics on corporate dashboards is increasing.
Output metrics, aka impact metrics, have always been an important part of measuring business outcomes from innovation. But input metrics, including activity/ process metrics or organisational capability metrics, have also gained significant currency. Now, a third bucket, called leadership metrics, is on the rise. Whereas output metrics speak to the commercial outcomes for a company, and input metrics drive investment, resources, processes and behaviours, leadership metrics indicate the intensity of executive learning and focus on innovation programmes in the organisation.
Companies have used a mix of all three types to drive their innovation agenda. But what is the right mix? Can it be a common mix for all corporations? Should there be an equal proportion between the three types?
Peter Drucker famously pronounced, “What gets measured gets managed.” To address the above then, the right question to ask is, “What do you want to manage?” At the end of the day, the aim is to make innovation systematic and sustainable.
Defining the innovation intent (not unlike strategic intent) of a company is a good starting point. Does your company want to increase revenue from innovation in the short-term? Focus on the input measures related to incremental innovation and output measures for revenue from new products. Does your organisation want to be seen as a thought leader in an emerging space? Drive input metrics related to experimentation and knowledge management, output metrics related to creation of intellectual property, and leadership metrics related to executive sponsorship of incubators. Does the corporation want to transform its culture? Build input metrics into individual performance contracts and maintain a wide-ranging dashboard of leadership and output metrics.
The balance between the three types of metrics has to be an evolving one. Even within each type, the metrics that are relevant to a particular situation may not be so in others. 3M applied the Six Sigma model to its creative process and were none the better for it.
The balance must shift as an organisation matures in its integration of innovation into its strategy, structures, processes and systems. As an organisation grows and matures in its innovation capability, so must the balance between metrics. It is important to frame the priorities between different types of metrics based on the maturity of innovation capability in an organisation.
In the early days of the innovation journey, when a handful of innovation programmes are identified with some budget allocated to such programmes, the highest priority for an organisation is to activate the right resources and incentivise the right behaviours for innovation. Do bear in mind that input metrics introduced in a phased manner are likely to find greater acceptance than an all-at-once approach. This is also a time for leading innovation from the top. Hence, leadership must be seen as driving programmes intently. While incremental innovation is possible in short cycles, breakthrough and radical innovation can be tracked only in the medium-long term, over 3-5 years. Thus, the metrics portfolio should be skewed largely towards input metrics with a moderate dose of leadership metrics to highlight the extent of executive sponsorship or support. So as not to lose sight of strategic business outcomes, it should include a few output metrics too.
Once the innovation-related activities have gathered some momentum, where innovation has been woven into key strategic initiatives and funds clearly earmarked for innovation programmes, the focus of senior executives becomes more critical to sustain and institutionalise innovation in the organisation. Input metrics remain important, particularly with respect to training people on innovation skills and deploying them appropriately for enhancing output. Output metrics could start taking on a bigger role on the dashboard of innovation metrics. Thus, the metrics portfolio should have a healthy balance between leadership and input metrics and a smaller but significant presence of output metrics.
As the innovation machine in the organisation becomes well oiled such that all employees are accountable for innovation, and the funding for innovation programmes is seamless with the budgeting process, the benefits of building a culture that values innovation truly start accruing. Since the innovation agenda is also the strategic agenda and innovation outcomes the strategic outcomes, output metrics take centre stage. The role of leadership could now transform from sponsorship to new business development due to the opportunities for radical and white space innovation. Input metrics would require reduced focus because alignment of resources is embedded in the performance management system and the code of conduct by this time. Hence, the metrics portfolio should be skewed towards output metrics, with renewed leadership metrics and a token presence of input metrics.
The key to the usefulness of any measurement scheme is the inherent success of the activity being measured. Thus, it is critical to capture the aspect that matters most to the innovation philosophy of your organisation.