In this article I focus on firm-level metrics, that is, how organizations measure innovation. If you’re interested in how to measure innovation at the country level, please see our blog about the Global Innovation Index.
In a business world accustomed to having easy access to metrics, the question of how to measure innovation tends to make leaders twitch. The challenge is that, like innovation itself, how you measure innovation is contextual. There is no one right answer, and there is little consensus around how to link metrics to sound innovation management practices.
What we do know is this: in business, what gets measured gets done. Likewise, for innovation to create demonstrable value, businesses need sensible metrics.
In the past year, I’ve attended a number of innovation conferences and leadership forums where the importance of managing and measuring innovation were widely discussed. What I heard is that many organizations haven’t developed a disciplined approach to managing and implementing innovation and therefore, have difficulty measuring its impact. As a result, they end up with an Innovation Dashboard like the cartoon above; it looks pretty but doesn’t tell you anything of value.
Measuring the number of hackathons, shark tanks, innovation labs, brainstorming sessions or people you put through training doesn’t cut it when innovation is about the value you create.
So, what do you do?
Let’s first baseline what innovation is and what it is meant to achieve. Then I’ll share some findings from a recent research study on innovation metrics. Finally, we'll look at examples of innovation metrics that have been shown to have positive impact on organizational performance.
What is innovation?
In other articles about innovation, we refer to the definition of innovation developed by the Conference Board of Canada. It’s a great definition: it’s research-based and outcome, socially and economically focused.
However, many leaders and their teams ask me to describe innovation in more practical terms they can operationalize. What does innovation mean to how I work on a day-to-day basis? And how do I know if I’m doing it well?
Here’s what I like to tell them.
Innovation is about responding to existing or anticipated change to keep your organization vital, viable, productive and relevant so you can benefit the people you serve and contribute to economic growth and prosperity in the places you operate.
The intention of innovation is to make our lives better and easier. The outcome of innovation is measurable value for the organization and the economy. The reward is the sustainability of the organization.
The challenge with measuring innovation
Innovation happens on its own timeline. It has different measures of success than, say, a financial strategy. It isn’t as logical as finance, where you either meet the budget or you don’t. 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. Ultimately, you’re answering how do you measure value creation, and how do you assess return on investment for your effort, whether the investment is dollars, insight or progress given good old-fashioned, blood, sweat and prayers to make it happen.
When it comes to measuring innovation, having a strategy to use, implement and manage innovation is a critical first step. Once you’ve got that, you can start to figure out what to measure.
The Conference Board of Canada recently completed a research study and produced a report called Metrics for Firm-level Innovation in Canada. The report sheds light on how Canadian firms use and could use metrics to manage their innovation activities. The findings are also useful to firms outside of Canada.
Through their research to describe the current state of innovation measurement by firms in Canada, the Conference Board’s report helps companies identify ways they can enhance their innovation performance using metrics. The report provides guidelines and principles for selecting and using the right metrics. In fact, it provides step-by-step procedures for designing, adopting, using and revising innovation performance metrics.
This study found that the most-used metrics for innovation by firms are:
- Customer satisfaction with new products
- Return on innovation investment
- New product revenue impact
- Product performance improvement
- Value of customer.
When they examined the performance effect of organizations in the study (meaning how they leveraged culture and process to drive innovation), certain measures had a more positive impact on innovation. These measures included:
- Executive intensity involvement
- Market understanding (% of products still there after X years)
- Addressable customer innovation
- Number of R&D projects, and
- Innovation risk management (% of projects with risk management plans).
Further, in the study they looked for the performance effect of certain combinations of innovation measures. To really impact outcome driven innovation in your organization, include these combinations of measures in your innovation metrics:
- Executive intensity AND Market understanding: this combination showed the highest performance effect (PE) in the organizations assessed – a whopping 65.1% PE
- Number of R&D Projects AND Platform innovation coverage: 51.3% PE
- Addressable customer innovation AND Market value in pipeline: 42.6% PE
- Culture and organizational focus AND Market dominance: 40.1% PE, and
- Executive time intensity AND Human Resources innovation focus: 37.3% PE.
Imagine the performance effect on your organization if you used a combination of these duos!
The Conference Board researchers were curious: would certain measures have a greater performance effect?
Drum roll, please! Yes, they would.
Here’s the most winning innovation metric combination from the study, one that was shown to have a 71.6% performance effect:
Executive accountability + Market value of innovation in pipeline + Market understanding
Which means you can have a significant and positive impact on performance effect – meaning the innovation culture and process in your organization – if you do the following:
- Get your executive team invested in and accountable to innovation, meaning they are full-on engaged in making it happen and participating in these efforts
- Have an innovation pipeline that is qualified in terms of market value
- Have a pretty good grip on understanding what’s going on in your market.
How to measure innovation without a strategy or an innovation management program
If you’re new in the innovation game or you find yourself on a team or in an organization that’s keen on innovation and is doing it without the benefit of a corporate strategy or formal innovation management program to align to, you can tackle innovation metrics from a different angle.
Here are some examples that can help you measure innovation on teams and across an organization.
Case Study: Measuring innovation on your team
One of our clients allocated her entire yearly training and employee development budget to building her team's innovation skills.
Her team was facing significant pressure from within the organization to demonstrate relevance in a changing work landscape. Even though their function in the organization was still needed, it became clear that their clients’ needs were changing. While their approach to their work had been successful in the past, continuing to use that approach wouldn’t allow them to be relevant in the present environment and certainly not sustainable in the long term.
We worked with her to put the need for innovation into a clear context for her team; they needed to demonstrate that their role in the organization contributed value and had relevance in the broader mission of the organization.
Next, we provided a day and a half of training on skills, tools and creative behaviours that help drive innovation. Together, the entire team learned creative problem solving as a thinking system to think through the change challenges ahead of them and drive the innovation they needed as they reconceived the value they contribute to the organization.
In the training, we also introduced them to their individual and team thinking preferences, which showed where individually and collectively they had energy to engage in innovation and where they did not. They found this revolutionary because now we could show them what innovation looked like, what they needed to do to drive good results, and how they could use the skills and tools we taught them to up their game.
Over the next six months, we provided coaching and support to our client and her team as they learned to apply what we had taught them to their everyday work, along with specific change challenges and opportunities that needed innovation.
How did our client measure innovation?
- By looking for evidence that her team was changing their behaviours given what they had learned.
- By the breadth and value of thinking her team brought to the table as they collaborated on how to become more relevant and valuable to the organization.
- By how they used what they were taught to more effectively engage with their clients and by the quality of work they produced for the clients.
- When she found she was getting “same old, same old” or something that didn’t appear to have been thought through well enough to demonstrate clear value in the organization, she’d say “show me your pages,” meaning she wanted to see how they had worked through the thinking steps in the creative problem-solving process we had taught them.
Measuring where your organization is in its desire to innovate
At BridgePoint Effect, we value applied research. Everything we do with clients is connected to, and built upon, sound research. So, as we developed our client offerings, we wanted to give our clients the option of quantifiably measuring the impact and value of our work.
As we went looking for a way to meet this goal, we were delighted to find and become licensees of the Organizational Growth Indicator (OGI). It's an online assessment that take about 20 minutes to complete. It can be administered within a team or a division locally, or across an organization globally. It is used to give leaders direct feedback on the current state of innovation in their organization and the results of their efforts, and to inform decision-making on what to do next. We've highlighted the OGI as an innovation measure below.Case Study: OGI – Organizational Growth Indicator
Wouldn’t it be great to get tangible, quantifiable data on what’s happening and what you can do about it? You can, with the Organizational Growth Indicator (OGI).
OGI helps organizations find answers to challenges such as:
- Difficulty meeting the growth targets your organization has set.
- Wondering if your people are able to meet the challenges of the change in front of you.
- Innovation efforts that are hit and miss.
- One area of the organization that is doing well while another isn’t.
The OGI is a validated tool designed to measure an organization’s ability to:
- Grow and transform through new value creation and adaptive change
- Improve organizational performance.
New value creation is an internally or externally focussed effort to either enhance or create new value. Adaptive change is the ability to change processes, structure and / or culture as required to achieve sustained success, along with readiness and responsiveness to internally or externally generated change.
Once you have the results from the OGI measure, you can:
- Pinpoint areas that are supporting or constraining your organization’s current capability and future potential
- Know where to focus your efforts to develop talent and the performance of your organization
- Evaluate the impact of training and development efforts to support growth, organizational transformation and innovation
- Quantitatively track and fine-tune your organization’s progress to higher levels of innovative and transformative capability by re-administering annually, and
- More importantly, know what your next steps need to be to drive the growth, transformation and innovation you need.
We recently completed an OGI assessment with an engineering firm as a pre-diagnostic to our working with them. They had started on their innovation journey and changes in the leadership team gave them an opportunity to step back and assess where they were relative to a newly formulating vision.
The leadership team found the OGI results quite helpful in quantifying what was working and where they needed to improve to achieve their vision. More importantly, we were able to show them that, while they were making progress, not everyone was clear on the innovation strategy. The OGI also highlighted consistency issues in the staff's ability to contribute innovation, due to impediments caused by needed improvements to processes and structures.
The OGI also validated their decision to invest in training for their Research & Development and Product Engineering staff. They wanted help developing thinking facilitation, problem-solving and collaboration skills given increased emphasis on customer engagement and tapping the wisdom within the organization across functions. By doing the OGI pre-training, the leadership team not only gained insight into where they next needed to focus, they had a baseline measure that would help them understand their return on training investment for the teams they were relying on to drive product innovation.
What gets measured does get done. If innovation is a key strategy in your organization, then finding a meaningful way to answer the question of how to measure innovation is important.
There is no one right answer. However, as research shows, some answers are better than others. Innovation is contextual and your measures need to be aligned to the performance you wish to create.
That being said, having an Innovation Strategy and a way to manage innovation is a critical first step. With these as guidelines, taking the time to figure out what is a meaningful measure is worth the investment. Counting bums in seats for training isn’t a meaningful measure when you’re doing the training to drive value contribution from your people on innovation efforts. Sharing data about how many patents you have isn’t enough when you need to understand progress towards commercialization and market value derived from them.
Innovate how to measure innovation and you’ll have a metrics dashboard that makes sense and communicates real value contribution to the organization. Measure what’s in your control to influence. Whether your bailiwick is at an organizational, divisional or team level, look beyond the obvious measures and push your thinking to find what reflects value creation. Combination measures have been shown to have more impact. For example, focusing on the value of leader involvement, the market value of innovation in your pipeline, and having market understanding can have a major impact on your performance effect.
Written by Janice Francisco, CEO, Principal Consultant, BridgePoint Effect, Advisor to the Conference Board of Canada's Strategic Risk Council and Council on Commercialization and Innovation.
About BridgePoint Effect
Doing business in an evolving, dynamic environment brings unique, never-before-seen challenges for business leaders.
We have a framework that empowers leaders and their teams to know what to do when they don't know what to do.
A boutique consulting firm located in Toronto, Canada and doing business globally, BridgePoint Effect provides innovation and strategy consulting that helps teams win.
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