Measuring innovation is tough on most counts – unless you happen to be lucky enough to create new blockbuster products. One way to make strategy easier to frame and guide is to have a set of leading indicators telling you if your innovation efforts are working out. Deb Mills-Scofield looks at how to set up the lead indicator process through ‘Lens Shifting’.
How do you identify and measure tangible and intangible leading indicators of innovation, especially the intangible ones which can provide significant customer, and competitive, advantage to your firm?
First, let’s be clear about what constitutes a leading indicator. The US Government has an official list of leading indicators for the economy: unemployment, building permits, money supply, inventory, etc. Some of the leading indicators are, for example, for increased requests of entitlement programs (e.g., Medicaid, etc.) but these are trailing indicators for companies since businesses were hurting long before they laid people off, or people couldn’t afford homes. One person’s leading indicator is another’s trailing and vice-versa.
A leading indicator is “something” that tells us what could happen before it does happen or early enough to adjust the corporate path and to take advantage of an emerging opportunity. A leading indicator gives us indication of what could/should/will/won’t happen and allows us to navigate, leverage or mitigate accordingly.
A leading indicator is “something” that tells us what could happen before it does happen or early enough to adjust the corporate path.
Let’s look at two aspects of leading indicators for innovation – identifying areas ripe for innovation and identifying specific indicators within the innovation process itself. Both focus on intangibles, which are formidable for some because they are not as easy to measure and quantify, as traditional ROI.
TYPE 1 Leading Indicator: What’s RIPE for Innovation
The first type, identifying areas ripe for innovation, utilizes an ability to see things differently. My friend Jackie Hutter calls this “Lens Shifting” which made me think of this picture.
These guys are all working on the same physical plane, but for one it’s flat, for another uphill and for another downhill. It depends where one is standing. Even though they are on the same physical plane, they each have a different viewpoint. We view things from our own perspectives and biases.
Today, to create a successful innovative product or service, you need to predict what a ‘must have’ will be for customers 2-5 years from now. And oh, by the way, today’s customers may not be tomorrow’s. In fact, the future customers may not even exist – you may be able to create a new market, category or segment!
Steve Jobs, Warren Buffett, JayZ, Lady Gaga stay cutting edge year after year because they view the world differently, they ‘Lens Shift’.
So, why are some people so good at understanding and leading future trends? Think Oprah Winfrey, Steve Jobs, Warren Buffett, JayZ, Lady Gaga. How do they stay cutting edge year after year? Well, they seem to view the world differently, they ‘Lens Shift’. They are curious about the world, life, work; they’re open-minded, set their minds on an idea and go for it, even creating the trend itself; they’re confident in their ideas and act; they don’t care about being different. They appear ‘fearless’ or ‘risk taking’. Or perhaps they define fear and risk differently, where risk = status quo, not the undiscovered. The key is their ‘connectedness’ – to people (social network & capital) and to see patterns and relationships that most don’t see. Is this unique to them? Can it be learned? I think it can. Let me give a very mundane, but important example.
Before my oldest child started crawling, I crawled around the house to ‘baby-proof’ it. Wow! What a totally different perspective! It was amazing. Aside from seeing a lot of dust, my whole perception of our house, and frankly of everything we see at our ‘eye’ level, changed dramatically! It was a different world to live in and I realized how my language, words, even hearing were geared to someone at my height (or taller). That was literally a lens shift.
Try it. Start looking at the world differently –your world, your (current, potential, non-) customers’ worlds. Imagine what it could be.
Here are some ways to start. Jeffrey Phillips encourages us to look at rituals, like shaving, and think about how we could reinvent them. Maybe think yourself into the position of a child or spouse observing this process. Jerry Sternin improved malnutrition effects in Vietnam by looking at Positive Deviants – at those who, despite the circumstances and everyone around them, were doing better. Tony Hsieh talks about hiring lucky people, but luck isn’t totally accidental, it’s serendipitous, and luck breeds luck. Who would have dared call their business success luck? But it allowed Tony to develop a business where people were pleased to go out of their way for customers.
I bet you are already doing some of this but don’t realize it or use it as best as you could. Your customers’ and their customers’ business drivers are your leading indicators. Take the shaving example. If you watched a man shaving years ago, with lather, brushes, razors, etc., could you think of ways to make it faster, easier, safer, less confined to the bathroom? What parts could you simplify, condense, put together, eliminate, lessen (e.g., think shaving cream) and what could you add (e.g., mobility – electric shaver)?
TYPE 2 Leading Indicators: Helping You Manage Innovation
Let’s look at leading indicators type 2, those for your internal innovation process; how you “manage” innovation within your company vs. the way you get ideas in. Using a manufacturing model, there are the raw materials coming into the factory, the processes to do something with that ‘stuff’ and then the product or service that goes into the marketplace.
The raw materials are your source for leading indicators. These have a direct affect on your trailing indicators: market share, revenue, profit, etc. Ideally, you’d want some indication of how things are going so you can mitigate and manage the outcomes. But measuring leading indicators in the innovation process has not been easy.
Tangible indicators of innovation include investments in capital, time, software, physical infrastructure, equipment, lab/office space etc. These are the investments you make, the very tangible KPIs that assure everyone you are trying hard!
Intangible indicators include corporate commitment, focus on innovation, balance of internal and external ideas, strategic alignment, infrastructure effectiveness (and efficiency), talent, employee motivation, culture, knowledge, brand, reputation, and engagement.
If you’re not investing resources on training, tools, communication, collaboration for innovation, then don’t be surprised when the trailing indicators aren’t great.
If you’re not investing resources on training, tools, communication, collaboration for innovation, then don’t be surprised when the trailing indicators aren’t great. Measuring and tracking these give an idea of the pipeline’s and process’s success and where resources may need adjustment. These are not perfect, no indicator is, but it gives you insight and transparency into your innovation process.
Start identifying what to measure with questions such as:
- How much time & money do we allocate to innovation, not just in R&D and are we spending enough or indeed what we promised ourselves we would spend?
- Do performance measurement and incentives reward innovation and if so how can we adapt performance metrics to reflect innovative activity?
- Do we train our people on ideation and innovation techniques and have we a system in place to measure and understand the significance of outputs?
- Do all our ideas come from various functions and businesses or do we see balance across the business. What might these idea origins tell us?
- Do our ideas come primarily from inside? Or outside?
- How many strategic alliances do we have? And with whom (suppliers, customers) and have we any grasp of what they might mean for outsourced innovation? What can we do to squeeze innovation from them?
- Do we clearly communicate our innovation objectives to all employees – how do we measure that?
- Is our IT system supportive of, helps facilitate innovation?
- How many cross-functional/geographic initiatives do we have? how well do they work?
- How well have we empowered our businesses and managers to innovate and is there a measure here – what about delegated decision making around innovation, have we initiated any new decision processes or budget processes?
- How well do we accept and learn from failures? Do we document them and lessons learned? Are we brave enough to quantify them?
- Finally how do these metrics relate to product outputs, patents, customer interactions: what do they tell you about the road you are on? Do they in some way allow you to anticipate success or failure when you correlate different metrics? How do you shape up against industry norms or best in class?
Don’t just take this as is, adapt it to your own environment and add to it. Think about your own business, customers, suppliers. What are your leading indicators? What are your customers’? And customers’ customers?
By Deborah Mills-Scofield
About the author
Deb Mills-Scofield helps companies create actionable, measurable, adaptable, and if implemented, profitable innovation and strategic plans. After graduating from Brown University, helping start the Cognitive Science concentration, she went to AT&T Bell Labs and received a patent for what became one of their top revenue-generating services. Deb was instrumental in creating AT&T’s entrance into the Internet and E-commerce marketplace, AT&T WorldNet® Services.
Deb’s love of innovation – from products/services to management – includes mentoring entrepreneurs in Northeast Ohio, Brown’s Entrepreneurship Program, and seniors in Brown’s Women’s Launch Pad Program. Because of her passion for making a difference, Deb asks her clients to match 10% of her fee to improve lives and to mentor entrepreneurs she knows through the early-stage VC firm in which she is a partner, Glengary LLC. In her spare time, Deb watches the tides in Maine, microvolunteers at Sparked.com and with her husband, drives their kids to soccer practices and games.