By: Pearl Zhu
What gets measured gets managed. Innovation is not serendipity; it’s a managed process of transforming novel ideas to achieve their business value. You can only manage what you measure.
Innovation is a management process which needs to be measured for making continuous improvement. Given the dynamic nature of digital organization and the complex mix of its resources and business factors, a well-defined set of innovation performance metrics needs to be considered in areas such as revenue sustainability, customer satisfaction, knowledge accumulation, brand reputation or price elasticity, etc.
Here is a set of principles for defining innovation measurement to improve management effectiveness and performance.
The measurement should be oriented to justify innovations the organization needs
Better look at what the results were prior to implementing the innovation, as well as after. Generally speaking, there are two types of innovation measurement. The first type is about measuring innovative thoughts or actions—the business value brought by those novel ideas being designed and implemented. The second type of innovation measurement is through innovation drivers, the crucial elements of creative culture or the differentiated innovation competency. The further goal of innovation measurement is to keep track of innovation management effectiveness, not just about the quantitative results, which sometimes can mislead the management with a short-term perspective.
Innovation performance indicators need to focus on measuring quality, quantity, time, cost, revenue growth, profit improvement, margin targets, products variety for stability, turnover, shareholder/owner return and talent sustainability, etc. Select the right leading KPIs by deciding which are seen as critical to deliver either direct or indirect business results, such as improving revenue growth, nurturing a culture of innovation, or building strong innovation competency.
Select a set of measurements which are seen as critical to make continuous progress
Normally organizations look for metrics evaluating business results generated by innovation efforts. But, it often takes quite some time for a new innovation driver to produce those measures. It is difficult to measure the impact without taking the time to generate impacts. Therefore, it’s always critical to select some leading KPIs for measuring innovation results in the long run and help to make continuous improvement.
Measure innovation business results objectively and effectively. Innovation metrics should help you get some objective perspectives on what you are trying to manage, but they need to be crafted and interpreted well and truly improve innovation success rate.
Do not just measure innovation with lagging financial metrics only
One of the solutions is to define process KPIs which demonstrate the growth capability of the organization to deliver more innovation results with business impact in the future.
In practice, the problem for performance measurement is often that the innovation initiative is not well defined. The performance metrics have to be credible and relevant in the eyes of stakeholders, and truly help the business improve their innovation capacity and develop innovation capability systematically.
The innovation performance indicators should focus on building innovation competency and desired culture—the collective mindsets, attitudes, and behaviors
There are incremental innovation and radical innovation, hard innovation and soft innovation. And most importantly, being innovative is a state of mind, it is a culture thing. Thus, innovation efforts cannot be measured the same as other types of business initiatives via quantitative manner only.
In many companies, a pervasive obsession for purely quantitative measurement or numerical success indicators sweeps aside much of the softer and more qualitative information that is crucial in making innovation effort to develop a creative culture and build innovation competency of the business.
To measure and manage innovation effectively, a necessary set of desired attitudes and behaviors should be clearly established before performance indicators are designed. And then, innovation managers can leverage performance indicators as the best tools to nurture an innovative culture and promote continuous innovation within an organization.
A well-defined standard set of innovation performance metrics would need to be considered in better measures of innovation success
Innovation is a management process and business competency. The innovation performance depends on the quality of the ideas entering it and the organizational mechanics that evaluate and implement new ideas to achieve their commercial value.
The innovation success measurement include such as revenue sustainability, customer satisfaction, knowledge accumulation, brand reputation, or price elasticity, etc. The innovation performance indicators such as the number of projects/initiatives being launched or the organizational culture readiness assessments are the best tools available to improve innovation performance.
Keep the measurement simple and understandable. The goal of innovation measurement is to keep track of innovation management effectiveness, not just about the quantitative data which sometimes can mislead the management with a short-term perspective. What gets measured gets managed. Metrics are not the end-all solutions to innovation management, but simply another set of tools and relevant information. Choose the right metrics by deciding which are seen as critical to make continuous progress in delivering high performance innovation results.
About the author
Pearl Zhu is an innovative “Corporate Global Executive” with more than twenty-one years of technical and business working experience in strategic planning, Information Technology, software development, e-commerce and international trading, etc. She holds a master’s degree in Computer Science from the University of Southern California, and she lives in the San Francisco Bay Area for 15+ years. She is the author of “Digital Master” book series and the “Future of CIO blog.