The Complete Guide to Measuring Innovation
It's obvious that if you can't measure it, you can manage it!
How do you measure innovation? How do you know if it’s worth the investment?
There are different reasons why most companies don’t have formal innovation metrics. The primary reason is that it’s not as simple as it sounds. Some organizations, which are very well known for their innovation culture, like Google and 3M, have innovation metrics for years. The most noteworthy is that a certain percentage of employees’ time is dedicated to experimentation with new opportunities.
If innovation wishes to become a legitimate discipline for businesses, the same way sales, marketing, or supply chain do, it must be tested in similar parameters. The main parameter is improving the organization’s bottom line and helping it grow.
The Secret R&D
Innovation is no longer part of a secret group called R&D. These days, innovation is a widely recognized critical business requirement for all organizations across all industries. Innovation could be done internally, or as open innovation (sourcing ideas and technology from outside the organization), using the wisdom of the crowd utilizing clients, suppliers or simply the general public. It will usually involve several sources working together, complementary to the R&D work.
There is no one agreed way to measure the ROI (Return On Investment) that innovation processes and tools can bring to your organization. On top of that, it’s a known fact that most innovative efforts and initiatives won’t become a product or a service, and that can lead to even less trust by the management which already suspects that the innovation unit/team wastes too many resources.
In this article, I will try to give you a list of agreed KPIs (Key Performance Indicators) to estimate innovation-related activities, projects, and initiatives in the organization.
Setting Goals
Innovation has a lot of added values which are difficult to quantify, like increasing employee satisfaction and loyalty to the organization or changing the organizational culture to accept change. For this reason, we usually measure the things we can easily count: how many startups signed up to our accelerator, how many ideas we collected in our last idea management campaign, how many startups events we participated in and so on. All of the above have nothing to do with the financial results of the organization, which makes it hard to show the incredible value that an innovation process brings to any organization.
Building a business process supporting a set of KPIs will allow your organization to monitor its’ goals and makes everyone work harder to achieve the set goals. This will provide a sense of control for the organizations’ management team.
Before we dive into the list of KPIs, it’s important to remember that in most organizations, innovation is a new function (usually a one-man show) and should be treated as so. It should be granted at least two years of grace time before starting to measure its’ performance. This doesn’t mean that innovation managers have two years where they can sit and plan with no practical outcomes. They should make all efforts to realize the value and prepare for the point they will be measured like any other business unit in the organization.
Input Vs. Output
Input
Innovating
Output
We divide all metrics into two groups. Input metrics Vs. Output metrics. This will help you confirm you’re doing enough of the right activities to reach your goals.
Input Metrics
What goes into your innovation process
- Measure if you're doing enough activities to reach your goals and whether you allocate your resources properly
- Refer to the Investment in ROI (time, employees effort, money)
- Easier to measure, especially if you are new to measuring innovation
Outputs Metrics
What comes out of it
- Measure whether these activities and resources have achieved the desired impact on your innovation process
- Refer to the Return in ROI (results, new products/services/processes, new incomes)
- Takes more effort to measure
When choosing your KPIs, make sure to measure both input and output. This is important if you are trying to change your outputs, you are probably going to have to change your inputs.
Input KPIs ideas:
- R&D spend as a percentage of sales
- The number of innovation projects started
- The number of new ideas in the pipeline
- Percentage of engaged employees in the innovation process
- Number of new employees in R&D
Output KPIs ideas:
- Number of new products/services launched in X amount of time
- Revenue/profit growth from new products/services
- ROI of innovation activities
Sample KPIs
Here you may find a list of samples KPIs. Remember to choose wisely and don’t overload, especially if you are at the beginning of the process. Make sure you measure both Input and Output metrics.
Biz Dev / Finance:
- Number of new products launched
- New products or services sales
- Number of new/improved business modules
- Number of Improved working procedures that demonstrate saving in operation costs
- % of corporations’ revenues came from products introduced within the past X years (choose your X. 4-5 years is a good time to start seeing a return on investment).
- Number of patents filed in the past year
- Revenue gained from new products launched, or new markets entered
- Annual R&D budget as a percentage of annual sales
- Total R&D headcount over time
- Innovation budget as a percentage of sales
- Number of active projects
- Percentage of sales from products introduced in the past X year(s)
- A ratio of revenue (or net profit ) from new ideas divided by the average cost of implementation of an idea
Training and knowledge:
- Number of training sessions performed (related to innovation processes)
- Number of employees trained in innovation methodologies
- The number of executives receiving training related to innovation (for example innovation management process related, or industry-specific training)
Idea management process:
- Number new ideas coming from the organization’s company employees
- A ratio of the number of new ideas per 100 employees
- Percent of new ideas selected for funding
- Number of ideas submitted by employees
- Number of new ideas from open innovation
- Number of employee hours spent on independent research and Ideation
- Number of innovative projects adopted through Ideation and their success rate (described in revenue, outcomes generated)
Implementing a culture of innovation/rewards innovation/accept risks:
- Number of new ideas tried
- % of new ideas that lead to larger initiatives
Open Innovation:
- Number of startups we met with
- Number of existing/new startups we work with
- Number of meetups we hosted
- Funds invested in startups
- Number of startups applied to our acceleration program
We are positive you can think of other KPIs (please share from your experience), but the list above can help you start building your set of KPIs.
Defining the right metrics for your organization is not an easy task. We gave you many examples to help you get going. There is no one right set of KPIs to answer each organizations’ questions, and that’s why you should find out what works for you.
Remember to beware of metric overload. Many companies have too many metrics and try to measure everything. Too many metrics lead to excessive activities, lack of focus and a waste of time you should invest innovating.
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Need help deciding on the right set of KPIs, read our Excel by choosing the right metrics article.
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