Measuring Innovation Performance

Abstract

How does your organization measure its innovation performance? I asked this question at the outset of a recent conference on the ways in which large corporations measure innovation. The conference was sponsored by Babson Executive Education and held at its Wellesley, Massachusetts, conference center in May, 2007. It was one of five that I've run for the past three years focusing on different aspects of corporate innovation management. This one brought together some 30 corporate innovators from companies like Bank of America, Intel and DuPont, consultants from firms like the Monitor Group and the Boston Consulting Group, and faculty from Babson. Innovation measurement is an ongoing concern at most companies. In fact, many CEOs listed insufficient access to internal information as one of the top ten obstacles to innovation, according to IBM's 2006 CEO survey on innovation. Most companies currently do not have a systematic or standard way of capturing either investments in, or returns from, innovation. As a result, measurement of innovation performance tends to be ad hoc, with considerable variation in measures used from year to year. Consider what happened when we asked conference attendees about their favorite measure of innovation performance. As each of the attendees described what they were looking for in an innovation measure, I was surprised to see so little agreement from company to company or person to person. Each manager I asked gave widely differing responses. Here are just four of the many kinds of measures cited as preferred ways for companies to evaluate their innovation performance: 1. Number of ideas funded. The focus of this measure is on the front end of innovation--the number of new ideas that can generate enough interest to result in formal resource commitment on behalf of the company. 2. Return on investment (ROI) or project net present value. These are familiar project-based measures of financial return. As companies invest in new ideas, they need to generate attractive returns from those investments; these kinds of measures track that anticipated level of return. 3. Innovators in senior positions/ CEO commitment. How many of the senior executives in your company or division attained these positions by implementing new ideas that created value? Does the CEO spend a significant amount of his or her time on innovation, as GE CEO Jeff Immelt does with GE's Ecomagination projects? These are measures of a company's process and culture--a way of assessing a company's commitment to meeting the challenge of the new. They are quite different from the project-based measures above. Here, the emphasis is on encouraging innovative thinkers for long-term success. The measures in this third category provide an indicator of innovation's real value in the internal workings of the company; after all, if the CEO is not committed and if few innovators are in the company's top ranks, how important can it really be? 4. Long-term customer adoption. This is one of a set of results-based metrics that evaluate innovation success by the success of a company's new products and services. The intent of customer-based measures is to stimulate an organization to focus on ways of cementing and increasing customer loyalty. In other words, create fans--not just customers. For firms using these measures, innovation is successful when existing customers eagerly anticipate a company's new offerings, waiting in line to buy them. Think of the excitement generated by new products from Nintendo or Apple Computer, for example. Tools in Abundance As you can see, there are a wide variety of ways in which companies approach measuring their innovation performance: from operational to organizational, from attitudinal to financial. The challenge in effectively measuring innovation performance is one of abundance, rather than scarcity--there are so many tools and approaches and not one of them is perfect. …

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