MEASURING INNOVATIONFuelling the engine through effective evaluation

Successful organisations are those that understand the significance of innovation and the capabilities that enable it. There are many examples of successful organisations that effectively harness innovation to improve competitive advantage and tomes have been

written about the capabilities that enable this success. This paper however, explores a key innovation capability that is less heralded and often consigned to the final chapters of

innovation text books; measurement and evaluation.

02 | Measuring Innovation

WHY LEAVE INNOVATION TO CHANCE?

As we discovered in a recent Gate One study in partnership

with Oxford University, 80 % of FTSE 100 companies cited

innovation as a top business priority signalling its importance

in corporate strategy. However, a recent McKinsey Global

Innovation study, found that only 22% of the organisations

it surveyed set and use innovation metrics. So the question

begs; if Innovation is so integral to success, why do so many

organisations fail to track innovation performance or in

many cases, barely even scratch the surface? Our research

and experience suggests there are many reasons why this is

the case and as a result measurement and evaluation reside

in the ‘could do’ bucket rather than the ‘must do’. Our

findings for why this is the case include:

DEVELOPING BETTER INNOVATION METRICS

We believe that identifying metrics, and measurement

thereof, is part art and part science. Successful

innovation performance will likely result from a range of

interrelated factors and driving success requires more

than simply the setting of some arbitrary targets in order

to achieve some ‘quick wins’. Developing metrics requires

a mature, strategic and long term perspective. Therefore,

when setting innovation metrics, it is vital to consider

the broader organisational environment, priorities and

processes. Opposite is a straightforward guide to setting

effective innovation metrics, which we call TRACK:

Defining innovation is hard

Innovation can be a nebulous term and as result many organisations have not defined what innovation means for them and importantly, how this links to corporate objectives. As a result, it makes the setting of meaningful metrics hugely difficult let alone be value adding or credible.

Outdated metrics restrain thinking

Innovation is no longer the preserve of the factory floor but for many organisations, the tendency remains to stick to traditional, well established measures such as R&D spend, defect rates or technology investment.

Too many metrics to choose from

Many organisations have so much data at their disposal now and as a result establish countless metrics with different criteria. This leads to a loss of focus and insight and subsequently counter-productive.

Who owns the metrics?

R&D? Manufacturing? Finance? Analytics? Of those organisations who do have metrics in place, many struggle to identify who owns the data and the reporting process. This leads to confusion, poor interpretation and a lack of accountability.

The job is done, what’s next

Whether launching a flavour change in a soft-drink or new ISA saver product, organisations spend so much time and effort to develop and launch but neglect post-launch reviews. They often prefer to focus on the next big thing rather than the innovation process and launch performance and what can be done to improve.

DIMENSION INPUT METRICS OUTPUT METRICS

People % of people who have received innovation training Number of innovations that advance existing businesses

Leadership % of innovation projects with a board level sponsor Number of managers that become leaders of new category businesses

Process No of ideas in the funnel in ideation stage % of new products from the innovation cycle in the last 12 months

Finance % capital invested in ideation % of revenue from products or services introduced in the past year

Return on Investment

% of new ideas launched in the business in a certain period

Royalty income from patents from Intellectual Property

Measuring Innovation | 03

THE ‘TRACK’ MODEL

TIE: YOUR METRICS TO STRATEGIC OBJECTIVES

Only by first understanding the organisation’s vision and strategic business objectives can you begin to identify the right

set of innovation goals. This should involve identifying the technology, processes, behaviours and capabilities required to

deliver innovation success. Innovation strategy and core business strategy should be closely aligned, if not the same thing.

REFINE: PEOPLE, PRODUCT AND FINANCIAL KPI’S

Once innovation goals are understood, a metrics framework should be established, ensuring the optimal set of cross-

functional metrics are identified. This approach ensures that no vital drivers of innovation are missed. Your framework

should, as a minimum, include:

• People metrics – measuring leadership, behavioural and team working aspects

• Product / technology metrics – measuring aspects of the innovation process that delivers new products

• Financial / market metric – measuring financial performance and cost management

ASSESS: YOUR INPUTS AND OUTPUTS

Innovation is not all one-way traffic. The most successful ones are those that have defined innovation processes

and measure every key step along the way – both inputs and outputs (aka: the process steps and end results).

See table below for some examples of input and output metrics you could apply in your organisation.

CONCENTRATE: ON THE ‘SMALL-DATA’ FIRST

The availability of data has never been so widespread - everywhere we look data is at our finger tips. All we heard about

it ‘big data’. Given what is measured influences behaviour, too many metrics can often blur the picture, provide little

value and drive conflicting behaviours – thus defeating the purpose entirely. Identifying the right KPI’s takes time and

effort, so our advice is; before tackling the ‘big data’ challenge, be brave and set your own, focused set of metrics that

really matter to you. Use them consistently, be patient and really understand what they are telling you.

KEEP: YOUR TEAM ENGAGED AND PERFORMANCE TRANSPARENT

It is encouraging to see organisations that communicate results to their internal teams – good or bad. Of course the

end result is important but there is significant value in embedding a culture of transparency, communication and

accountability for results. Innovation metrics should be encouraged via all appropriate channels be it formal leadership

communications, peer-to-peer collaboration or external marketing materials. Maintaining transparency and accountability

leads to a culture of success and openness where everyone understands performance and how they contribute.

Incorporating the steps from the TRACK model to aid the development of your innovation metrics, below are examples of innovation metrics to adopt in your day to day activities:

T

R

A

K

C

This paper was authored by Anthony Gaffney, Director and Paul de Bono, Senior Consultant.

To find out how Gate One can help you with your innovation challenges, please contact us

info@gateone.co.uk www.gateone.co.uk

TAKE CONTROL. DON’T LEAVE IT TO CHANCE.

Finding the right things to measure is a process in itself. Every company has its own organisational culture and must

fine-tune what it measures to reinforce the goals and values that are critical for inspiring innovation.

Relying on creativity to drive innovation is not a viable strategy and it is confusing why any organisation would leave

future success to chance. Creating and driving the effective use of innovation metrics goes beyond simply defining

and communicating new measures, it requires a disciplined approach that should cascade throughout each business

unit, division and group structure. In landing on the optimum metric set, organisations can drive ROI, innovation

capability and leadership. Innovation metrics are not an end in themselves but if your organisation can foster a

culture of measurement and accountability, it can have a hugely catalysing effect on your innovation efforts.

GETTING THE MECHANICS RIGHT

At Gate One, we are proud of our business incubator scheme owned by our employees - our own form of

‘intrapeneurship’. At the time of this article going to print we have over twenty commercial ideas in our product pipeline.

We pride ourselves in measuring and communicating our performance against KPIs to our wider team so everyone

understands performance and where improvements are required. Anything that helps us to improve is positive.

With first-hand practice of innovation management coupled with our deep experience in working with leading

organisations, effectively measuring and evaluating innovations can achieve the following:

1. Galvanise your team

Simply put, what gets measured gets done. Poorly defined targets signify a lack of importance meaning initiatives are de-prioritised or even ignored. Therefore, whether you are at the beginning of your innovation journey or you are a mature innovator, success is often realised simply by inspiring action around the innovation targets that are set.

2. Continuously improve innovation

It is critical to measure and understand successes and failures. Metrics and KPIs enable this continuous improvement effort allowing enhancements and informed corrective action to be taken quickly.

3. Enhanced senior engagement

New ideas, initiatives and projects are likely to gain greater sponsorship from c-suite stakeholders if there are clear understandable metrics supporting business cases, expected benefits and overall innovation performance. Metrics and KPIs a key tool for communication and should be used to your advantage to get that buy-in.

4. Appeals to the investor community

A strong innovation brand is likely to push up an organisation’s share price. It is the key to driving organic growth in today’s competitive global market place. Analysts are more likely to paint a better picture of a company’s future prospects if there are clear innovation metrics to consider and share.

5. Helps to attract top talent

Our joint research with Oxford University showed that ‘top talent’ now favours the innovative, forward thinking organisation over the traditional, rigid working environment. Even where remuneration is less. The ability to demonstrate and communicate innovation will make a company much more attractive.