Are you looking at the right innovation metrics?
How to measure innovation? This question can be tricky to many business leaders, after all, how to evaluate something so immaterial and subjective? Maybe, it is the same thing as asking: How to measure creativity? Is my company more creative or innovative than my competitors? And what defines it, anyway? Is it the market, my own business, or my clients?
You may believe the amount of new ideas is an indicator, but metrics like this (aka input metrics) don’t evaluate much. This kind of data is easier to get — and also the most convenient.
But, innovation is not about being easy or convenient. It ‘s about value. Otherwise, it’s just vanity.
CISCO’s Chief of Innovation, Alex Goryachev, said that “ innovation must be measured, but many companies measure the wrong thing”, focusing only on what he calls “ process metrics” instead of also looking for impact metrics.
What kind of indicators is he talking about? How to distinguish one from the other?
And most importantly: which innovation indicators to choose to measure results?
To start, we will take a look at nomenclatures, then find out which numbers to collect so we can get insights and measure innovation.
Innovation metrics: input and output
We can split innovation metrics into two: input metrics, known as process metrics, and output metrics, a.k.a impact metrics. On one hand, we have indicators of the activities that may lead us to a certain result, and on the other hand, indicators that show real success.
In other words, while input metrics don’t guarantee results, output metrics reveal an action’s efficiency.
If you don’t test any 500 new ideas your company had last year, why did you have them?
You may accomplish 10 hackathons, gathering 200 people around each of them, but if it doesn’t help you solve a problem and attract new talents, maybe it wasn’t such a success.
This is why input metrics are idle. It’s easy to have new ideas. To test and validate them it’s another story. Output metrics are brutally honest, even more at the beginning of a project. Still, they are essential for decision-making.
Which indicators to choose to measure innovation?
Between input and output metrics, keep them both. That’s right: you’ll only have a better business view if you evaluate and face these two fronts.
But, stay aware: each company has its metrics. Do not follow pre-made recipes.
It’s also important not to confuse innovation metrics with software development metrics. Both are very important and will be valuable when analyzed side by side.
It makes sense for big businesses to analyze how many projects were launched in the last month. But this data isn’t interesting for smaller companies, which have a much leaner budget.
It doesn’t make sense for startups to measure results right at the journey’s beginning since the prospects for return are long-term. However, showing the number of hours dedicated to innovation, the number of new employees and the value of fundraising is much more interesting.
If you are undecided about which metric to choose from, here are some suggestions based on our experience:
- Number of new ideas vs. Number of tested and validated ones
- Number of different areas suggesting new ideas vs. Initiatives that actually got out of paper
- Amount of selected ideas vs. Cost per learning
- Amount of ideas vs. Implementation velocity
- Number of new product demos vs. Growth of customer portfolio
- Number of new users vs. Cost of acquisition
- Number of business partners vs. Cost reduction from innovation
- Number of trained employees vs. NPS of clients with new products
- Acquired knowledge vs. Necessary capital
- Dissolution of innovation department vs. Growth of contribution in all other departments
Types of innovation metrics
There is another way to find out which innovation metric works best for your business, according to their types. In this article, I list 5 of them, combining input and output metrics.
Before I start, it’s good to point out that, depending on your business model, there may be social or environmental innovation metrics available too. Consider this while preparing your report.
The 5 types of innovation metrics are:
1. Capacity metrics
Capacity metrics are related to a company’s skills used to manage innovation — especially the most practical — such as know-how, ideas shared by employees, acquired knowledge, and the required investments to enable all of this.
If your objective is to measure your innovation capacity, you can look closely at everything necessary to accomplish it and use these resources as performance indicators.
2. Structure metrics
The structure of a company involves the organizational part, processes, resources, and other tools needed to manage innovation. These indicators should show the allocation of resources, the launching process, the speed of testing new ideas, and how efficient it is to manage everything.
3. Culture metrics
At this point, we have as activity metrics the number of new ideas your team had, for example. You can confront them with the involvement of employees when putting them into practice, which, in this case, would be the exit metrics.
4. Leadership metrics
Leaders have a fundamental role in innovation because, if they are not committed, it’s unlikely that the team will be motivated to move forward. Therefore, these metrics must appear in your report. For example, you can check how much time has been invested in strategic innovation or how many executives receive specific innovation training.
5. Business and product metrics
Lastly, we have business and product metrics, which generally measure Return on Investment (the very famous ROI). The number of products launched, sales and patents acquired, and new markets entered here.
Speaking of innovation, measuring ROI may not be a simple task, since it depends on many factors. To analyze ROI, we also need to define OKRs, an acronym for Objectives and Key Results, or “Objectives and Key Results”. The idea here is not to evaluate only the final result, but the whole process.
How to define your OKRs: for each Objective, we have 2 to 5 Key Results, which will indicate whether it was achieved or not. For example, let’s say that your company’s goal is to grow X% per year. For that, we could have as Key Results a reduction in turnover and increased employee satisfaction.
Innovative companies prefer to work with OKRs because the goals are short-term, and the results are evaluated periodically. This allows them to correct the route faster whenever necessary — something very useful nowadays.
Software development metrics
Agile metrics for software development can also contribute to assessing how innovative an idea/product/business is. Here are some indicators:
Lighthouse
This input indicator briefly reports the development of a front for taking executive and/or operational activities.
Lead time
Output metric that points out the difficulties encountered along the way, solutions that unlocked the development, and analysis of third-party involvement.
Throughput
Impact metrics can be analyzed every week, every fifteen days or monthly. Here we check the team's capacity, the volume of tasks completed versus the quality of what was produced.
CFD (Cumulative flow)
Output metric that shows the overall quantity of deliveries with an analysis of the impact of each phase of activities on the development of the project or product;
Monte Carlo
Use this input metric to assess, for example, the probability of completing an MVP in a certain period, considering the recent history of activities.
To innovate is to create value
As we have seen, there are several ways to measure innovation. The challenge, however, is to find which activity metrics and which impact metrics make more sense to your project.
To eliminate any questions that may arise, you need to ask yourself: what’s my biggest goal? What do I want to achieve?
It is obvious that your goal is not to simply create new products. You want to expand your presence in the market, gain a bigger share and, of course, increase your sales.
Likewise, when organizing a hackathon, your goal is not just to end the day with 10 new ideas. You want to transform the company’s culture, attract new talent, engage employees or even position your brand.
In these two cases, some indicators can help you measure your effort — and you probably already know some of them.
Therefore, every innovation project needs to be meaningful, or in other words, to have a goal and a very clear purpose. Whenever there is any uncertainty, take a few moments and try to figure out what would happen if you didn’t proceed with the initiative you are planning.
After reflecting back on it, you will know if it is worthwhile or not to go ahead, and which innovation metrics should be included in the analysis.
Some companies still use the old “innovation funnel”, encouraging their employees to have 300 ideas to filter them and to practice a few good ones later. If this is your case, be reasonable when it comes to practicing this methodology because a culture of innovation aims at quality and not quantity.
References:
- The Creativity Explorer — How to really measure innovation
- Semente Negócios — Como medir a inovação
- Transformação Digital — 5 formas de mensurar a inovação da sua empresa
Originally published at https://ateliware.com.
