Many businesses believe that innovation only entails coming up with breakthrough products that can push brands to dominate their respective industries, just like Apple, Uber, and Spotify.
However, innovation is not limited to this definition alone.
Innovation is the process of realizing new products, processes, propositions, or business models to create added value for the organization, its customers, or its employees.
Sometimes, it can refer to the necessary changes that an institution makes to improve its operations.
Innovation is one of the many things that can make a company unique and successful. It’s a process that contributes to an organization’s survival — so it has to be carefully planned, measured, managed, and improved when possible.
However, how can you measure something that’s intangible?
In this article, you will learn how to measure the value of innovation in your company. Let’s start!
What can measuring innovation help you with?
Measuring innovation brings a ton of benefits. When you have the proper benchmarks, you can drive your company ahead in a progressive direction.
However, the appropriate key performance indicators are not that easy to determine, as some institutions prefer to assess what is easy, not what is needed.
Gauging innovation ensures that your innovation efforts are on the right path. It gives concrete reasons what aspects need more resources, attention, or improvement — allowing you to meet your innovation goals more efficiently.
Lastly, measuring innovation holds people accountable for their tasks and responsibilities. It drives the behavior of employees and directs them to what processes to focus on.
How to measure innovation in your company?
Measuring innovation is done by using key performance indicators, a set of metrics that are commonly referred to by companies as KPIs.
The most common innovation KPIs are as follows:
- Innovation projects started
- Innovation project stopped
- Innovation project finished
- Innovation success rate (finish/started)
- Ideas collected
- Innovation project proposals created
Even if monitoring and assessing innovation seem useful and beneficial, there is no one size fits all approach in choosing KPIs. The measurements you need to use depend on your organizational goals and desired outcomes.
There are different types of metrics that businesses should know about.
In addition, certain indicators may appear excellent at first. However, the end results may not be in line with your expectations.
Hence, don’t be scared to adjust your metrics as you understand how the organization performs with them.
The Innovation Impact Model
It is vital for businesses to measure innovation. One of the most effective ways to do this is by using the innovation impact model.
To avoid spending a significant amount of effort developing complex business cases, there are additional approaches you can use to pick what innovation projects to pursue.
More importantly, as an innovation manager, you should have the relevant information you need to decide on innovation investments and innovation goals.
In relation to this, you can use the innovation impact model to prioritize the best innovations, rate them, and measure their impacts.
There are three options available when rating innovations with their expected investment and impact — high, medium, and low.
Innovations are further categorized via colors. Green stands for projects that are most likely to succeed.
On the other hand, ideas in the middle and orange parts are open for discussions, particularly on altering scopes and other aspects for changes on impact levels.
Lastly, innovations on the red spot need more time to develop.
Note that with the innovation impact model, you can summarize the results and plot it in a graph for easier understanding.
What innovation metrics do you need to track?
Innovation metrics have three important categories — business and product, culture, and leadership.
1. Business and product metrics
Business and product metrics, also known as “ROI metrics,” differ from other categories as it centers on assessing outcomes.
Conversely, culture and leadership metrics evaluate success parameters or the conditions where organizations are more likely to achieve their expected outcomes.
Business and product metrics are presumably the simplest and the plainest among the three categories because of how it focuses on measuring results.
Examples of these include:
- Number of new products released
- Money generated by new products introduced within the year
- Number of patents obtained
Granted that your company is still at the beginning of its innovation development, it could be a good idea to assess whether the projects are suitable to the market, including their projected growth rate over time.
2. Culture metrics
Culture helps a company gain people-related competencies. While it may be hard to accurately evaluate significant impacts on culture, the appropriate sort of culture may have a huge impact on a firm’s innovativeness.
An innovative organizational culture promotes the need for continuous learning and creativity, including the importance of research, responsibility, experimentation, and imaginative freedom.
Hence, innovation metrics must promote conditions for inventive business culture.
Many of the primary structural input indicators in this domain may involve the number of new concepts and programs from the staff and the management, particularly with the time and resources allocated to the innovation process.
Other examples of culture metrics are as follows:
- Employee engagement in innovation efforts
- Number of employees trained for various innovation approaches
- Personnel rating for the organization’s innovativeness
3. Leadership metrics
Leadership metrics focus on weighing the decisions and techniques that innovation leaders and executives make in a long list of strategic and viable possibilities in attaining its innovation objectives and success.
Organization leaders have their own strengths, expertise, and strategies.
However, this should be treated as an asset for the execution of projects and should be applied in line with the data-driven methodologies and processes decided upon by the company.
However, some strategies fail to succeed in improving and accelerating operations.
Measuring leadership aspects in relation to strategy can be tricky, so assumptions can be made and tested for support.
What’s important is that executive decisions are determined, identified, and experimented upon for evaluation.
Examples of leadership metrics involve:
- Time devoted to strategic innovation
- Number of business leaders and executives who received innovation training
- Number of executives that gave a large number of ideas
The measures mentioned above are beneficial for revitalizing and enhancing both your business and your employees in managing innovation.
Simply put, leadership decisions affect the rate of reaching strategic objectives.
Businesses need to allocate their resources well to avoid scarcity.
Despite how progressive these companies are, they still need to innovate and remain relevant to grow and maintain their customer base.
Because of these, they need to determine which innovation projects have the highest potential of succeeding. This way, they can prioritize these initiatives and execute them strategically.
Creating effective innovation initiatives would mean that corporations should not rely solely on standard accounting techniques to manage innovation and analyze its effects, nor should they make decisions based only on intuition and gut feeling.
Innovation leaders should have fact-based accounting measures that track and depict the complete innovation development instead of just the financial result.
The best way to do this would be to implement innovation accounting in the company.
What is innovation accounting?
Once you’ve established an innovation portfolio, you may then begin using innovation accounting to track, monitor, and manage the conversion of ideas into innovations.
Innovation Accounting is a structured set of standards and performance measures designed to collect, evaluate, and report information on a company’s revolutionary and disruptive innovation activities.
Specifically, it’s a method of gauging progress when all of the standard metrics used in a well-established firm (income, clients, ROI, revenue growth) are nearly zero.
Generally, innovation accounting is concerned with the management of three innovation factors:
- Innovation success
- Impact of innovation activities
Why is innovation accounting important?
Because innovation teams have to evaluate the impact and performance of their innovation training and other activities, innovation accounting also helps in holding people accountable and responsible for their part in implementing the company’s innovation initiatives.
Moreover, when innovation accounting is applied, resource allocation becomes easy as business cases are established to guide institutions on what aspects of innovation they need to spend their funds, manpower, time, and energy into.
Innovation accounting also helps with choosing which projects to scale and execute first.
In the end, if innovation accounting only focuses on explaining numbers instead of also helping organizations make innovation decisions, then it is useless.
Executives need to make decisions every day, and having innovation accounting in place helps them make the right decisions for the success of their innovation activities.
Remember, even if innovation leaders have great plans and strategies, these mechanisms will still be useless when the organization does not have sufficient resources and capabilities to execute them.
Measure the value of innovation in your company
Some innovations may not be costly, but innovation itself comes with static costs such as time spent on projects and software training.
But on the contrary, it also has variable costs and results.
Measuring the value of innovation in your company can help you grow your business with relevant data. It can help you drive progress and direct your efforts on the right path.
It helps you learn strategies and develop opportunities through the proper selection of innovation indicators, which can help you achieve your objectives.
Keep in mind that measuring innovation is a continuous process. You need to learn how to properly choose relevant metrics for thorough analysis and improvement.
Let’s dive deeper into the topic of innovation with our guide to innovation ebook. Grab a free copy of it today and learn more about the value of innovation in your company.