Everyone has heard the talk about innovation. But how many product development organizations are truly innovating? And of those companies that are innovative, how many can measure innovation and rely on it as an established corporate capability?
Innovation metrics are not about measuring for the sake of measurement. They are about driving innovation goals, making high quality decisions around new product portfolios and creating a reliable and predictable innovation factory.
Many companies would like to be innovative but are unclear about their goals. There are many ways to innovate. New technologies come to mind when the word “innovation” is uttered, but some of the most dramatic innovations today are not in the technological domain. They involve different ways of delivering or purchasing products, or different ways of experiencing them.
While technical innovation is still important, many technology companies are not taking advantage of these other dimensions of innovation. They’re measuring numbers of patents filed or percentages of sales from new products. But these metrics do not predict that a company will create successful and innovative new products. In fact, they often result in unintended negative consequences.
A high quality metrics program starts with a goal. Every measurement exists to drive behavior toward a well-defined outcome. Collecting a metric that is not tied to a stated goal is wasted effort.
The next step is to identify the underlying causes that drive the goal you have defined. What actions, conditions or factors will allow you to achieve the goal? Then, focus on the critical few that will create the conditions for your success. It is these critical step-wise actions, behaviors or processes that are measurable and that will drive successful, innovative new products.
The best metrics do not just measure results after the fact – they measure processes that are predictive of success. Good innovation metrics provide information early in a process that allow adjustments to be made that further the steps that lead to the goal. Innovation metrics are not as much about measuring results as they are about organizing and optimizing the behaviors that will produce results.
An excellent top-level metric for innovation, instead of percentage of sales from new products, is the growth of margin over sales. The goal this metric supports is not only strong sales, but also increasing margins at a faster rate. This is an excellent metric that serves a number of innovation goals for companies, both technical innovators and companies that are pursuing a fast-follower strategy.
Innovation metrics, however, are not a standard, off-the-shelf set of numbers that apply to any and every company. They must be tied to the type of innovation the company wishes to realize and to specific goals that support the strategy. The purpose of innovation metrics, then, is: