Innovation Metrics – Why they must be customized for each business

On another forum, there was a good discussion about how to best measure innovation. This is a question often asked, and there is not a standard answer that works for all companies, although there are some general guidelines that are relevant most of the time.

What is the best way to measure Innovation?

One of the difficulties in answering the question is that its a bit like asking: What is the best way to measure a car? Horsepower? Mileage? 0-60 time? Number of seats? Length? Number of cupholders? Kilowatts of stereo amplifier power?

In order to measure innovation, it is necessary to use multiple metrics to track different aspects of innovation that are relevant to a specific company. If a company is transforming from being less innovative to more innovative, then there are culture and process metrics that are important to track the changes. If a company is too internally focused and decides it is important to get more external ideas, then there are metrics around that.

In general it is useful to measure things like:

-Portfolio of products (things already on the market) – How many were launched in the last X years/months? How many are significantly differentiated vs. competition (in ways that are customer-relevant)? How long does it take on average for competition to duplicate or nullify what differentiates your products?

-Portfolio of projects (things in your development pipeline) – How many disruptive/breakthrough projects are in your pipeline? How many incremental innovations are in the pipeline? How much general line maintenance are you doing (new colors, sizes, versions)? How much of your effort & budget are you committing to each type of development project?

-Impact of innovation outside new product development – Is your supply chain developing new ways of being more efficient? Are you differentiating your business model vs. competitors? Is your marketing different in ways that make it more effective?

-Financial results – What percent of sales & profits are coming from new products launches within the last X years/months? What are you spending on R&D / Product Development (this can be too high or too low)?

With all of these potential metrics, one difficulty is that the absolute measurement is not very meaningful without knowing the trends and the relative position in an industry. The big insight comes from the direction these metrics are going vs. competition. In some industries it would be phenomenal to have 50% of sales coming from product platforms created in the last 3 years. In others that would be disastrous.

Also, there are a lot of useful metrics that are difficult to reduce down to a numeric value. There may be some things you can monitor effectively with a green/yellow/red rating or a five point scale. Some of the process and culture metrics hit a point of diminishing returns when you try to turn them into a traditional numeric metric.

Determine what role innovation plays in your corporate strategy and what changes you need to achieve in the next year or two. Then figure out a set of metrics that are relevant to measuring your progress in those areas.