By Praveen Gupta

Innovation as an intuitive and creative process is a difficult process to measure. Innovation, which is considered an art, is measured historically in terms of financials or counts. Financial measurements include new product- or service-specific sales or revenue growth, and count-type measurements include items like the number of patents, trademarks, articles, and product or service versions produced. However, experience shows these measurements do not correlate to the innovation activity; therefore they do not appear to be sufficient measures of innovation performance for a business.

Process-Based Measures of Innovation

In order to establish a set of working measures of innovation, one must identify common characteristics of the innovation process, their inter-relationships and well-defined deliverables. In order for an innovation process to be standardized, its inputs, in-process activities and outputs must be identified. An innovation process includes many process steps and dozens of possible metrics. The challenge is that people want to devise magical measures that can tell the whole story and serve as predictors of innovation. Immediately establishing an adequate and accurate measurement system is unlikely to succeed;starting with an initial set of measures is a better approach.

Effective Measures of Innovation

An organization attempting to develop measures of innovation initially must clearly state its objectives. Given the presence of a glut of measurements with no use in most organizations, an addition of nice-to-know measures is often perceived as “additional” work and not received well within the organization. The following steps help establish innovation measures:

1. Define the purpose of innovation in the organization.
2. Establish expected innovation deliverables (basic and specific) and their contribution to business performance, including growth and profitability.
3. Determine the measures of success of key innovation deliverables.

Determining Business Performance Measures

The business performance index (BPIn), shown in Table 1, consists of seven elements and ten measures for monitoring business performance. BPIn measures include idea management, sales growth and employee recognition for exceptional improvement – the measures of a company’s performance at various stages. The most critical resource, with minimal financial impact, is the effective intellectual participation of employees in developing innovative solutions as a way of doing work. This requires a robust employee idea management system that can enlist employee ideas daily, filter criteria continually, and escalate the value-driven ideas for improvement or innovation for further implementation.

CEO recognition of employees and incentives acts as a catalyst (input) for innovation, idea management is the activity, and sales of new products, services and/or solutions is an output of innovation processes. Combining these three (or similar) measures to develop a corporate innovation index is simple and allows for the assessment of key aspects. The objective of innovation measures is to identify trends in performance and identify areas for adjustment to accelerate innovation.

Additional Innovation Measures

Copying another company’s measures of innovation is not sufficient, as they may reflect different environments, priorities in performance and resource commitment. Table 2 shows a variety of measures that can guide thinking in the right direction and facilitate development of appropriate measures of innovation. Good measures of innovation, being specific, measurable, and actionable, catapult the innovation process and produce significantly more innovative outcomes.

Put Measures Into Practice

The initial measures must be CEO recognition (for inspiring innovation), employee ideas (for involving more brains) and revenue growth (to ensure economic benefits). These three measures are relatively easy to implement, represent elements of the innovation process, have potential to drive improvement in the innovation process and may help predict the mastery of the innovation in a business.

What would a BIN look like in the real world? Let’s look at an example of a company of 1,000 employees with annual revenue of $80M in Table 4.

This example shows that the BINis 28.6%, which can be improved by involving employees more through soliciting their ideas, encouraging more employees to develop breakthrough innovation solutions and having a sales team hit the road for higher sales of new products or services. Businesses can establish goals based on their industry position and knowledge to make them meaningful. As the organization advances in the innovation process and matures their innovation process, they can select additional meaningful measures at input, activity and output levels and revise the Business Innovation Index for its suitability to the organization.

Conclusion

Establishing measures of innovation for predicting success requires better understanding of the innovation process. Businesses already have some measures of innovation, including revenue growth, number of innovations and investments – but so have proven insufficient in accelerating innovation and achieving excellence in innovation. Starting with a few, but effective measures, of innovation sets the right foundation for maturity of the innovation process.

The author would like to acknowledge Arvin Sri for his critique of the article and ideas for improvement.

About the Author:

Praveen Gupta is the lead author of Business Innovation in the 21st Century that organizes various aspects of innovation from concept to commercialization. He is the president of Accelper Consulting, which provides training and consulting services in innovation and teaches business innovation at Illinois Institute of Technology, Chicago. Contact Praveen Gupta at praveen (at) accelper.com or visit http://www.accelper.com.