MBIE1903-8273

Enterprise Innovation
1
WEEK 7: How to Measure Innovation
 Measuring Innovation
 Measurement is fundamental and critical to success with innovation.
However, using too many metrics can lead to improper analysis and
action.
 Few sharp metrics provide a much clear picture of performance.
What gets measured, gets done.
 Strategy and business model of innovation – metrics tied to both.
 Three options – communicate the strategy and the underlying
models, monitor performance, and learn.
 Measuring Innovation
 Tailor the measurement to match the mix of incremental, semi-
radical and radical innovation strategies.
 Change measurement system whenever your strategy and
organization changes.
 Build the measurement system in a manner that avoids the seven
barriers to its success.
4 What Gets Measured Gets Done
 A carelessly designed innovation- measurement system
may do more harm than good.
 In a survey, more than 60% of respondents indicated
that innovation was a key in their companies.
 However, more than half rated their performance-
measurement system for innovation as poor or less than
adequate.
 Measuring Innovation
 Some organizations use Money based metrics..? Managers rely
more on non financial metrics to track the execution of an
innovation effort and project its future value.
 E.g. Mobil’s retail division – dramatic effects of a well designed
measurement system.
 When measurement systems are not designed well, managers lose
a key source of information (lower performance, decreased pay offs
from innovation investments).
 The 3 Roles of a Measurement System
Measurement systems are managerial facilitators, no solutions. They serve three roles:
 PLAN – Assumptions about the sources of value should be explicit
and clear, select the intended strategy and clarify expectations
about strategy throughout the organization.
 MONITOR – Track the execution of innovation efforts to assess
changes in the environment, intervene only if necessary and
evaluate performance.
 LEARN – Learn about new solutions to achieve performance goals,
new business or technology opportunities.
 PLAN – Define and communicate Strategy
 Facilitate agreement on what is important, how day to day activities add value
and how each person contributes to the mission.
 Make the strategy explicit through your management system. Three advantages
to this:
1- Allows a discussion about the assumptions and mental models – this results in
agreement in the organization on strategy.
2- Encourages the communication of the strategy and its execution throughout the
organization.
3- Tracks the evaluation of the organization and the strategy. Identifies whether the
organization is on the right track to achieving its innovation objectives and the
innovation strategy is working.
 MONITOR PROGRESS
 The most commonly thought-about function of measurement
systems, is monitoring progress.
 The measurement systems can identify deviations from the plan that
require managerial action.
 In the Product Development Process – reference point for measuring
progress is typically the planned performance.
 LEARN – Identify New Opportunities

 Innovation depends on communication and exchange of ideas.

 People exchange points of view, discuss different perspectives and
find new solutions.
 Learning facilitates ongoing discussions within organizations that lead
to better innovation and execution.
 Examples – PEPSI, and USA Today
USA Today – relied on to continually innovate its product was a detailed weekly
advertising report (to understand, pitch and uncover new ideas).
PEPSI – used similar weekly market share reports in its effort to beat Coke.
10 Three Roles of Measurement Systems
Balanced Scorecard – Measuring
Innovation
 A clear model describes the inputs, processes, outcomes and
outputs from idea generation, to execution, and value capture.
 The Balanced Scorecard is one of the most powerful concepts in
measurement systems.
 Its main idea is applicable to any business process including
innovation management.
12
Business Model and Measurement System
 The Business Model for Innovation

 A basic principle is – a measurement system is only as good as an

underlying business model.
 The business model describes how a company will be innovative
and how it will generate value from innovation.
 Key to the power of Balanced Scorecards – the richer the
understanding of the innovation process, the better the business
model.
 The derived measurement system will then provide a more informed
management of innovation.
14
INPUTS, PROCESSES, OUTPUT, and
OUTCOMES
 Putting together a business model of innovation is the most
challenging part of designing a measurement system.
 The following framework presents a useful approach to describe the
casual relationships behind an innovation model.
 1- INPUTS – Resources Devoted To The
Innovation Effort
Include tangible and intangible elements and are leading measures of
success.
 Tangibles include capital, time, software and physical infrastructure.
 Intangibles include talent, motivation, culture, knowledge and brands.
 Innovation structure includes interest groups and corporate venture
capital.
 Innovation strategy includes innovation platforms and positioning in the
Innovation Matrix.
 External network includes partners, lead customers and key suppliers.
 Innovation systems include systems for recruiting, training, continuous
learning, execution and value creation.
 2- PROCESSES – Combine Inputs And Transform
Them
 Processes are real time measures tracking progress towards creating
outputs.
 Are critical during execution because they can signal the need to change
direction or alter during the execution.
 The Creative Process – tracks the quality of ideas, the ability to explore
them and the conversion rate into projects and value.
 Project Execution tracks the evolution of projects currently underway in
dimensions such as time, cost, technology performance and estimated
value generated.
 A balanced innovation portfolio tracks the mix of projects within the
Innovation Matrix and its alignment with the strategy.
 3- OUTPUTS – Results of The Innovation Effort

 Output measures describe what the innovation efforts have delivered.

They are lagging measures because they inform after the fact, once the
effort is done.
 They describe key characteristics such as whether the company has
superior R&D performance, more effective customer acquisition or
better customer loyalty.
 Technology leadership is evaluated through a number of patents,
seminars, technology licenses and technology adoption in the business
model.
 Outputs – results of the innovation effort

 Project completion is evaluated through execution metrics –

expectations or competitors.
 New Product Introduction is evaluated through the number of successful
products and their acceptance is compared to competitors, market
share and sales.
 Business Processes Improvement is evaluated through improvement in
process metrics.
 Market Leadership includes customer acquisition, customer share and
customer loyalty.
 4- OUTCOMES – Describe Value Creation

 Outcome measures capture how the innovation effort translated the

outputs into the value for the company and the net amount of the value
contribution.
 If the output of a particular innovation project is successful in the market
and profitable for the company, the outcome is strongly positive.
 If a project does not lead to value creation, has missed the market
window of opportunity and not been powerful in attracting consumers,
then the outcome is negative.
 OUTCOMES – Describe Value Creation

 Project profitability estimates the value generated during its lifecycle,

compared to expectations and comparable projects.
 Customers and product profitability estimates the overall value of
innovation from a market and product perspective.
 ROI estimates current profitability of the organization.
 Long term value captured estimates the value captured through the life of
the product or product family.
From Business Model to Measurement
System
 Set of Measures Associated with Diagram
 Value added – residual income for the organization
 Sales growth – change in sales over same quarter last year
 Profit growth – change if profit over same quarter last year.
 Sales growth to existing customers – change in sales over same quarter
last year
 New Customers – number of new customers for the quarter
 Process Improvement – on time delivery and cost reduction over same
quarter LY
 Product Performance – product ratings versus competitors
 Technology Leadership – percentage of products protected by patents
granted over last 3 years.
 Set of Measures Associated with Diagram

 Balanced Innovation Portfolio – actual vs budgeted investments in mix of

innovations
 Effective Project Execution – progress against expectations
 Quality of Innovation Pipeline – projected impact of ideas under study
 Partners value added – percentage of investment by partner and teams
satisfaction with partner.
 Employee commitment to innovation – employee feedback
 Access to talent – quality of new recruits and quality of partnerships
 Supportive infrastructure – knowledge management system quality and
employee awareness.
Designing and Implementing
Innovation Measurement Systems

 Measures for Ideation

 Measuring the Innovation Portfolio
 Measuring Execution and Outcomes of Innovation
 Measuring Sustainable Value Creation
 Examples of Measurements
 Examples of Measurement
25
26
Examples of Measurement
27 Examples of Measurement
 Barriers to Effective Performance
Measurement
 If the basic business model is flawed, the organization will focus on the
wrong levers of value creation and measure the wrong variables.
 Avoid measuring the wrong variables – mix of financial and non
financial.
 Time to market vs. lower costs.
 Objective measures are attractive but of limited use.
 Subjective measures allow companies to capture intangibles and adapt
the information to the particular events of an innovation effort.
 Barriers to Effective Performance
Measurement
 Failure to use the power of available information technology is a costly
mistake.
 Better information allows better management and data mining helps to
uncover better opportunities.
 Believing that IT is more powerful than it is. No measurement system can
replace the analysis and judgement of management.
 Measurement systems don’t provide answers. Managers provide them.
 Never use a system to monitor only – use it to learn as well.
 Using the wrong data – remember GIGO.
30
 Measurement and the Innovation Rules

 Managing and measuring go hand in hand. Several critical things.

 Directly link the innovation measures to the innovation strategy, and the
innovation business model.
 Don’t be rigid – build in enough variability to allow valuable
measurement.
 Measurement systems can vary over time.
 Measures at the beginning of a project could be different than
measures during the project’s later stages.
 Measurement and the Innovation Rules

 Know the specific purpose of each type of measurement system – don’t

try to achieve too many objectives.
 Measurement systems should prove the right mix of planning, monitoring
and learning.
 Keep it simple – too many measures are more of distractions than a
help. Quantity is the enemy of quality.
 Stay in charge – be aware of the limitations of measurement systems.
They enhance but do not replace good management.
33

Questions?