Measure your Innovation

What metrics do you use you measure the results of your innovation team? Do you count the number of new ideas they have collected? How about the number of new ideas they have generated or the number of new product introductions they have been responsible for?

These are very useful measures, but don’t always truly reflect anything of much use to justify the existence of an innovation team. In fact, there is only one thing which does that: a deep association with actual financial results. And the association needs to prove that innovation is a very special investment type, one that is better than anything else available.

This will be true whether the innovation team is in the public sector (with a financial measure around cost saving) or the private one (with an additional financial measure around revenue production).

The financial barrier through which innovators much push is full recovery of their investment costs, plus an additional margin which demonstrates they are the best investment opportunity available to an organisation.

Consider the scenario where an organisation can choose to invest funds in, say, a Lean initiative. Or, alternatively, it can invest them in an innovation programme instead. It’s projected that the Lean initiative will result in at least a 20% return on investment as bloated processes are thinned down and operational efficiencies are found.

So innovators, then, must make at least 20% on their efforts if they want to get funding. Considering the fact that a Lean programme will likely be more certain (i.e., there will have less risk in achieving returns than for innovators, who will have to deal with a failure rate of, maybe, 80% on what they do), innovation really needs to do better than 20%.

This is fundamental capital pricing. The more risky the investment, the better the return must be to justify it in the first place.

Do you know what to do to measure your innovation program? James A Gardner has written a free online book with real-world advice on innovation metrics.