How to measure your innovation process
The innovation process must be managed with a long-term approach, not necessarily in time increments, but in reference to the completion of your targeted goals in order not to deter your progress.
There are new principles and methods for open innovation, but how can you use them to evaluate and measure your innovation process and performance to gain a competitive advantage, market leadership and higher profitability?
Generally speaking, the answer to that question is: your strategic intent of innovation, which is pertinent to your company, and until you’ve correctly defined your objective and your intended results, you can’t develop a relevant performance measure. Fortunately, there is a framework for an open innovation performance measurement system.
Performance measurement system
The most pivotal steps used to measure your innovation process are the continuous assessment of your progress and the measurement of your innovation’s impact. In this way, you will be able to catch mistakes much more easily. Challenges will reoccur, but the most important aspect is your company’s ability to successfully measure the enormous amount of knowledge it has obtained.
Sometimes it may seem that the success of a product or service is just a coincidence rather than being the result of an established measurement procedure. This is often due to incoordination and underestimation of the complexity of the open innovation process. However, if you have a well-ordered and structured approach to open innovation (eg. application of innovation metrics) you could have a higher return on innovation.
The framework for an open innovation performance measurement system has 3 principles for the successful implementation of a metric-based performance measurement system:
- Open innovation method (phase of innovation)
- Type of measurement
- Type of utilization
The first step you should take at the project level is selecting an open innovation method that suits your needs, because measuring open innovation significantly depends on your desired innovation objectives. This also includes choosing and utilizing distinct metrics for the active integration of information in the upstream stage to ideation stage (e.g. ideation contest, lead user method) and for solutions provided by external stakeholders in the downstream stage (broadcast search).
In this step, there are three well-known methods for your innovation process:
- Lead user method
- Ideation contest
- Broadcast search
The lead user method is all about the incorporation of input from innovative users who follow top trends and are able to find great solutions for their specific needs. Therefore, they are driven to explore and evaluate new innovation needs, trends and ideas.
When a company is looking for innovation-related information, they generate an ideation contest (e.g., Skipso), giving a task-specific challenge to a wide-range of independent agents (e.g. customers, innovators, startups, or suppliers), who submit their ideas. At the end, rewards are given to those who had the best solutions.
Broadcast search is a contest that searches for technical solutions rather than only ideas and uses online broker companies as intermediaries (e.g., InnoCentive, Skipso) to provide companies access to scientists, engineers and other professional worldwide to help them solve problems (e.g. R&D). The contest has a time frame and there is a cash prize.
The second step entails considering diverse types of measures (IPOO):
These measurements must be tracked by the performance measurement system and the framework should link the output and outcomes to input. Input metrics, measure the variables that set the preconditions for successful innovation, for example, in terms of funds, expertise, and time dedicated to innovation.
Process metrics deal with variables that affect the transfer of ideas through the innovation funnel. For example, average time from idea to first revenue and budget variances, error ratio)
Output metrics measures innovation results—number of patents and ideas, percentage of revenue from new products, ROI on innovation spending, number of new customers, etc., and outcome metrics measure the value of an innovation in terms of economic and market-oriented indicators.
First and foremost you need to focus on input because you can’t measure output without having built the system and processes, but overall you will see that the combination of both input and output KPIs will contribute to the understanding of the cause-effect relation of your initiative.
In addition, it is important to integrate diverse measures of processing and transformation procedures into your framework, since the real value of output is the result of more than just the resources you have invested (input).
The third step is all about effectively utilizing your open innovate metrics. It’s not enough to just create a performance measurement system by collecting suitable management information. Responsible leaders must launch the collected KPIs, which can be used in three different ways:
Instrumental uses metrics for decision-making. The conceptual approach, an indirect use, uses the metrics as an informational approach in order to understand actions. The symbolic approach to metrics is used to justify decisions already made in the innovation process.
Some things to remember
You measure your innovation process to check its functionality and to improve it. So don’t only measure the product, measure the process and the system. Areas that most definitely should be evaluated are leadership and strategy, knowledge and management, processes and system, individual involvement, culture and results. Focus on your areas of weakness and create a plan for change and transformation. Finally, continuously review your measurements and eliminate the metrics that no longer serve you.
Every company must fine-tune its measurements to reinforce the objectives, values, and standards that it finds critical for inspiring innovation. The design and implementation of performance measures can be a major challenge, but the most important step is to define the intended results for your own organization’s innovation-based strategic objective.
The best measure of innovation results is ultimate financial success in the marketplace, but it’s also important to measure the results of innovation in terms of knowledge gained and to fine-tune the process when and where necessary to achieve financial success.
Questions to ask yourself
Are you targeting the right parts of your company for innovation? Are you flexible and adapting to the market? Is your strategy clear? Are you measuring innovation adequately?
Are you using the right management processes for different types of innovations? Are the right people participating in the innovation process?
These are some questions to start with if you are just beginning your innovation journey. Yes, it is difficult, but you can do it with a great strategic plan.
As you can see, there are many different approaches for the measurement of your innovation process. For more information and statistics, take a look at our infographic.