Metrics: An Innovation in Innovation Worth Tracking

by John Berry, Senior Consultant, Cutter Consortium

No other target of investment is likely to generate higher returns than innovation.¹ While this isn't news for many companies, the fact that a growing number use performance measures to manage innovation should be of interest to those who don't.

It isn't hard to see why organizations apply performance measures to innovation efforts. For one, measures help managers develop a roadmap of where the organization should be directing innovation efforts. Second, managers seek guidance as to where resources should be allocated for discrete innovation projects. Third, managers are interested in where improvements can be made. Performance measures allow organizations to establish baselines of performance and to measure outcomes over time.

Today, the innovation performance measures that matter can be viewed as the front and back gates to the innovation estate. The front gate represents inputs to innovation. These would include the number of employees dedicated to innovation, the number of innovation concepts in the development pipeline, or the total number of active research projects.

The back gate represents the outcomes, and these performance measures, not surprisingly, are highly strategic in what they describe: revenue from a new product, market share gain from a new product, profit growth from a new product, and the return on investment from a new product.

The old saying goes if you can't measure it, you can't manage it, but many organizations would say otherwise. A minority still manages innovation without any performance measures at all. And some of those who manage without measures suffer the same circumstances as the company and its advertising budget: they know that half their advertising is effective but they don't know which half. Companies that track outcome measures like marketshare from a new product know whether or not a product is successful. But can they isolate what elements of product development influenced product success the most? Was it the cost elements? Speed to market? Marketing? If they found an answer, could it be applied to the next development effort?

Going forward, it might be the performance measures in the middle of that process of innovation, after entrance to the front gate but before leaving the back, that prove the most illuminating. For example, what measures if any might have revealed to managers the completely new way products get designed and launched today? It used to be that engineers would come up with some schematics and then a prototype for a new product, then share the results with the design folks who would figure out the right form factor in which to present the new product. That process is often reversed today. The design people brainstorm a new gadget -- how it would look and feel -- and they in turn hand it to engineering and say: "figure out how to build it."

This profound change in how products are developed has come about at least in part from the shifting sources of value from innovations. The look, feel, form factor, and stylishness of a product (anything from Apple, for example) are as important as what the thing does. The design imperative at Apple is that whatever the gadget, it is simple. This theme is then transmitted to all the engineers who build the product. Can this phenomenon even be captured in a metric?

Organizations that embrace measurement in various aspects of management would find relevant performance measures around R&D and product development essential to the process of innovation because not only is the innovation of products and services a potential strategic advantage, so are the innovations in the management processes that create them.

I welcome your comments about this Advisor and encourage you to send your insights on innovation to me at jberry@cutter.com.

Sincerely,
John Berry, Senior Consultant, Cutter Innovation Practice
E-mail: jberry@cutter.com

Note

¹"Assessing Innovation Metrics," McKinsey Quarterly, November 2008.