The Enterprise Innovation Revolution 2008: Part IV

by Borys Stokalski, Senior Consultant, Cutter Consortium; with contribution from Malgorzata Lobos and Daniel Spica, Consultant, Cutter Consortium

In the first three parts of this Executive Update series ¹ about Cutter's annual survey on innovation practices, we described the enterprise innovation chain (value innovation, management innovation, business model innovation, and invention), identified key findings of the research, and presented additional detailed characteristics of organizations that assess themselves as successful innovators. Here in Part IV, we will examine the innovation scorecard in detail, including actual metrics used to measure the outcome and efficiency of innovation. We will also summarize overall results of our 2008 survey on enterprise innovation.

DESIGNING THE INNOVATION SCORECARD

As we discussed in Part II, the 2008 data highlights the importance of the scorecard as an innovation management tool. Further analysis provides detailed insight of actual metrics used to measure the outcome and efficiency of innovation. Figure 1 shows the consolidation of responses related to the key metrics used to measure the outcome of innovation.

Below are the top 11 metrics used to manage innovation, along with some examples:

1. Revenue improvement -- increase of contract income, sales growth, and revenue ratio

2. Customer satisfaction -- customer service index, decreased customer satisfaction issues, improved customer satisfaction drivers

3. Cost reduction/efficiency improvement -- cost savings, improved operational efficiencies, cost per user, reduction of total cost of delivery for specific services

4. Individual benefits scoring and evaluation -- employee acceptance; postimplementation reviews; research analyst evaluations; competitive evaluation of products and services; feedback from experts, competitors, and potential clients; statistic analysis of results; quarterly business review outcomes; feedback from target domain; product performance benchmark versus competitors; surveys; individual innovation outcomes

5. TTM/TTP/cycle time -- time to market, time to profit, cycle time reductions

6. Profitability growth -- profitability enhancement, organizational profitability, gross margin, profitability growth ratios, operating profit margin

7. Market/customer adoption -- global market presence, initial market interest, market uptake, market impact, market demand (calls requesting information), market growth, market acceptance

8. Customer feedback -- customer acceptance, positive interaction with partners and potential clients, positive feedback from client advisory boards, customer review, customer engagement, voice of customer, user acceptance, better customer experience, customer buy-in, direct feedback

9. Project metrics -- reduced implementation time; on budget, on quality, on scope; delivering value-add as estimated in the project outline; product delivery dates; schedule conformance

10. Financial performance -- ROI, NPV, increased financial performance, share price

11. New opportunities -- ability to attract new customers, pipeline leads, new business opportunities, number of new partners per year, number of new contracts, increased inquiries from potential new clients, new business, relationship development with tangible economic opportunity identification, new revenue streams, growth in new industry segments/markets

Of these, cost reduction/efficiency improvement, customer feedback, and market/customer adoption metrics are correlated with the highest ratio of "on target" or "above target" innovation outcomes. It should be noted here that the metrics categories that emerged in the survey are a mix of genuine outcome metrics (e.g., new opportunities, profitability growth) and efficiency metrics (e.g., time to market, ratio of successful innovations). Therefore, it's no wonder that the analysis of metrics related to innovation process efficiency management show results that are similar (see Figure 2).

The top outstanding metrics categories used to manage innovation process efficiency are as follows:

• Revenue improvement

• Project metrics

• TTM/TTP/cycle time

• Financial performance

• Customer feedback/satisfaction

• Feedback/surveys/statistics

• Process/staff/resource efficiency

• Success ratio

Of these, below are the only new or somewhat different metrics (as compared to outcome metrics):

1. Success ratio -- development of new products per innovation, ideas generated/approved, ideas taken up by client (commercially viable), new applications, new inventions, number of ideas converted to solutions/business cases, number of ideas eligible for patenting, number of new service offerings, success of idea investigation, win rate

2. Process/staff/resource efficiency -- cost/performance, process efficiency, productivity improvement, productivity of innovation effort, resources in matured and end-of-life products moved to newer products

3. Feedback/surveys/statistics -- feedback from customers, feedback from onsite professionals, opinions of management, postimplementation review, positive stakeholder feedback, feedback from competitors and potential clients

The results of the current survey show that organizations make little distinction between measuring the outcome produced by an innovation process with the particular aspects of the process that drives successful outcomes.

The outcomes are seen mostly as positive business results, either in the area of efficiency, which is the most important factor from management innovation, or top-line impact (i.e., revenue, pipeline improvement).

On the other hand, efficiency drivers are either typical project metrics (i.e., time plus budget plus scope) or are cycle-time related (i.e., TTM/TTP).

INDUSTRY BREAKDOWN

The survey results are based on 223 respondents coming from a broad range of industries, predominantly of the service type. A substantial segment comes from technology-based service organizations; computer consulting, telecommunications/media, outsourcing/Web services comprise 26% of total responses.

The outcome of innovation efforts varies across the industries. Industries that have the largest percentage of unmet innovation goals are utility, computer consulting, and telecommunications/media. Industries where this factor is least present include outsourcing/Web services, logistics/retail, and government/military.

Outcome alone does not tell the full story. It is interesting to see how each industry approaches innovation risk and judges such achievements accordingly. Figure 3 illustrates the aspect of planned versus achieved results for the groups mentioned above, where we can easily observe that the poor outcomes are related to more aggressive (i.e., breakthrough-oriented) approaches to innovation.

SUMMARY

This survey has been designed to uncover the nature and scale of the phenomenon "enterprise innovation." It uncovers the spectrum of activities related to innovation, which have been confirmed to form an innovation chain, linking value innovation, management innovation, business model innovation, and invention.

The key attributes of successful innovators confirmed by this survey are as follows:

• The ability to define and implement an innovation governance framework, supporting grassroots initiatives with strategic directions, delegation of authority, and adequate resources

• The ability to mold such a framework through a well-defined scorecard that provides guidance about expected outcomes of innovation and measures the efficiency drivers of the innovation process

• The ability to build a corporate culture inspiring innovation, one that goes beyond command-and-control mentality and relies strongly on management support for bottom-up initiatives and innovation-friendly motivational systems

• The ability to roll out best practices from successful R&D organizations to activities aimed at new value creation through an innovative recombination of existing assets, such as technology, customer relationships, business process, and information

ENDNOTE

¹ Stokalski, Borys, Malgorzata Lobos, and Daniel Spica. "The Enterprise Innovation Revolution 2008: Parts I, II, and III." Cutter Consortium Innovation & Enterprise Agility Executive Update, Vol. 2, Nos. 8, 10, and 12, 2008.

ABOUT THE AUTHORS

About Borys Stokalski

Malgorzata Lobos is a Consultant at Infovide-Matrix S.A., where she is responsible for business process management and training services. Ms. Lobos is interested in different aspects of business analysis, such as data gathering and analysis and effectiveness of processes and modeling. At Infovide-Matrix, she was involved in consulting projects in such fields as insurance, public sector, and automotive. Ms. Lobos is also very active as a lecturer and a trainer.

About Daniel Spica