Setting Metrics for Innovation
Most organisations recognise that innovation is critical for survival and success but very few know how to set goals or metrics for innovation. The most common target used is the percentage of revenues derived from new products. This is useful but it is a backward looking measure. It calibrates the success or failure of previous efforts to launch new products. We also need forward-looking metrics that show how well we are doing in filling the pipeline for future revenues.
A recent report by the Boston Consulting Group explores these issues and surveys what leading companies are doing in the area of innovation metrics. The report is here:
They recommend that you need to align your innovation metrics with your strategic goals - but what would you expect consultants to say? More usefully they advise that you set metrics in three separate areas:
1. Innovation Inputs - measures can include financial resources, people, the number of ideas generated and expected revenues.
2. Innovation Processes - measures can include cycle times to track how long it takes to turn ideas into offerings and the number of ideas that move from one stage to the next.
3. Innovation outputs - metrics include number of new products launched, revenue and profits from new products, ROI on the innovation portfolio.
They found that most companies used only five or fewer metrics but they recommend that you should use 8 to 12.
I would echo their finding that the potential for companies to improve their metrics and hence their innovation performance is sizable.
Paul Sloane