Innovation metrics made simple

Return on investment (ROI) is the name of the game. Just ask any chief executive: businesses are about profits. Make no mistake about that.

Consequently, decisions and new initiatives need to be implemented with a mindset of returning value to shareholders. This is one of the prime responsibilities of company directors and management alike. All significant investment decisions should be made with the mindset of the return on the investment they will deliver.

The innovation initiative

Many companies these days employ people to develop and manage innovation within the business. Some do it for the right reason – to increase shareholder value – others perhaps do it because it may be the “done thing” to be seen to have an in-house innovation capability.

If the innovation initiative is not retuning on its investment within 18 month or two years, then like all investments, its ongoing funding needs to be seriously questioned.

In the case of research the drivers are little different. It’s especially the case with pure research, where outcomes may take a great many years to mature – if indeed they do at all. However, understanding the difference between innovation and research and the different risk profiles is not the subject of this article.

There is an old axiom in business and management: if you can’t measure it, don’t change it. This is so true and any business that makes changes without some metric to test the effect is simply flying blind. The same can be said for innovation.

Keep it simple

In simple terms, the measurement should be based on the simple equation as a figure of merit:

Outcome = Output / input

Where: Outcome should be greater than one

Input is most often dollars spent in real terms in funding the innovation initiative, and bringing new initiatives into the business, as well as the time cost expended in dollar terms.

Output is revenue earned or costs reduced as a result of the innovation initiative.

No doubt many would argue – especially those charged with implementing innovation – that the above is too simplistic. But the question that really matters is why are we doing this if it’s not to improve business outcomes? Further, many will argue that if we persist with the innovation initiative long enough it will surely one day produce a gold nugget.

On the contrary, the longer the innovation initiative goes without producing a valued, tangible outcome, the more people lose confidence and the initiative loses vigour and enthusiasm.

Some real metrics

Below is a list of measures that can be gathered as fact, not opinion:

• Number of ideas submitted for evaluation

• The ratio of ideas submitted to ones actually implemented

• Rate or trajectory of idea submission (you can be sure this will decline over time unless the innovation initiative is producing results and rewards)

• Number of different people submitting new ideas over time (again the diversity of submitters will decline if there are no perceived positive outcomes)

• Cost trajectory of the innovation department or initiative within the business (you can expect this to increase over the first two years as the initiative gathers momentum. However, this must be curtailed if it is not delivering measurable outcomes).

What now?

Statistics cited in a research paper some years ago are sticking and highlight the necessity for innovation. Whereas the life expectancy of a company in the 1920s was 65 years, today it is less than 10 and those that fail to innovate fail to survive.

Innovation is an imperative. Do it once and do it right and don’t be blindsided by some idealistic vision of innovation as some mystical pursuit for the specially gifted. This is business and business is about delivering real outcomes and real profits. This must be the overriding consideration.