How to Think About Measuring Innovation
Peter Drucker famously said, “What gets measured gets managed.” Many companies today have adopted this advice by focusing on a plethora of metrics to better understand their operations. However, there are still several business areas that are challenging to measure, particularly innovation. Understandably, innovation is a broad term that invites a host of interpretations, but I am defining innovation through the lens of new product or service development.
In recent years, as established companies have faced unexpected and rampant competition, they have steadily invested in growing their innovation practices. For example, in 2020 Accenture Research reported that “executives expect to increase innovation investments to the tune of 1.8 times in the next five years across their entire portfolio of businesses.” Despite these ongoing investments, organizations’ ability to effectively launch and measure new products or services remains elusive for most.
While there is some thought leadership in this category, most of it pales in comparison to other business topics. Therefore, in the following paragraphs, I’m going to share a common challenge I’ve witnessed when it comes to measuring innovation, and provide some recommendations on how to think about measuring innovation that best fits your organization’s needs.
Let’s begin with why it is often difficult with measuring new products or services. One of the predominant challenges many companies face when measuring innovation is misalignment with organizational success measures. This misalignment is often a result of how the innovation team is positioned within the broader organization. In many companies, the “innovation team” (however that is defined within a particular organization) sits outside of the core business units. The rationale for this structure is that by providing the innovation team with the space and liberty to experiment, they will not be constrained by the company’s dominant ways of thinking and working. However, the tradeoff to this approach is that the innovation group becomes sequestered from the rest of the organization, developing experiments that fail to benefit from the inputs, guidance and expertise across multiple business groups. As a result, the company’s ability to measure new products or services is inhibited because core business units are often entering the innovation process very late.
By entering the innovation process late, core business groups have little context into the earlier phases of work that led to the new product or service. This dynamic often creates tension between different teams because there is a general disconnect between what the innovation team is trying to do in service of the broader organization.
To address this challenge, it’s important that various parts of the organization, including different business groups and the innovation team, align on a common measurement framework that serves the development of new products and services as well as the company’s strategic goals.
Here are three ways to do so…
1. Invite cross-functional teams to shape the measurement framework
Rather than consider metrics toward the latter stages of the innovation process when a new product or service is ready to pilot, it’s critical to think through various ways of evaluating ideas, experiments and potential products or services from the beginning. This may require engaging different parts of the organization beyond the formal innovation team by having members of different functional areas play an active role in shaping the measurement framework. Doing so will not only expand the innovation process to different functional team members, but more importantly drive alignment on a measurement framework at various stages across the innovation pipeline.
2. Balance the scoring of metrics based on the idea maturity
Beyond having a cross-functional team develop the innovation measurement framework, it’s important that the fidelity of the metrics should be allocated based on where in the process the new product/service is. Building an innovation measurement framework with metrics that closely align to each stage of the innovation process is essential to evaluating objectively and ensuring swift decision making.
For example, early in the innovation process, ideas for potential products/services are typically more abstract and conceptual. Rather than evaluate the idea through ROI, for instance, the metric should facilitate the decision, “does this potential idea move onto the next phase in the innovation process?” Put differently, “do we want to test this idea further?” Then as ideas move from conceptual to tangible, they metrics should evolve accordingly.
That way, teams do not run the risk of eliminating emerging opportunities prematurely or moving ideas through the innovation funnel based on the potential return on investment or some other bias.
3. Use metrics to make swift decisions
Finally, it’s important to note that metrics are only part of the equation when it comes to measuring the potential impact of a new product/service. More important than the metric itself is the ability to make swift decisions. Rather than have a backlog of ideas that never materialize into experiments or alternatively a team overseeing multiple pilots with indeterminate deadlines, a measurement framework and its corresponding metrics should facilitate discourse and decision making to determine whether the potential products/services are worth future investment, testing and scaling.
In closing, developing a robust yet agile measurement framework for innovation is no easy task. There are a number of directions an organization can take when it comes to measuring the potential of the unknown. And finding the “right” balance will probably require some trial and error. However, adhering to the above principles can help frame how innovation teams develop a measurement framework that strikes a balance to allow new ideas to materialize while maintaining a consistent and objective approach to measuring success.