Measuring Innovation – Challenges & Best Practices

Innovation is crucial for companies looking to stay ahead of the competition and drive growth. However, measuring innovation is not an easy task. It’s complex and difficult to quantify accurately. But don’t worry, we’re here to help!

Why is it such a challenge?

Innovation is a vital aspect of progress and growth in any society or organization. It can be defined as the introduction of a new idea, product, or process that creates value and improves upon existing systems. However, measuring the level of innovation can be challenging, and there are several reasons for this.

Firstly, innovation is a multifaceted concept, and there is no clear and universally accepted definition of what it entails. Innovation can take various forms, such as incremental or disruptive, and can occur at different levels, like individual, organizational, or societal. Therefore, it can be challenging to determine the scope and boundaries of innovation, which makes it difficult to measure.

Secondly, innovation is a long-term process, and its outcomes may not be immediately apparent. It often takes years or even decades to see the impact of an innovative idea or product. Furthermore, innovation involves a series of complex and interrelated activities, including ideation, experimentation, prototyping, and commercialization. Measuring the progress and success of each of these stages can be challenging, and it may not always be possible to quantify their contributions accurately.

Thirdly, innovation is context-dependent, and its measurement must consider the specific circumstances in which it occurs. The level of innovation may vary depending on factors like industry, geography, culture, and regulatory environment. Therefore, a standardized approach to measuring innovation may not be appropriate or effective.

Finally, innovation typically involves a high degree of risk and uncertainty, which makes it difficult to predict its outcomes accurately. Many innovative ideas fail to materialize, and even successful ones may not always achieve the intended impact. As a consequence, measuring innovation must account for the possibility of both failure and success.

Measuring innovation is a complex and challenging task. It requires a nuanced understanding of the concept, a long-term perspective, a context-dependent approach, and a consideration of risk and uncertainty. Despite these challenges, measuring innovation is essential for organizations and societies to assess their progress and identify areas for improvement. As such, it is essential to continue developing and refining methods for measuring innovation that are accurate, comprehensive, and applicable across different contexts.

What can companies do about it?

Innovation measurement requires a comprehensive approach that measures multiple actions and characteristics, rather than relying on a single metric or a few. To achieve this, companies can use an innovation dashboard, which is a set of measures that display different performance criteria for the company, allowing management to examine the company’s performance along different aspects of innovation. A dashboard is highly recommended due to the elusive and broad nature of innovation. When designing a dashboard, it is important to identify all the measures considered important, and then to begin reporting on a few critical metrics before expanding further. There is no definitive answer to how many metrics should be tracked, however, it is best practice to cover these three specific areas and types:

  1. Input Metrics:
    These metrics relate to the resources that are invested in innovation projects, such as financial resources and human capital. Some examples of input metrics include R&D spending as a percentage of sales, the number, and skills of key staff involved in a project, and senior management time invested in a project. These metrics help to ensure that sufficient resources are allocated to innovation projects and can be used to compare investment levels between different projects or business units.
  2. Process Metrics:
    These metrics relate to the management of the innovation process itself. They help to track the progress of innovation projects and identify areas for improvement. Some examples of process metrics include time to market, milestone progress, and staffing. These metrics help to ensure that innovation projects are being managed effectively and efficiently, and can be used to identify bottlenecks or areas where additional resources may be needed. Aside from the metrics focused on time (i.e. time-to-market, time to break even, etc.), there are also valuable metrics that focus specifically on the pipeline of ideas and projects. For example, the number of new ideas generated, the number of projects in the pipeline, the number of ideas that get funded, or the projected net present value of projects in the pipeline.
  3. Output Metrics:
    These metrics relate to the outcomes or results of innovation projects, particularly in terms of financial performance. Some examples of output metrics include revenue generated from innovation projects, return on investment (ROI), and profitability of new products or services. These metrics help to assess the success of innovation projects and determine whether they are contributing to the overall financial performance of the company. They can also be used to identify areas for improvement in the innovation process, like focusing on projects that have a higher likelihood of generating revenue or ROI.