Innovation Can Be Measured

Some people argue that innovation is impossible to measure. If innovation is

not measured it can’t be managed. You can’t prove to doubters that what you
are doing is worthwhile. You won’t know whether your efforts to innovate are
improving. On the other hand, if you measure the wrong things you will manage
the wrong things, reward the wrong behaviour, and screw up innovation efforts.

Measuring innovation deserves some thought. Your measurement efforts need to

reflect the process and purpose of your innovation efforts. You want to know
what is happening, identify new opportunities, let everyone know how to get
involved, and share how innovation can help. Many attempts to measure fail
because they are too complicated, too much effort, and too removed from the
way that innovation works.

Patents are a popular measure of innovation. The logic here is a company will
patent its most important innovations and that increasing the number of patents
is the same as increasing innovation. If only it was that simple! What about the
innovations you can’t patent? Patents are not relevant to services. How do you
measure the difference in quality or innovation between patents? You combine
an old patent with a new business model: Are you or the patent owner most
innovative?

If your industry generates patentable innovations, measure them. Compare your

company to your industry and competitors. Group them by type, originating
team, and likely impact on the business. Track where they are used and how they
have helped financially and competitively. Evidence shows they are a good
predictor of future new products. Just remember there is no clear link between
patents and financial performance. There’s much more involved.

Balanced Score Cards offer a powerful way of measuring innovation. They follow
the idea that measuring anything can only be as good as your understanding of
what you are measuring. As your grasp of innovation grows then you are better
able to measure what matters.
Describing the way innovation works is a group activity. Managers get involved to
learn and agree together. This process of creating a shared view of innovation is
valuable. It often results in creative new ways of looking the nature of the
management role in moving from objectives to performance. It challenges
assumptions as the group thinks about inputs, processes, outputs, and outcomes.

Draw a diagram that shows how you believe that innovation should work in your
company. Think about how to measure the performance of the various parts of
that innovation flow. Keep the model as simple as possible but no simpler.
Compare your model with what is already measured. Some should overlap.
Others will be completely new. Your measurements should follow the logical flow
of innovation from source to market.

Since everything affects innovation, it’s tempting to measure everything. Unless

you are all knowing, and all seeing, this is a mistake. Too many measurements
confuse people. They ignore what is overwhelming. Even worse, they may spend
valuable time managing the measurements rather than increasing innovation.

Measurements will be a mixture of objective, stuff that is easy to count like

number of patents, or subjective, stuff is all about opinion like the quality of an
idea. It is important not to focus on the objective just because it seems
straightforward. First, most objective measures require judgement. Second, the
most important inputs, processes, and outputs are subjective.

Every company is different but here are some measures that are always worth
counting: How innovative do people think you are? How innovative do people
think your managers are? How easy is it to get from idea to market? How many
innovations are suggested? Where do ideas come from? How many innovations
are being studied? How balanced is the range of ideas? How many get to market?
What revenue and profit comes from new products or services?

The innovation model is never finished and the measurement system is never
perfect. Innovation is a balancing act. The measurement system must help people
balance their efforts between competing demands for their time. It should be
open for discussion so that it can improve as understanding increases.
References

Davila, T, Epstein, MJ, Shelton, R, 2006, “Making Innovation Work: How To

Manage It, Measure It, And Profit From It”, Wharton School Publishing.

Smith, K, 2006, “Measuring Innovation” The Oxford Handbook of Innovation,

Cambridge University Press.

Lanjouw, Jean O. and Mark Schankerman. "Patent Quality And Research

Productivity: Measuring Innovation With Multiple Indicators," Economic Journal,
2004, v114(495,Apr), 441-465