Innovation Metrics

Innovation Metrics

Innovation Metrics Jonathan Poland

Innovation metrics are tools used to assess the innovation efforts of a company. It can be challenging to accurately measure innovation, as it is often intertwined with more routine activities such as continuous improvement. The objective of innovation is to create significantly superior techniques and products compared to competitors. Therefore, metrics for early stage innovation may aim to verify that ideas and experiments are bold enough. This requires specialized metrics, as traditional business metrics are typically geared towards evaluating end results like revenue and risk reduction, rather than risk-taking.

Cost Improvement Rate

In many industries, innovation is focused on reducing a particular cost. For example, in the solar energy industry a low cost per watt is a valuable competitive advantage. A new cost rate represents the annualized reduction in a critical cost.

Development Pipeline

The number of innovations at each stage in an innovation pipeline.

Experiment Cycle Time

The average time from initial acceptance of an idea to its ultimate rejection. A short experiment cycle time indicates that ideas are quickly being validated and tested. Successful ideas are measured with the length of full innovation cycles such as time to market.

Experiments

The number of experiments conducted per month or quarter and their success rate.

Growth Gap

The gap between your target and actual growth rate. Revenue growth is often the primary goal of innovation.

Idea Breadth

The number of unique categories of innovation ideas. May highlight problems such as an innovation program that is over focused on releasing a particular category of product.

Idea Depth

The number of unique sources for ideas. Measures how well your innovation program capture ideas from your employees, partners and customers as opposed to resulting from two people brainstorming in a room.

Idea Generation

The total number of ideas that you’re considering per month or quarter.

Idea Selection

The percentage of ideas that are being accepted for experimentation.

Innovation Compensation

The percentage of your performance based compensation that can is directly tied to successful innovation.

Innovation Overhead

Your total innovation spend as a percentage of revenue. Can be used to benchmark against an industry or competitor.

New Patents

The number of new patents is amongst the oldest ways to measure innovation. Patents can be dangerous as a primary goal because they aren’t necessarily valuable to your business. It is common for leading companies by number of patents to be large, well established firms that have moderate revenue growth. In some cases, such firms are perceived as lacking in innovation despite impressive patent numbers.

New Products

The number of new products launched in a quarter. The definition of new product is important here as a slight upgrade to a product is often considered new. The goal of product innovation is to create products that improve on the old by an order of magnitude. As such, only truly new products are typically counted for the purposes of innovation metrics.

New Revenue Rate

The percentage of your revenue that comes from products that didn’t exist 3 years ago.

Project Risk

The project risk related to late stage innovation initiatives. Innovation processes typically seek to shift risks to early stage lightweight experimentation. Late stage risks are often commercially relevant and are managed with standard risk management practices.

Return On Investment

Standard financial metrics such as return on investment are used to measure the returns of an innovation program as a whole with the understanding that innovation is a long term investment that is better measured over long periods such as 3 years as opposed to quarter over quarter.

Sustainability Metrics

Innovation may be geared towards an organization’s sustainability goals that are measured with metrics such as unit energy consumption or waste output.

Time To Market

The average cycle time from idea to launch.

Time To Volume

The average cycle time from idea to launch and achievement of commercial relevance as measured by business volumes such as service subscribers.

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