Problem: Most firms neglect to evaluate the effectiveness of their innovation performance measurement systems.
Action: Conduct a quick check-up by following the 3 steps below.
High-performing companies know that using metrics effectively is critical to managing innovation. And they see the payback—they attribute 20% of their improvement in innovation performance to better management by metrics.1 And yet, research conducted by the Innovation Research Interchange indicates most organizations don’t review the effectiveness of their measurement systems, even on an ad-hoc basis. If your organization is among those, follow the 3 steps below.
Step 1. Check your innovation performance measurement system’s intended functions.
Over time, innovation leaders can find themselves with a hodgepodge of metrics—some that they collect because “it’s what we’ve always done;” some because someone read that a competitor collects them; some because the CFO asked for them; etc. But then those metrics don’t end up being used to inform specific decisions. In the best case, reporting unnecessary metrics is a waste of time and resources. In the worst case, those metrics end up sending contradictory or confusing signals that lead to bad decision making.
It’s important to be deliberate in identifying how the information generated by your innovation performance measurement system will be used. The diagram below lists the possible functions. First, choose the functions your system is intended to accomplish. Next, identify “orphan metrics”—metrics you track that don’t correspond to any of those functions.
Last, determine whether your system is effective at each of the intended functions. The following, corresponding questions may help.
- Do you have the information you and leadership need, to know if your portfolio(s) and mix align with your firm’s strategy, risk tolerance, and innovation ambitions?
- Do you have the information you need to determine portfolio-level investments? What about to allocate resources to projects (e.g., which new projects to fund, which existing projects to continue and which to kill)?
- Can you quickly ascertain whether projects are making sufficient progress toward unlocking future value?
- Using information from your measurement system, can you communicate with leadership, innovation teams, and other functions about innovation priorities and progress?
- Can you tell where improvements in innovation capabilities are most needed?
- Do you have the information you need to evaluate team performance?
Step 2: Ask your stakeholders whether the innovation performance measurement system is working for them.
We’re big believers in getting to know the customers of your innovation performance measurement system, just as you would for a new product or service concept. So, to review the system’s effectiveness, ask your stakeholders for input. Choose 8 to 10 people including representatives of your team, leadership, and other internal “customers” for innovation. Schedule short (<30-minute) conversations with each.
Remind each stakeholder of the functions of your measurement system, as identified in Step 1. For example: “We want to make sure we stay aligned with strategy, get more systematic at allocating resources, and keep everyone posted on the progress being made. We’re having these conversations to make sure we’re accomplishing those things and meeting your information needs.” Then proceed with a few focused questions like:
- Of the information we report, what is most helpful or interesting to you? What else would you like to know, or learn about?
- Does our reporting schedule/cadence align with decisions you need to make?
- What concerns do you have about the state of the innovation function? Is there anything you believe we should be actively encouraging (e.g., more risk-taking) or discouraging (e.g., short-termism)?
Step 3: Eliminate unnecessary metrics and prioritize improvements.
Next we recommend the following steps to identify specific actions to take:
A. Eliminate the “orphan metrics” you identified in Step 1.
B. Make a “long list” of the areas in which your system needs improvement, drawing from the questions you answered “no” to in Step 1; and the input from stakeholders on preferences, cadence, and general concerns.
C. Select the 3-5 areas above that, if improved, would have the most appreciable positive effect.
D. Translate those 3-5 areas into actions to improve, and tackle those first.
This will get you started in addressing some common problems with innovation performance measurement. Be on the lookout for resources for more advanced fine-tuning in the coming weeks. If you want help sooner, email Phil. We’d be glad to review your system against best (and emerging) practices and provide some recommendations for improvement.
1 RTEC (2010). Driving effective R&D performance through effective measurement.
2 Adapted from: Godener, A. and Söderquist, K. E. (2004). Use and impact of performance measurement results in R&D and NPD. R&D Management 34.