A recently published study1, by Ilse Svensson de Jong, highlights three problems with innovation metrics that can seriously hurt firms’ innovation efforts. The study is based on in-depth case research of innovation measurement practices at a large Nordic industrial firm. The author identifies three issues:
1. No clear definition of “innovation.”
2. Lack of innovation metrics to help align innovation activities with strategy.
3. More than one set of metrics to measure the same things.
At Commodore, we’ve seen each of these problems in organizations we’ve worked with. Individually or combined, they can significantly erode the effectiveness of an organization’s innovation practices—lowering their return on investment in innovation. Below we describe the problems in more detail and suggest how to avoid them.
1. No clear definition of what is considered innovation
There is no universally accepted definition of innovation. As a result, “innovation” tends to mean different things to different people. Some might, for example, see innovation as referring to only disruptive new products or services. While others might recognize incremental improvements in manufacturing processes as innovation.
When innovation isn’t clearly defined within a firm—as was the case at the Nordic firm in the study—innovation projects can become unfocused and fail to deliver customer or business value. Resource allocation decisions (i.e., deciding which innovation projects to fund or how to distribute investment between innovation portfolios) can become difficult to agree on internally, as decision-makers fail to align on how to evaluate these choices.
If you want to know how well your firm has defined innovation, ask the next 5 people you have a meeting with to define it. Do their definitions align reasonably with the formal definition (if one exists)? Do they align with each other?
If this exercise suggests you have work to do, think about it in two steps:
1. Developing a formal definition that’s appropriate to your strategic and organizational context.
2. Communicating that definition—clearly, consistently and repeatedly—across the organization.
The process of developing a formal definition can be relatively straightforward. It’s mostly about having the right people in the ”room” and considering linkages to strategy and your broader environment. Also, it’s often helpful to begin with a broad definition and use your discussion to decide where to narrow the focus.
While most people agree the two steps are equally important, the latter is where we typically see problems occur. When terms like “innovation” (or “quality”) are overused in the abstract, the opportunities for misalignment are many. The solution is straightforward: articulate and repeat your specific definition until it becomes second nature—part of the firm’s shared vocabulary. Early on, introduce and call attention to the definition, with examples that will resonate. Remind people of the definition, particularly in decision-making settings. Later, prevent the definition from “morphing” in use by including it in formal documents and presentations—but it won’t likely need as much repetition.
2. Lack of innovation metrics to help align innovation activities with strategy
The Nordic firm in Svensson de Jong’s case study failed to use metrics to help drive alignment with the firm’s innovation strategy. If your company shares this problem, at the most basic level, you’ll have no idea whether you are actually achieving the objectives set out in the innovation strategy. It also means you’ve failed to take advantage of a powerful tool for communicating the goals and objectives set out in your innovation strategy. For example, consider the difference between:
(a) An innovation strategy that states there’s a need to increase the share of the firm’s “Horizon 3” innovation projects, and
(b) Including a metric on an innovation dashboard for senior leadership showing the current share of “Horizon 3” projects (versus the target).
In addition, you may also experience problems similar to those described above—innovation projects that are unfocused and that don’t support your strategy (e.g., too much focus on near-term incremental efforts) and lack of internal alignment on priorities, which makes agreeing which projects to fund challenging.
Aligning innovation metrics with innovation strategy is relatively straightforward:
1. Identify which decisions need to be influenced by your innovation strategy—typically these are choices about how you allocate resources across portfolios and projects.
2. Identify any specific behaviors the innovation strategy seeks to encourage.
3. Identify what information is required to inform those decisions or help encourage the desired behaviors.
4. Choose innovation metrics that provide that information.
5. Determine how to communicate those metrics to the right people, at the right time, in a format that works for them.
For a step-by-step guide description of this approach, see our guide Enhance your innovation performance measurement system.
3. Different innovation metrics for different audiences (measuring the same thing)
At the Nordic firm in Svennson de Jong’s study, there appeared to be two systems of innovation metrics emerging. Unfortunately, we frequently see two sets of innovation metrics being used within the same organization:
• The “formal” set—often prescribed by leadership and primarily used to report information “up” within the organization.
• The “informal” set—typically used by project teams or individuals, because they find the “formal” metrics don’t provide the insight they need.
To be clear, leadership and innovation project teams do have legitimate needs for different information about innovation performance. However, when each audience wants insight on the same question (e.g., is this innovation project on track?) it’s critical the metrics used are the same—or, at least, very closely related. Otherwise, there is no single source of truth, which can lead to misalignment between leadership and innovation teams—causing confusion, eroding trust, and creating conflict.
A quick way to check whether two (or more) sets of metrics existing with your organization is to talk to a couple of innovation project teams. Ask them to share how they measure their progress within the project. Then check whether that aligns with the “official” system. If there’s a significant gap, consider bringing together the stakeholders who need this information. Work with these stakeholders to build consensus on what questions they need answered and what information that requires. Then help them collaboratively select the best innovation metrics to use. We recommend having this team select metrics based on how actionable, suitable (for the context) and feasible they are. Going through this experience together will help each of the stakeholders understand each other’s perspectives and select metrics that address a cross section of needs.
1 -Svensson de Jong, Ilse. 2021. When Wrong Is Right: Leaving Room for Error in Innovation Measurement. Journal of Risk and Financial Management 14: 332. https://doi.org/10.3390/ jrfm14070332