Many organizations’ responses to the COVID-19 crisis have already switched from the tactical to the strategic. Your organization has likely updated its innovation strategy (or at least started to). That’s an essential first step. But the changes to your innovation strategy have probably been significant—that means you’ll need to invest significant effort in implementing those changes. How you measure and communicate (internally) about innovation should be central to that effort.
How might innovation strategies change in response to COVID-19?
Innovation strategies define where you’re going with innovation (e.g., goals, focus areas) and how you’ll get there (e.g., distribution of portfolio across horizons, source of innovation). COVID-19 and the associated economic fallout demands changes to almost every aspect of innovation strategy. As business school professors drill MBAs every day: if the environment changes, so must the strategy. Today, those changes in the environment are compounded by the impact the crisis is having on innovation budgets. In a recent survey we conducted, nearly 80% of firms indicated they expected 2020 innovation spending to be lower than 2019—with 50% anticipating a decline of at least 5%, which is consistent with our analysis of historic trends in recent US recessions.
Potential changes to innovation strategy might include:
- Adjusting goals to align with the crisis’s impact on your target markets (e.g., lowering targets for revenue from new product sales).
- Reshaping innovation portfolios, e.g., placing greater emphasis on cost-saving initiatives or nearer-term revenue growth opportunities (note: we’d caution against losing sight of the reality that innovation remains responsible for the long-term future growth of the organization).
- Lowering tolerance for risk.
- Changing prioritization of opportunity areas, with some new areas emerging (e.g., “low touch” products, services, or business models) and others needing to be put on hold.
- Changing approach to innovation, e.g., a greater emphasis on lean/agile and the experimentation-based approach those imply, which will enable faster learning about a dramatically changing landscape.
Communicate changes to innovation strategy early AND often.
We wouldn’t be the first to suggest your innovation function is only as good as your people. By extension, your innovation function is only as good as your people’s understanding of your strategy, goals, and expectations. So, if your strategy changes, it is of paramount importance those changes are communicated effectively. Initially, most organizations recognize this and their changes to innovation strategy are accompanied by an initial communication push. But that initial push is rarely sustained.
To truly embed understanding of your new innovation strategy, there must be ongoing, regular communication that keeps the changes front of mind for innovation teams. And it must be done in a way that’s meaningful to them—that makes it easy to translate to their day-to-day activities. An often-overlooked mechanism for achieving that clear, ongoing communication is your innovation performance measurement system. After all, what gets measured gets managed.
Update your innovation strategy, update your innovation performance measurement system.
What do we mean by innovation performance measurement system? There is a tendency, when thinking about measurement of innovation, to just think about metrics—e.g., average time to market, percentage of sales from new products or services. But best practice is to treat measurement of innovation as a system (see diagram below). That system includes metrics, benchmarks (to compare performance against), and software/tools (to make metric collection and reporting more efficient). And most importantly, your measurement system includes communication of information about innovation performance—to the right people, at the right time, so that they can make good decisions.
Any time you make changes to your innovation strategy (or other major aspects of your innovation function) we recommend quickly reviewing your innovation performance measurement system to check it’s doing the job you need it to. We explain how to conduct a quick check-up below. But first, we explore the ways in which an innovation performance measurement system can reinforce changes you’ve made to your innovation strategy.
Your innovation measurement system communicates changes to innovation teams.
A well-designed innovation performance measurement system will produce a steady cadence of reminders to innovation teams. Changes in priorities will be reinforced as teams report “up” on their own projects and as they receive information about overall innovation performance. For example, an innovation dashboard might be used to succinctly communicate about overall innovation performance to the whole organization. That dashboard, shared with staff on a periodic basis (e.g., weekly, monthly) should show new goals for distribution of the portfolio (e.g., by investment horizon) and how the actual portfolio distribution has changed since those goals were introduced.
Your measurement system gets critical feedback to leadership.
During times of change in innovation strategy, it is particularly important that innovation leadership get feedback from their innovation performance measurement system.
Firstly, have the changes made to the innovation strategy produced the overall results required? For example, has the organization’s pace of innovation increased? Is there a jump in forecast near term revenue from innovations? Clearly, it is essential leadership receive this information, so they’re able to make further changes to the innovation strategy if necessary.
Secondly, leadership can determine whether detailed aspects of their changes to innovation strategy have been implemented—enabling them to take corrective action if necessary. For example, if investment in cost-saving innovations or a new opportunity area like low touch have been prioritized, an increase in investment in these areas should show up in innovation portfolio metrics.
Thirdly, if budget constraints have resulted in the loss of personnel or reduced investment in key tools or resources, innovation measurement can help monitor for unforeseen risks like “bottlenecks” in your innovation process. Just like in manufacturing, bottlenecks can occur in an innovation process. Budget cuts can lead to capacity constraints in cross-cutting functions (e.g. IP counsel) that affect the capacity of your entire innovation process.
Your measurement system can enable the innovation culture you need.
Some of the changes to innovation strategy that firms are making today are significant enough that they’ll require changes in the organization’s culture in order to be fully embedded. It’s critical your innovation measurement system enables or supports those changes in culture, rather than being a barrier to them.
There are early signals that two key characteristics of innovative cultures1 may be more important now than ever: willingness to experiment and tolerance of failure.
Where innovation teams have been able to conduct fast, low-cost experiments with low-fi prototypes they have been able to better understand how their customers, markets, and supply chains have been changing (see examples here). Critically, they’ve been able to achieve that understanding much more quickly and effectively than would be the case if they waited around for research and analysis attempting to characterize the new normal. Experimenting more in a crisis may sound risky, but experimentation doesn’t equate to lack of discipline. The metrics you use should provide guardrails for teams to select projects and design experiments based on value to the company.
In too many large organizations, tolerance for failure is sequestered in relatively small “islands” (e.g., labs, accelerators). The crisis may represent an imperative to make such tolerance more pervasive—as Gary Hamel tweeted recently: “In a small crisis, power moves to the center. In a big crisis, it moves to the periphery. When individuals realize the center is overwhelmed, they dust off their ingenuity and start improvising locally.” Again, if tolerating failure during a crisis feels counterintuitive, how you measure can provide a counterbalance. High-quality innovation performance measurement systems can differentiate between failure of an innovation project because the idea was fully tested and found to be an unattractive option (acceptable) and failure due to incompetence (unacceptable).
How to perform a quick check-up of your innovation performance measurement system.
If your innovation strategy has recently been updated (or is in the process of being updated), it’s time to quickly review your innovation performance measurement system—with a specific focus on communication.
Effective communication about innovation performance requires an explicit plan to get the right information to the people who need it, when they need it, in a format that’s accessible to them. Our guide “Better communication of innovation performance” (download below) provides a detailed process for establishing a communications plan for information about innovation performance. We recommend working through that guide with the lens of what’s changed:
- Has the “who” changed? Does COVID-19 and its economic impact mean additional audiences need information about innovation performance? Has the relative priority of different audiences changed?
- Has the “when” changed? When are critical decisions being made—for example, are they happening more frequently and so your innovation measurement system needs to be producing insight faster?
- Has the “right information” changed? Will changes in your innovation strategy (and enabling culture) be clear given how you currently measure and communicate about innovation? If not, add metrics, goals, and/or reporting that will enable that.
- Has the right “format” changed? Probably—at least while the majority of people are working remotely. If you relied heavily on in-person one-on-one or group discussions before the crisis, make sure those are still happening. But don’t assume they can be perfectly replicated in an online setting—make sure they’re adapted to the unique challenges and opportunities of online meetings.