Finding the right metrics to track innovation is by no means straightforward. To avoid common mistakes, executives should take a holistic perspective on their company’s innovation process.
For most companies, innovation is a top managerial priority. Many managers look at successful innovators such as Apple Inc. and Google Inc. with envy, wishing their companies could be half as innovative. To boost and benchmark innovation, managers often use quantitative performance indicators.1 Some of these indicators measure innovation as results or outcomes such as sales from new products. Others measure innovation as a process, using metrics such as the number of innovation projects in progress. And some track input measures such as the number of ideas generated, while still others focus on the innovation portfolio, by looking at factors such as the percentage of investments in breakthrough projects versus product line extensions.
Our research on innovation measurement suggests that the key managerial challenge is not identifying metrics — there is no shortage of measures to choose from. Nor should the goal be to find the perfect metric, since that quest is often futile. Rather, the crux of effective innovation measurement is to understand the problem that measurement should solve for the organization and, based on that insight, to design and implement a useful and usable innovation measurement framework appropriate to the organization’s needs.
In this process, identifying the right questions is usually more difficult than finding the appropriate answers. Executives need to understand the innovation challenges the company faces, how innovation is currently measured, and the extent to which current measurement practices help or hinder efforts to achieve the organization’s innovation goals. Only then will managers be able to steer clear of common innovation measurement mistakes.
Some of the most insidious mistakes involve placing too much value on data at the expense of meaning and getting bogged down with too many measures that provide contradictory advice and incentivize employees to do the wrong things. Although companies use performance measurement for almost any activity, measurement of innovation is by no means straightforward.
Managers often get hung up on selecting and implementing the appropriate measures. The goal of this article is to help managers ask the right questions about how to measure innovation and translate their insights into effective innovation measurement practices. We have developed a practical, step-by-step framework that helps managers identify whether their current innovation measurement practices need to change and, if so, how to go about measuring innovation more effectively.