One of the main challenges we hear that our clients are repeatedly facing, is the difficulty to measure the level of success of their innovation efforts.
Confronted with their need (and opportunity) for driving digital transformation and for developing new solutions and propositions, organizations have set up various types of innovation units. Ranging from in-house teams (independent centers of excellence and/or parts of specific business units) to off-platform innovation hubs. However, having allowed the lifecycle (or Hype-cycle) of many trends, these innovation units have now reached the ‘money time’ and are required to present the Return On Investment (‘ROI’) for their efforts.
Among the main frustrations we have been hearing is the low ratio of innovative ideas that have been commercialized and launched to market. There is no doubt that the main objectives of innovation are to grow a company’s revenue streams, drive operational effectiveness and increase the organization’s relevance and sustainability, as competitive landscapes and consumer preferences’ change.
We believe however, that it is equally important to ensure innovation cascades to the organization’s culture and operations.
Many of the existing innovation units have been set up in silo from the wider organization. While this has the advantage of enabling people to work free of the organization’s constraints, it hinders both the alignment of those efforts with the core business as well as the ability of new ideas and new methodologies to spread within the organization and drive impact that is scalable.
Measuring the outcomes of innovation should, in our opinion, include also measuring the change in employees’ attitudes and behaviors which can indicate this sought after cultural change.
Reaping the rewards of innovation efforts takes time. Forming new behaviors doesn’t happen overnight and the introduction of new processes, tools and products entails ongoing trials and errors until the best ideas are realized and refined. We would therefore like to introduce a framework for measuring effectiveness and efficiency of innovation, which can be used to measure both the impact to the bottom line, as well as to attitudes and behaviors that are evident externally (ie. by clients) and internally (ie. by the organizational culture employees behavior).
Measuring The Impact Of Innovation Efforts — Keeping Focus
Innovation can be harnessed to drive two different types of transformation. The first type is ‘Transformation A’ which focuses on the metamorphosis of the current business, from driving efficiencies to improving effectiveness and increasing customer satisfaction.
The second type is ‘Transformation B’ which focuses on the creation of new things, including new propositions, new business models and new revenue streams.
Clarifying which type of transformation the organization wishes to drive (the two types can, and in fact should, be pursued in parallel, creating an everlasting change of continuous improvement of current business and exploration and validation of new businesses), can help not only to optimize the setup of innovation units but also to measure their outputs and outcomes.
Measuring The Impact Of Innovation Efforts — Suggested Framework
Our suggested framework goes beyond the generation of new revenues and can be used to measure various objectives and confront them with the investment taken. Expanding from measuring the effects on the bottom line (usually through ‘ROI’), we would suggest to measure the Return On Objective (‘ROO’) across four separate areas:
Change In Knowledge:
How has the knowledge across the organization changed in relation to innovation and the ability to drive it?
- Are terms such as MVP, design thinking, lean, agile and open innovation familiar AND understood? Are employees being tested on their understanding of terms? Are they comfortable to use these terms? Is there a common language and understanding of these terms across the organization?
- Is the organization more familiar with new technologies? Does it understand how they can benefit the business and be applied?
- Is the organization more familiar with other companies that develop innovative solutions — competitors and startups? (are these referred to in internal discussions and presentations?)
Change In Attitude:
Has the attitude of employees (and/or clients) towards innovation changed?
- Do employees and clients perceive the organization as being (more) innovative?
- Has that affected their overall perception of the organization?
- Has the level of satisfaction from working for or with the organization changed?
- Are employees feeling more comfortable to discuss with their clients ideas and products that are under development?
- Have employees embedded customer centric, lean, agile, fail fast mindset?
- Are employees and clients receptive to explore new ideas introduced by the organization?
Change In Behavior:
Has the knowledge and attitude been translated into behaviors?
- Do employees and clients open (read) more innovation related news sent to them by the innovation unit and/or the organization?
- Have employees attended innovation related events (such as demo days)? Have they asked to attend those?
- Have employees adopted new methodologies and behaviors and applied them — ad hoc or in their day to day work?
- Has the number of ideas/initiatives submitted by employees increased?
- Has the number of MVPs introduced to and tested by their respective users increased?
- Has the process of developing new ideas across the organization improved?
- Have clients approached the organization asking to try a new solution or requesting to develop a new one?
- Have clients been talking about the organization’s innovation, internally or within their network?
Change In Business:
Has there been an effect on the business proposition and/or the bottom line?
- How many new products have been introduced to the market?
- Have either hard (such as sales) or soft (such as client satisfaction) metrics changed?
- Has the organization managed to reduce costs due to the redesign and/or introduction of new tools, processes and behaviors?
- Has there been incremental growth to business, attributed to innovation solutions, from existing clients?
- Have new clients been acquired?
- Have new partnerships been formed?
Being clear on the objectives of innovation and tracking the related KPIs (feel free to add others, as it may be relevant to your own organization) using the suggested framework can help organizations understand the true impact of their innovation efforts and identify areas which could be enhanced and/or should be improved.
Adding The Element Of Time Into The Equation
As suggested above, driving impact through innovation takes time and achieving efficiencies and effectiveness in innovation efforts improve the more the organization practices and adapts new methodologies and becomes more proficient in the process. Same is true regarding the scalability of innovation efforts. Our above suggested framework should therefore take the time element into consideration and put more emphasis on changes in knowledge, attitude and behaviors first, switching focus to the business impact over time. Annual scoring cards to enable such tracking of change YoY are therefore recommended.
Acknowledging the drivers required to pursue innovation at scale and the time it takes to do so, can help keeping focus and track on ensuring the right foundations have been placed to enable scalability of innovation.
As time goes on, this focus can switch to measuring the business results of these efforts as evident by the bottom line, the relevancy and the defensiveness of the organization.
If this is a current concern in your organization, we would be happy to work with you on benchmarking the effects of your innovation efforts and to develop a roadmap to drive them, and your organization forward.
MING Labs is a leading digital business builder located in Berlin, Munich, New York City, Shanghai and Singapore. We guide clients in designing their businesses for the future, ensuring they are leaders in the field of innovation.
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