In this guide, you are going to learn how to measure innovation.
Whether you are an executive, a strategy leader or a corporate innovator, you will get access to practical frameworks, strategies, and examples that will help you gain valuable insights into the innovation performance of your organization.
Inside, you’ll learn how to:
- Set clear, credible, and measurable innovation goals that align with business priorities
- Identify innovation KPIs across a range of categories (including more than a dozen input and output metric examples across categories like Capability, Leadership, and more
- Account for and overcome the challenges of measuring innovation using strategic frameworks like the 70-20-10 rule
How to Measure Innovation: Bring Ideas to Life—and to Market—with the Right Innovation KPIs and Metrics
Table of Contents
Setting Your Innovation Goals and Objectives
Before you get into the nitty-gritty of measuring innovation, you need to define an overarching innovation strategy.
This means setting objectives that align with your overall business goals.
Essentially, you should begin by engaging key innovation stakeholders in your business with the most basic question:
What are you trying to accomplish through innovation?
A basic question, though, doesn’t necessarily come with an easy answer. To fuel your goal-setting, it may help to consider the forms innovation usually takes and segment your goals accordingly.
The Three Types of Innovations
Legendary management consultant Peter F. Drucker developed a model outlining three types of innovations:
- Product innovation: Likely the most common form of innovation—or at least the most familiar—product innovation entails improvements in a product or service offering, whether that’s on the back of new technology or through simple improvements to existing attributes.
- Social innovation: Defined by scholar James Taylor as “new ways of doing things in order to meet social needs,” social innovation encompasses those marketplace and experience innovations that change the way consumers interact with products.
- Managerial innovation: Also known as process innovation, managerial innovation often refers to the changes and improvements in production and delivery methods that bring new products to market, but it can also be related to changes in support functions in divisions like HR and finance.
These categories, of course, are not rigid and siloed. Innovation of one type often requires innovation of another.
For example, new products often require new organizational or delivery models to be successfully developed and deployed. Still, breaking down your goals into these broad categories can help you match them with the right measurements of innovation success.
First, however, you’ll need to make sure that your goals are measurable.
Setting SMART Innovation Goals
With your innovation priorities and segments in mind, you will be better positioned to set underlying objectives and, ultimately, the metrics that you will use to measure your success against these objectives.
To ensure that your innovation objectives are as useful and measurable, craft your goals using a SMART framework.
Developing SMART Goals
SMART goals are:
- Specific: Be concrete about what you want to achieve. Is it top-line growth? To become a market leader? To increase employee retention?
- Measurable: Set innovation objectives that can be measured and monitored is essential to achieving success.
- Achievable: Innovation objectives can be bold, but they need to be with reach—even if it’s over a longer timeframe.
- Relevant: Select innovation goals that align and support your overall business goals.
- Time-Based: Place time constraints on your innovation goals to add accountability and make success more measurable.
Examples of SMART Innovation Goals
Type of Innovation Objective
Product Innovation Objective
Social Innovation Objective
Implement a new customer experience channel within 6 months.
Managerial Innovation Objective
Fund and develop a new Innovation Center of Excellence to manage the idea pipeline by the end of Q4.
The Categories of Innovation Metrics and KPIs
With innovation objectives outlined, the task of measurement will come into sharper focus.
Developing an innovation measurement framework that matches and supports the achievement of these business-wide objectives requires an equally comprehensive understanding of all the places that innovation is produced and managed—and, as a result, can be measured.
Follow along below to see which KPIs can offer insight into innovation program performance in all these areas: across capabilities, culture, structures, leadership, and results.
Measuring Innovation Capability
Metrics of capability take stock of your business’s current capacity to drive innovation. This includes abilities that span:
- Talent: Capability metrics provide quantitative and qualitative measurements of your workforce’s competencies and skills.
- Capital: Though capability is mostly about talent, these metrics also evaluate your organization’s ability to fund the efforts driven by talent.
Examples of useful capability metrics include:
- The number of employees who have received or are receiving innovation-related training (processes, innovation management software, etc.)
- Assessments of employee competencies and abilities provided by people managers
Measuring Innovation Culture
The talent that drives capability is ideally by an innovation-ready, innovation-hungry culture that surrounds them.
Although it’s sometimes difficult to measure outright, this culture is vital to motivating people to experiment and innovate.
It’s also important for attracting new talent that’s hungry to drive forward progress.
However, an innovation culture is more than just a people-oriented aspect of an organization. It is actually the outgrowth of people, processes, tech, and data all aligned toward innovation.
Figure 2: A culture of innovation is the outgrowth of much more than just people. (Source: Microsoft Asia)
Developing metrics that evaluate innovation culture might require a bit of creativity, but it’s essential to be able to put quantitative measures against this qualitative aspect of your organization.
Some examples of measuring innovation include:
- Employee perception of your organization’s innovativeness. Collecting survey data from employees can help put a hard number score against this.
- Timesheet data. Analyze the relative amount of time spent on innovation activities vs. overall operations.
- Rank-and-file involvement in innovation. Compare the number of initiatives in the innovation pipeline that came from employees with those that came from management.
Measuring Innovation Structure
Innovation structures are the processes and infrastructure that support an organization’s capabilities. Having robust innovation structures is also a reflection of the relative strength of your innovation culture.
To encourage and assess the performance of your innovation structures, measure aspects of your organization like:
- Dedicated R&D or innovation spend
- The time an idea spends in each stage of your innovation pipeline
Measuring Innovation Leadership & Strategy
Effective leadership is key to driving innovation.
From ensuring that all of the structures above are in place and thriving, to steering strategic development, leaders are required to play a starring role in innovation management.
Indeed, even an innovative-friendly culture starts from the top.
According to KPMG estimates, about 70 percent of the impacts to innovation culture come “from leadership decisions, guidance, and modeled behaviors, while the remaining 30 percent is driven by elements such as training and engagement programs.”
Given the stature of leadership in an innovation program, it’s important that an innovation metric framework includes KPIs that help capture the full extent of this role.
Consider enlisting the following leadership metrics in your innovation measurement strategy:
- The relative amount of time spent on innovation-focused projects by management
- The number of initiatives in the innovation pipeline being directly overseen or sponsored by a member of management
- The number of executives who are trained, or are actively training in innovation strategy
- The number of innovation ideas that come directly from management
Measuring Innovation Results
All of the above categories zero in on your organization’s ability to make innovation happen.
Of course, you will also need metrics that focus on the actual results of all these innovation efforts—and help to justify their importance.
When it comes to measuring innovation, these results-oriented metrics are likely the ones that, for most, immediately come to mind.
Measure the impact of your innovation processes—the sum-total of your innovation leadership, structures, culture, and capacity—with metrics like these:
- The number of new products launched
- Revenue generated from new products
- Actual vs. expected breakeven time
- The number of patents filed and/or acquired
Use this practical framework to assess the innovation maturity of your organization
If you’re looking to gain deep insights into the performance of your organization, we have just put together a practical Innovation Maturity Assessment Framework.
Inside, you’ll get access to specific questions to help evaluate your innovation maturity and capabilities – and compare your results against critical benchmarks.
Additional Categories of Innovation KPIs
To be sure, building an innovation measurement strategy doesn’t end there.
Though these clusters of metrics capture the full range of your business’s innovation activities, there are additional dimensions of key performance indicators that exist within these categories.
As you are constructing a measurement strategy, you will need to not only consider which aspects of your business that your chosen metrics evaluate, but also at which stages of the innovation cycle do they occur?
To do that, you must strike the right balance of input and output metrics, and consider complementing these further with specific process metrics.
If innovation measurement is conducted according to the oft-recycled phrase “you get out what you put in,” then input metrics cover the latter half of this phrase:
Selecting input metrics is all about putting numbers—as well as qualitative indicators—against your organization’s innovation investments.
And, of course, “investments” is used broadly here; innovation measurement needs to account for not just money but also for time and talent.
Particularly at the early stages of developing innovation structures, input metrics can give your business crucial insight into whether you’re putting enough into innovation efforts.
Simple, quantitative input metrics offer a quick window into your innovation development.
Quantify abstract elements of your innovation strategy with metrics like these:
- The number of new employees dedicated to innovation, e.g., R&D and product management
- The number of new ideas submitted
- The number of innovation projects started from these ideas
Meanwhile, keeping tabs on innovation expenditures will enable you to understand the actual costs of innovation—and calculate your ROI down the line:
- Patent costs
- Per-project costs
- Overall R&D spend, whether absolute or as a percentage of sales
Although input metrics and the work that they measure will get you started, that’s just what they are: a starting point.
What follows is the hardest part of innovation, which brings the best ideas to life and can create change within a business and across a market.
To measure the success (and failure) of innovation processes, you’ll need to assess which output metrics are best for your business.
Just as input metrics equip you with the ability to measure your innovation investments, output metrics predictably enable you to measure your return on those investments.
Here are a few examples:
- The number of new products and services developed
- Revenue generated from new products and services
- ROI of innovation procedures
- Breakeven time for new products (targeted vs. actual)
Assessing output metrics, including overall ROI, frequently requires taking a long view.
After all, sometimes even the most disruptive innovations require quite some time to truly bear fruit and offer measurable output.
As author and innovation advisor Greg Satell writes, important innovations usually take about 30 years.
Indeed, as Satell points out, the 1968 “Mother of All Demos,” where Douglas Engelbart laid out what would become the foundational elements of personal computing as we know it, took place about three decades before the PC even made a measurable impact on the US economy.
That’s not at all to say that all innovations will conform to this same slow crawl.
But the example should serve as something of a word of advice—or caution—to corporate innovators with a nascent innovation management program.
For one, you will want to factor this long-term lens into how you select and assess your output metrics. Take ROI, for instance. Knowing that this metric is likely to evolve and take time to show its true colors, you might focus your attention on better short-term measures of innovation impact like breakeven time.
What’s more, to understand innovation’s true impact in the absence of these longer-view output metrics, you will need to be able to understand its import beyond the bottom line.
Whether your innovation efforts were geared toward new products or new processes, running surveys and collecting data that gauges changes in customer perception and employee experience can be critical to understanding both present impact and future potential.
Figure 3: Customer value ought to increase (and be measured) along with innovation maturity. (Source: ThoughtWorks)
The need for this type of data points to another pitfall of output metrics.
At the end of the day, output metrics are almost purely quantitative. Sure, you might see a solid ROI and attribute a positive quality to that number. But the ROI metric itself doesn’t have anything to say about how that success was achieved.
Simply put, these quantitative output metrics always require context if they’re going to provide the insights you need. Deliver that context for the sake of your innovation program by not only choosing the right input KPIs and qualitative measurement tactics, but by also keeping tabs on crucial process metrics.
Process metrics are essential to measuring innovation at a company because, ideally, your innovation efforts are always in motion—and you need the metrics to match.
Especially as the number of ideas and projects in your innovation pipeline grows, process metrics help your business put data against the relative speed and efficiency of projects moving through the various stages of that pipeline.
In the meantime, they will help you more easily identify strengths and weaknesses in your development process.
Here are some useful process metrics to consider:
- Average project duration and time-to-market
- Percentage of projects completed within the target time period
- Percentage of projects completed within the target budget
- Number of total projects by pipeline stage
- Number of canceled innovation projects by pipeline stage
The Challenges of Measuring Innovation
Measuring innovation requires a little art and a dose of science, and the particulars of how it’s ultimately pulled off can get a little fuzzy.
And what works for one organization might not work for another.
The difficulties of innovation measurement begin from the very moment that you strive to set objectives. As Peter Drucker wrote, “The problem in setting innovation objectives is measuring the relative impact and importance of various innovations.”
While posing your objectives, how do you account for the difference in the impact that hundred of small innovations might have in contrast to one disruptive breakthrough that takes ten years of hard work to bring to fruition?
One approach to this conundrum is to strike a balance between sustaining innovations and disruptive innovations.
To do just this, many organizations, including Google, attempt to stick to the so-called “70-20-10 rule” to guide their innovation investment
The 70-20-10 Rule Framework
- 70% of investments (i.e., of both time and money) on sustaining innovation, or improvements to existing products and services
- 20% toward exploring opportunities in adjacent markets and capabilities
- 10% of investment into exploring and developing new, disruptive technologies and capabilities
While this breakdown is widely used, like all innovation methods, it’s far from being a one-size-fits-all system.
What’s good for Google might not be good for your organization.
Each unique organization needs to develop an equally unique approach to innovation management and measurement that matches its own goals, capabilities, and competitive environment.
Latent in this framework, however, is something that’s an important lesson for—and a central challenge of—managing innovation.
The 70-20-10 rule’s limit on investment in disruptive innovation is an exercise in risk mitigation, which points to a truism about innovation in particular, business in general: Failure is inescapable.
In fact, it’s necessary to achieve success.
Developing an innovation program and the right metric framework to measure it is, in many ways, about harnessing and directing these necessary failures to ensure that your organization fails forward.
Finding Your Footing in Innovation Measurement
With the correct KPIs in place to understand where and why innovations fail, along with how they succeed, your organization can not only find its footing, but put its best foot forward into a brighter future fueled by innovation.
To begin down this path, take the following approach using the important lessons of this guide:
- Start by developing your organization’s innovation goals. Outline objectives that complement your overall business goals. Ask yourself and your stakeholders, “What are we trying to accomplish with innovation?”
- Set goals that you can stick to—and measure—by following the SMART goal framework.
- Based on these goals, compile complementary metrics that enable your organization to measure innovation from end to end, covering innovation input, process, and output.
- Ensure that these KPIs take into account all five categories of innovation metrics:
- Leadership & Strategy
- Strike a balance in your innovation program between the most sustainable and disruptive innovations, while understanding that failure is a necessary ingredient in any recipe for innovation success.
- Lastly, remain flexible. While your innovation measurement approach should be robust, that doesn’t mean it should be rigid. Make sure that your innovation processes remain open to both iteration and improvement.
Assess (and compare) the maturity of your organization with this 10-question framework
Do you know where your organization stands vs. its competitors when it comes to being innovative?
We’ve put together an Innovation Maturity Assessment Framework that you can use to evaluate your innovation maturity and capabilities – and compare your results against critical benchmarks.
To get this framework, just let us know where to send it!
About Runway Innovation Hub
Runway is a Silicon Valley-based innovation company accelerating the success of global innovators and entrepreneurs. We provide result-focused innovation consulting services for corporations and coworking, mentorship and acceleration programs for startups.
Since 2013, we have has accelerated the innovation efforts of 40+ global companies like Fujitsu, Lenovo, Emirates, Epson, and IBM through customized innovation strategy services.
Learn more about how we can help your organization here.