KPI's to Measure Innovation: Can You Provide Me with Some?

Photo at blog from webmaster - 24/10/2010 - 09:35

A customer asked me recently to provide some ideas for KPI's for measuring innovation. And indeed, how do you know you innovate enough? Is there an innovation KPI (Key Performance Indicator)?McKinsey asked that companies in their recent Global Survey assessing innovation metrics. And what is actually innovation?

What is Innovation

Let me start to cite Douglas Merrill, the ex-CTO (Chief Technical Officer) from Google in Google talk. He sees 3 forms of innovation:

Overview of the 3 types of innovation
Nr. Type of innovation Description
1. Innovation Small, step-wise product improvements
2. Innovation with side effects A new product/market combination for an existing product
3. Transformational innovation A complete new way to perform things better, easier and faster than is common today

Personally I tend to use the definition of late Peter Drucker, and call the innovation forms 1 and 2 marketing, and the last one 'real' innovation. But what is in a name, if we all use the same definitions…

The McKinsey Survey: How Others Spend on Innovation

Having this said, let us have a look at the results of the McKinsey survey. Innovation costs money, and therefore it is an investment. It makes a lot of sense to look critically at how it is spent. Even more in the current financial turmoil. A bit more than half of the interviewed companies look at how funds are used for product innovation, about a third perform that for service innovation and process innovation, and last but not least: A quarter does it for business model innovation. Yes, I agree, the last one is the most difficult, and subject to many political considerations in the company.

Let us now inspect what criteria those companies use for the innovation assessment. To give you the 3 most important, together 40% of the used metrics:

  • Revenue growth due to new products or services
  • Customer satisfaction with new products or services
  • Number of ideas or concepts in pipeline

You must agree with me: They are sensible criteria, and could be used as KPI's for measuring innovation. More suggestions for innovation KPI's in my final KPI overview.

Innovation: How Would I Take it from Here

Earlier I wrote a blog raising the question whether it would be time to innovate innovation. Here I suggested to actively seek innovation in these 2 areas:

  1. Creating new ways to replace old technology.
  2. Making goals possible which are currently unreachable.
    Observe that both correspond nicely with the transformational innovation from Merrill, and innovation as discussed by Drucker.
  3. Create a new business model, or create a new way for process executiion.

Back to the original raised question: Can I suggest, and control (!) KPI's for measuring innovation? My choices:

  • How much money do I want to spend
  • Is this business model innovation
  • Is this process innovation

And treat the rest as marketing.

We appreciate your feedback! Do you want to talk freely about your innovation issues? Do you want to cut your innovation costs? Do you need help with an innovation Quick Scan, or an innovation assessment? Contact Hans Lodder now!


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