Yesterday’s post discussed Measuring the Black Box, a recent article in Chief Executive that made some very good points about innovation metrics. In particular, we discussed the major measurement traps that a company needs to watch out for and indicated that many of the metrics suggested by the author in the input, process, and output categories were quite good. Today we’re going to review and discuss each the suggestions, the good and not-so-good alike.

Input Related Metrics

• Financial Resources Dedicated to Innovation
  Good. Innovation requires a constant, moderate, financial commitment.
• Resources Focused on Innovation
  Good. Innovation requires dedicated staffing commitments. It doesn’t happen without people, and expecting them to be innovative in that five minutes of unscheduled time they have a day isn’t going to cut it.
• Ring-fenced resources for non-core innovation
  Really Good. Establish a small, core group whose sole focus is on long-term innovation and who are constantly evaluating new technologies, markets, and ways the company can bring significant game changing innovations to existing markets. Make sure this group never gets cut, even in bad times – when you need them most.
• Senior Management Time Invested in New Growth Innovation
  OK. What’s really important is senior management support. Sometimes a manager just needs to stay out of the way, and, more importantly, keep the other managers out of the way of the innovators so that they can be free to innovate. After all, even if you’re smart enough to get it, when you consider that there are still those that will promote someone to his or her level of incompetence, sometimes the best thing you can do is run interference.
• Number of Patents Filed
  Neutral, at best. Patents are useless unless you can afford to legally defend them, and if we’re talking a software or business process patent, just because some dumb clerk accepted the application, doesn’t mean the fundamentals of what was in the patent was actually patentable. After all, mathematics is not patentable, algorithms are fundamentally mathematical and logical operations, almost all software is built using languages and data structures that have been in the public domain since the beginning, and just about every process you can think of has been used by business for a long time. (Auctions go back 2000 years, for example.) Furthermore, it takes a lot of time, money, and resources to file and get a patent – resources which could be better spent on innovation. And, more importantly, if you don’t make the details public – it’s trade secret, and you can still sue for IP theft if you really want to be litigious.

Process and Oversight Related Metrics

• Process speed
  OK. Although an ideal innovation process moves quickly from conception to critical decision points (which could be a decision to kill it), not all do.
• Breadth of idea-generation process
  Good. A good innovation generation process seeks ideas far and wide. It requires the meeting of the minds that can think broad and deep.
• Innovation portfolio balances
  Good. Projects should range in length from short to long term, be at various development stages, vary in risk, target different domains, and so on. That way, you don’t have all your eggs in one basket and your chances of success are magnified.
• Growth Gap
  Really Good. A company should understand the gaps between their strategic objectives and current innovation activities, because, if there is one, someone needs to get on the right track.
• Distinct processes, tools, and metrics for different types of opportunities
  Really Good. There is no one-size fits all when it comes to innovation.

Output Related Metrics

• Number of new products or services launched
  Good. This is a clear indication of success, but remember it’s not always the number of successes, but the magnitude. One single invention, the iPod, put Apple back on the map. A few big successes can be just as good as a dozen little ones.
• Percent of revenues in core categories from new products
  OK. It’s nice when innovation helps the core business, but, as pointed out above, sometimes you need to change the core business.
• Percent of profits from new customers
  Good. A decent percentage indicates that innovation is helping the business expand.
• Percent of profits from new categories
  Really Good. A decent percentage indicates that innovation is working at your company.
• Return on Innovation Investment
  Good. Demonstrates that innovation dollars are worthwhile!

The author concluded with a process for implementation, that made some good points. They were:

1. Focus, Focus, Focus
   Figure out the metrics that are right for you.
2. Remember Relativity
   It’s not how well you do on each metric, but how well you are doing overall, and in relation to your competition in particular. (Don’t forget the benchmarks!)
3. Innovate the Metrics
   Understand that you might not get the metrics right the first time. Be prepared to adjust them as needed.
4. Align up and down the chain
   The metrics should be aligned with the corporate metrics if at all possible. This paints a picture everyone can understand.

Again, not a bad article, especially considering the target audience.