Best Innovation Measurement

By James A Gardner

What metrics do you use you measure the results of your innovation team? Do you count the number of new ideas they have collected? How about the number of new ideas they have generated or the number of new product introductions they have been responsible for?

Such measures are quite useful, but they don't necessarily truly reflect much that is helpful when justifying the existence of an innovation team. There is, in fact, only one thing which can actually do that: a tangible connection to financial results. The connection, when it exists, needs to be able to show that innovation is a very special kind of investment opportunity - one that is demonstrably better than any other available.

This will be true whether the innovation team is in the public sector (with a financial measure around cost saving) or the private one (with an additional financial measure around revenue production).

The financial barrier an innovation team needs to hurdle is it must recoup the funds they've used, and in addition make enough new money to demonstrate they are the best opportunity for investment available.

Consider the case where an organisation has the opportunity to invest in a Lean programme, which is projected to return at least 20% savings as bloated processes are thinned down and efficiencies are found. Or, it can invest in an innovation effort.

In this case, the innovators must develop returns of at least 20% if they want to keep their funding. Frankly, it is likely that the returns from a Lean initiative will be more certain - i.e., they are less risky - than innovation, since innovation projects usually fail up to 80% of the time. Therefore, to compete, the innovators have to do rather better than the baseline 20%.

This is a fundamental tenant of capital pricing. The more risk in a particular investment, the higher the return needs to be to justify the investment in the first place. - 32171

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