What are the best instruments to measure the innovation funnel?
Performance indicators are measurable metrics used for current and future activities and developments. They also offer a historical perspective on your company’s past performance. If you want to continuously improve your innovation funnel, it is critical that you constantly check and balance your Key Performance Indicators (KPIs).
Many companies use these instruments to measure the innovation funnel, changing, adapting and checking their progress throughout the process. However, if you want to have innovation breakthroughs, your management team must work together as a whole to select the right metrics that track and guide the development of your innovation system.
Key Guidelines for Innovation
Below are some basic guidelines to help you get started in designing and implementing your innovation metrics:
Input – Process – Output
Input metrics measure the variables that put in place the preconditions for successful innovation, for example, funds, expertise, and time devoted to innovation.
Process metrics deal with factors that influence the movement of ideas through the innovation funnel. For example, the average time from idea to first revenue and number of ideas submitted per month.
Output metrics are your innovation results—number of patents, new revenue sources, number of new customers, etc. However, these KPIs are not enough for the overall improvement and evolution of your innovation capabilities.
The most important part of your innovation funnel is input because you can’t measure output without first having built the system and processes. Secondly, not all metrics can help you to measure your innovation funnel. Therefore, you must continuously keep an eye on them and always choose suitable metrics.
It is critical to have instruments that measure the innovation funnel and help you with innovation management dimensions (innovation strategy, innovation partnerships, innovation platforms, innovation portfolios, innovation process and systems, innovation and entrepreneurship culture). However, there isn’t a particular set of best metrics for every company. The measurement of your innovation is and should be contextual to your corporate environment and existing reporting systems.
There are tons of metrics, that’s why it’s important to find the right ones for your project. If you want to know what makes a good metric, check out Matthew Brogie’s blog post, which talks about 7 different traits of effective KPIs. Remember, each metric should also consist of three measurements—its ‘beginning’ (past), its ‘current’ analysis and its ‘target’ performance.
In the following list are some of the most useful metrics you can use to discern whether you are making progress:
Internal/Input metrics that influence development and profit
- Resources allocated to new, internally-sourced investment opportunities
- Assessment of the whole innovation portfolio and financial assessment through NPV, assets valuation and/or option value
- Percent of products/services revenue attributable to existing innovation
- Percentage of capital invested in innovation activities
- Percentage of external/internal inputs to the innovation process that are of high-quality increase
- Number of non-incremental projects in your funnel (i.e., breakthroughs)
- Number of non-incremental projects delivered as innovation to market
- Average time from idea approval to implementation
- Number of ideas approved and implemented
- Stage-gate pass rates
- Value of innovation funnel
Metrics that influence value creation
- Speed of innovation project completion
- Stakeholder contributions (leadership, employees, customers)
- Contribution quality
External/Output metrics that influence brand and reputation
- Outputs of innovation (acquisition of new customers, contracts, and clients) measured by the “rate of new customer acquisitions”
- Use of brand image surveys, customer feedback and analyst rankings for market perceptions
- ROI of new ideas implemented
- Revenue from new goods or services/international and domestic markets
- Number of new products or services launched
In addition to these metrics, it is crucial to create an open innovation ecosystem by building strong relationships with external partners, customers, suppliers, etc. Creating these contacts can help you to affirm your inclination towards innovation.
Also, single measurement processes can negatively impact your innovation process. Therefore, it is better to have a diverse set of metrics to measure your innovation process.
Narrow it down
As you can see, there are many different metrics to choose from, and these may all be useful measures, but fail concerning the Balanced Scorecard principle.
One of the most popular approaches used to measure your innovation funnel is the balanced scorecard (BSC), which is an approach to strategic management, performance management, and development initiatives.
It divides these three aspects into four different perspectives:
- Financial Perspective
- Customer Perspective
- Internal Process Perspective
- Learning & Growth Perspective
From a financial standpoint, you should be checking maximum returns and the utilization of assets and revenue growth. Important aspects of your customer perspective are customer retention, customer service, and customer relations. Your internal processes should look into turnaround time, efficient service, cost of sales and resource utilization. And lastly, your learning and growth deal with your skill set ratio and employee satisfaction.
For each objective, best practice scorecards only have 1-2 performance measures, which is why it is so important to select the most advantageous measurements for your innovation goals and to readjust when needed to keep up with the market.
Your selection criteria could consider the following:
- What are the most important measures?
- Which of these measures positively influence your organizational culture?
- Is the data readily available and relevant?
- Can you start now with what you have?
- Are you able to create significant objectives?
- Will you measure work at both an operational and corporate level?
- What is your baseline to determine a known value; your documented performance or industry standard?
Develop appropriate metrics to qualify success factors and evaluate your progress, success, strengths, weaknesses, and causes of failure of your open innovation strategy. These tools and metrics will empower your innovation teams to correctly measure open innovation, promoting the best ideas and solutions for successful products and services.
The most important question you should be asking yourself is: are your metrics inspiring innovation behaviors?
Remember to keep it simple and choose the most meaningful and functional metrics that have the best impact on your organization. And don’t forget about your company’s existing metrics and methodologies, because you can also modify them to fit your needs. Lastly, repeatedly check and alter your metrics, so they will continue to be relevant.