Why Measuring Innovation Matters

“What gets measured gets done.” This old chestnut has been kicking around management theory for decades, and is the heart of “management by objective” (MBO)—if you set a target and measure progress, your organization will move heaven and earth to achieve it. It’s an old chestnut because it’s largely true.


Measures Change Behavior

The first thing to recognize is that the very act of measurement will change individual and organizational behaviors, for better or worse—because measurements are invariably connected to management. We use measurement data to make decisions, to interpret our surroundings, and to guide our activity—and in turn, we notice what gets measured. If your boss starts noting how often you arrive before 9 am, even if there isn’t an official time you’re supposed to be at work—odds are you’ll start showing up earlier (even if your boss is a passive-aggressive jerk).

So the first step in selecting innovation measures is to determine the behaviors you want to shift in how your firm innovates. Do you need your people to pursue bigger, bolder initiatives instead of the safer, smaller ones littering your portfolio? Do you need their innovation efforts to be more firmly informed and inspired by customer and user insights? Do you need them to look beyond the core for new growth opportunities, toward new segments, markets or industries?

Part of the discipline of innovation is developing a clear mission for what innovation should accomplish, for both your customers and your business. Use that strategy as a starting point to determine how you need your organization to innovate differently, and the specific behaviors that will fulfill that mission. Then consider which measures will foster those behaviors and illuminate the outcomes they produce. For example, if you need your innovators to focus on bigger, bolder innovations, then measuring the percentage of initiatives in the portfolio that could generate more than $50 million of incremental revenue annually could be useful. This is precisely the measure that a leading apparel and footwear company I work with implemented recently, to foster bigger ideas from its brands.

We also do not want to inadvertently foster the wrong behaviors. I’ve had a longstanding beef with the freshness index (e.g., revenue from new offerings over some time horizon) for this reason, particularly when used alone. Too often, it promotes a slew of safe, incremental initiatives that don’t really move the needle—because they’re easy, more predictable, and still meet most definitions of “new.”

Look Beyond Financials

Financial measures are attractive to use, because they’re typically readily available, easily defined, and connected to outcomes that various stakeholders (from managers to investors) care deeply about. However, financial measures alone can’t tell you if your innovators are discovering distinct insights into what consumers want and need in their lives. They can’t tell you if your mission is attracting partners in the surrounding ecosystem to help you fulfill it.

So as you consider which measures to use, don’t limit yourself only to financials. For example, the number of customer studies performed, the percentage of concepts fueled by distinct customer insights, and customer satisfaction and loyalty scores are all ways of measuring, on a leading and lagging basis, if your teams are fueling their efforts with customer insights. If you need your teams to look beyond the core business, measure how many initiatives in the portfolio target new customer segments or markets. This was a vital component of General Electric’s renowned Imagination Breakthroughs program in the 2000s.

A few more examples of non-financial measures that our clients frequently use:

  • Innovation landscapes: measuring where (e.g., markets, opportunities, etc.) and how (e.g., products, services, business models, experiences, etc.) the organization innovates
  • Innovation leverage: the percentage of initiatives that involve third parties such as partners, suppliers or customers (e.g., to measure if the organization is tapping into external inspiration and activating its ecosystem effectively)
  • Employee engagement: the number of initiatives involving employees from 3+ functions (e.g., to foster more diverse perspectives), or even simply the number of employees engaged in innovation annually

Such measures will be more difficult to implement in some contexts, and some have more subjectivity than others—but all are feasible and worth consideration.

Expect The System To Evolve

Measures should change and evolve as your innovation competence and context evolves. Organizations that are just beginning to embrace innovation as a discipline should rely on more leading indicators—both because it’s more important to focus initially on behaviors instead of outcomes, and (more pragmatically) because it will take time to accumulate lagging data. As vital behaviors take root, you may find that their corresponding measures are no longer needed and it’s time to introduce new ones. And every organization has its own measurement “dialect”—for some, softer / more qualitative measures will never be meaningful, no matter how apt or valid they are. Expect the system to shift as you learn what works, and as your context evolves.

But One Measure I'd Recommend Keeping Through Thick And Thin...

Innovation measurement systems should vary between organizations, based on their unique needs, aspirations, cultural norms, and other factors. There is no singular prescription. That said, measuring the organization’s hit rate—the percentage of innovations that create value by returning their cost of capital or other metric—is one I’d recommend in almost any context, and keeping in the measurement system over time. If we’re serious about driving innovation as a discipline, than we need to care deeply about how often we successfully innovate, and the value innovation creates. All the rest must ultimately be in support of this.

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I’m a principal at Doblin, Deloitte’s innovation consulting practice. I’m passionate about helping great leaders, firms and industries reinvent themselves. My experience...