Metrics for Managing Innovation: Lessons From Growth Leaders

Metrics for Managing Innovation White Paper CoverIn today’s fast-moving business environment—and with the global pandemic spurring intense change and risk-taking—well-designed innovation dashboards are essential for firms needing to successfully measure and improve the performance of their innovation portfolio.

This new white paper offers managers guidance, with insights drawn from a best practices survey of 192 companies, for creating a useful dashboard of innovation metrics. The paper tackles the common pitfalls in measuring innovation; choosing the best set of metrics for your firm; navigating uncertainty amid budget constraints; and aligning your chosen metrics with group and individual incentives to motivate superior innovation activity.

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Emphasize learning over score-keeping. It is essential to know whether the innovation investments and processes are delivering results. So, performance outcome measures such as revenue and profit growth from new products, customer satisfaction and new product success rates must be in the innovation dashboard. But score-keeping measures don’t yield actionable insights into what is working or not working. Were the poor results due to inadequate or unreliable inputs, or a cumbersome and slow stage-gate process that stalled projects? Were too many small projects absorbing scarce resources and creating traffic jams in the development process?

A good starting place is to shift the balance away from score-keeping toward input and intermediate process effectiveness measures. But which measures are more useful?

In our experience few companies are short of ideas—the real problem is a lack of ideas that are worth pursuing. Insightful metrics will reveal loose screening that keeps too many poor ideas in the pipeline, sloppy processes causing delays in hitting the stage-gates, or poor product quality that requires re-cycling the project back through development. Whirlpool has a real-time dashboard, so any manager can see how many concepts are in process, which part of the globe they are coming from, and how many are headed for commercialization.

A useful “rule-of-thumb” is to track no more than five to eight metrics with at least one metric about each of the sequential categories of inputs, process effectiveness and outcome measures. Finding the right balance between too few metrics to be revealing and too many metrics causing confusion and absorbing resources to measure and manage, is the challenge. A process for finding this balance has three steps.

1. Identify the best metrics. This requires both a top-down approach, to ensure the dashboard has strategically insightful metrics and a bottom-up approach that identifies the areas most in need of improvement. For example, if leadership engagement is a concern, then measure the “amount of time the leadership team spends on innovation projects and developing innovation talent.”

2. Establish goals for each of the metrics in the dashboard. These goals should be set in light of the aspirations of the innovation strategy, but be attainable—otherwise they won’t motivate the organization. If the goal is to increase the number of projects in the pipeline, or their risk-adjusted value, are there enough resources now to support the achievement of the goal during the average development cycle?

3. Communicate the goals and monitor progress in real time. Be sure the organization is fully aware of the metrics, understands the goals and is kept informed about progress and possible shortfalls, so corrective action can be taken. After one year, assess whether the goals and time lines have been realistic and adjust as necessary. Be sure to look for bottlenecks, resource constraints and bureaucratic delays that cause the goals to be missed.

A useful further step is to bench-mark key metrics in the dashboard against direct competitors as well as peer companies in similar industries that are non-competitive. This kind of bench-marking exercise is a valuable tool for understanding more deeply the chosen metrics, and might suggest others that would better motivate the organization.

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Read more about innovation metrics.