DEFINING INNOVATION GOALS

What do we want to achieve?

How will we know if we are successful?

DEFINING INNOVATION GOALS

Innovation Investment

Organizations invest an average of 4% of turnover on Innovation

Budget typically spent across various functions e.g. Computer Services Product Design Process Improvements Training etc.

Problem

Between 50-70% of all innovation fails to impact organizational goals

Implications … Wasted resources – time, people and money Loss of morale High resistance

Primary Causes

Poor definition of goals Poor alignment of actions to goals Poor participation by employees in teams Poor monitoring of results Poor communication and participation in

communities

Managing Innovation leads to…

Better definition of goals Better alignment of actions to goals Greater participation of individuals in teams Better monitoring of results Greater communications and building of

communities

Goal Planning

Last class

Who are the stakeholders of innovation? I.e. who can impact or is impacted by

organizational innovation?

ORGANIZATIONAL INNOVATION

Regulators

Shareholders

Suppliers

Community

CustomersComplementors

Other Divisions

Employees

Environment

Not everyone benefits from innovation.

Innovation implies change and this is not always well received.

Important to consider all stakeholders and the impact innovation will have on them.

Strategic Objectives

Strategic Objectives

Statement of organizational goals Strategic & Tactical ‘Decisions’ Statement on the allocation of resources

(people and money)

Objectives for Innovation

Most objectives change the operations environment Processes, services, products, etc.

Some objectives change the innovation environment itself Innovation process Innovation resources

Doblin’s Innovation Typology – the innovation keyboard!

Performance Indicators

Role of leadership in setting metrics:

1. Financial (such as the percentage of total revenue from new products) 20 % of revenue come from products launched

within the past three years.

2. Behavioral (such as the “not invented here” syndrome ingrained in many organizations)

25 % of all ideas to come from external sources.

“Leadership and Innovation”, McKinsey Quarterly, Joanna Barsh, Marla M. Capozzi, and Jonathan Davidson , Jan 2008.

Performance Indicators

Performance indicators are a measurable way of monitoring progress towards defined organization goals

Key questions: Given what we want to happen… What has happened ? Why has it happened ? Is it going to continue ? What are we going to do about it ?

Financial and non-financial metrics

Indicator Attributes…

related directly to strategic objectives consistently repeatable over time, allowing

comparisons fosters improvement rather than monitoring Measurements are reliable and verifiable appropriate mix of financial and nonfinancial metrics maximum number of measures simple and easy to use provides fast feedback can be linked in a hierarchy

Macro Level Indicators

Operations Sales and Marketing People Research and Development Environment

Productivity (hours/unit)Throughput (units per day)Utilisation (output/capacity)

Sales per regionSales per modelMarketing costs

Labor turnoverOvertimeAbsenteeism

R&D ExpenditureFailure RatesAdditional Revenue CreatedValue Analysis SavingsEmissionsScrap and WastageAccidentsLitigation

Innovation Process Indicators

Percentage of revenue attributable to recent innovations Percentage of ideas migrating to projects Number of projects per member of staff Percentage of staff involved in generation of ideas or problems Percentage of actions originating outside the organization Percentage of indicators without actions Number of projects per strategic thrust Percentage of strategies without actions Percentage of actions delivered within planned constraints Percentage of actions abandoned during innovation process Cost–benefit ratio of the portfolio undertaken

Performance Horizonover what time period?

Balanced Scorecard

Developed by Robert Kaplan and David Norton (1996) as an approach to strategic management and associated performance measurement and development initiatives

Divides strategic objectives, performance measures, and any associated development initiatives into four perspectives:1. Financial perspective2. Customer perspective3. Internal processes perspective4. Learning and growth perspective

RETURN ON INNOVATION ROINN©

How do you measure return?

How much did it cost to make, sell & ship? How much did you invest into infrastructure? How much did you make on sales? Return on Investment =

(sales – costs) / investment Transaction cost and market response based

formulas Does this apply to measuring return on

innovation?

ROInn© Issues

What are the direct costs? What are the indirect costs? How do you account for lag between learning

and performance? How do you measure customers who left

before buying? How do you measure the future benefits of

today’s innovation? How do you measure the learning benefit of

failures?

REALITY CHECK

Of those who do use innovation metrics, they cite three main reasons for doing so: To provide strategic direction for innovation

activities To guide the allocation of resources to

innovation projects To diagnose and improve overall innovation

performance

WHY SHOULD COMPANIES ASSESS

INNOVATION PERFORMANCE?

What does get measured?

TYPES OF METRICS USED?

Most likely are simple outcome metrics such as: Revenue growth due to new products or services Customer satisfaction with new products or services Number of ideas or concepts in the pipeline

Less likely are input metrics or performance metrics such as time to market or time to breakeven

Red herring measure: R&D Spending WHY!

Isn’t it just about R&D spending?“After conducting studies of the world’s one thousand biggest spenders on R&D… consulting firm Booz Allen Hamilton concluded both in 2005 and 2006 that there is “no discernible statistical relationship between R&D spending levels and nearly all measures of business success, including sales growth, gross profit, operating profit, enterprise profit, market capitalization or total shareholder return.”

Which U.S. firm spent more money on R&D than any other company in the world during the last 25 years?

General Motors

WHY IS R&D SPENDING A POOR INDICATOR OF PERFORMANCE?

It’s complicated…

Creating Return on Innovation

Innovation FacilitatorsLeadership• Innovation Strategy• Vision• Champion• Tolerance for failureStrategic Assets• Input, Process, Channel,

Customer and Market Knowledge Assets

People • Innovation Champions• Skills & Competencies• IntrapreneursOrganization Culture• Values • Norms• CommitmentResources • Compensation• Intellectual Capital• Financial• Time• Space

Innovation Outcomes

New or altered products, services,

processes, systems, organizational structures, or

business models.

Return on InnovationBusiness Results• Growth• Profits• Increased MarginsMarket Results• Market capitalization• Market growth

Innovation Behaviors

Management Practices• Formal Innovation Processes• Unstructured Innovation Processes• Collaborative Innovation ProcessesKnowledge Processes• Capture of existing internal and

external knowledge• Creation of new knowledge• Dissemination and sharing of

knowledge

Innovative Barriers

Mindset• Not-invented-here• Nothing-is-invented-hereShortage of resourcesOrganizational bureaucracyLack of motivation

SOCIETAL FACTORS• Society / Culture• Historical Context

REGULATORY FACTORS

• Government & Social policies

ECONOMIC FACTORS• Technology

• Intellectual Resources• Strategic Partners

National Context

INNOVATION METRICS FOR BEGINNERS

Metrics for innovation. A.Muller, L.Valikangas & P.Merlyn. Strategy & Leadership, 2005: 33(1): p.37.

INNOVATION METRICS FOR VETERANS

LESSONS

Innovation is a learning process, therefore frequent failures should be expected. Measuring the innovation process and its results should be part of the process through which to improve learning (learning about learning).

Develop a comprehensive set of metrics that are simple, meaningful, and intuitive.

Resist the temptation to track every conceivable parameter. Resist the temptation to track the easy tangible parameters. Include at least one or two customer-driven metrics. Reassess the results and the metrics against the goals and

objectives.