How to Measure the Value of an Innovation Initiative: Is it Really Worth the Investment?
Measuring the impact of an internal Innovation Initiative can be infuriatingly difficult. But the greatest glory goes to those who take on the challenge and succeed. Beyond the monumental effort of establishing an innovation center or initiative, measuring its impact on the business is possibly one of the most critical activities in ensuring its longevity. Value measurement becomes even more necessary when in a manufacturing organization that may be running efficiency programs like Six Sigma.
Unpacking The 'V' Word
Value is one of the most loaded words in the business community. Ask a dozen executives to define value and you may get 15 answers. Realizing that value means different things to different organizations -- and even to different people within those organizations -- is a first step to successfully showing that your Innovation Initiative is creating perceived value. Some centers are narrowly focused on tangible product innovation and could be measured on contribution to EBITDA (yes, you may be able to capitalize and depreciate Innovation). Others may have a focus on business line extensions and may be judged on ROA. If you are running a LEAN or a Six Sigma program make sure you have measures that go beyond efficiency gains. Innovation is about more than delivering the same output more effectively. It is about finding new ways to grow and improve the business. Knowing what your business values will allow you to position your initiative for success — because in the end you will get what you measure.
Do. Meaningful. Things.
In IGNITE: Setting Your Organization's Culture On Fire With Innovation, my co-author David J. Neff and I explicitly talk about establishing metrics that are a combination of efficiency and effectiveness. Contradictory? Mutually exclusive? We think they are complimentary.
Monetary value could take time to realize and therefore having efficiency metrics in the beginning helps to tell the story that the Innovation Initiative is creating. Initially focus on attracting and reviewing ideas. Publicizing the idea-flow shows that the initiative is active and could encourage others to submit ideas and engage. It is a self-fulfilling prophecy — we like restaurants that are busy. As your initiative matures, track your year-over-year and quarterly productivity numbers in terms of concepts you screen, fund and launch. Also don't be afraid to include a subjective measure of creativity because this is how you draw your employee's breakout ideas up to the surface.
Once you have a strong pipeline you can begin to realize and report out hard financial outcomes. Think of the entire Innovation Initiative as a startup - a venture that at the outset is going to consume more resources than the revenue that it will generate. As the innovations mature and move to full deployment throughout the enterprise you can begin to track the financial contributions to the bottom line.
The Invisible Impact
There is cultural transformation that is requisite to launch and drive an Innovation Initiative (appetite for risk, openness to external ideas, strong awareness of internal capacity) but there is also a cultural change that happens because of an Innovation Initiative. When you publicize and hold up the successes of an Innovation Initiative and incentivize participation, you encourage intrepreneurship (entrepreneurship within your enterprise) and that engenders a fuller commitment by employees. Your employees with brilliant ideas will feel that there is a place they can turn for resources and development support. In addition it gives all employees confidence that their enterprise is working towards staying ahead of its competitors. In industries that have products that have not changed in years or even decades (mining) this will engender a sense of forward momentum throughout the organization.
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