Leaders face enormous pressure to make bigger bets on innovation and execute against them, while facing an overarching tension. How can they fund something without knowing the return on investment (ROI) in advance? By nature results of innovation programs are unpredictable. No one knows the end result or assure the result. Innovation is all about anticipating the future and taking the risk to experiment and explore. As innovation leaders, we are looking for the future trends and ideas that will shape the world of tomorrow and see what can be scaled within our organizations.
Many companies are investing in innovation but were not able to objectively measure how these programs are adding value to the organizations. Many organizations are not able to tell if their innovation programs are focused on right areas to innovate, if these programs are managed right and if they have systems & culture in place to take advantage of learnings and success coming out of these programs. To compound the problem, innovation departments or teams who are running these programs are not able to connect the dots and explain how they are adding value to business. Net result, there is somewhat tension in the organizations on innovation programs and it is somewhat shooting arrows in the dark with a hope of hitting the innovation goals and adding value to the organization.
To address these problems holistically, I am proposing a model based on balance score card. Obviously no model cannot predict or assure the end result of innovation, however this model can help organizations in three other areas 1) If innovation programs are focused on right challenges/opportunities. 2) If innovation programs are executed right. 3) If the organization have systems & culture in place to take advantage of learnings and success coming out of these programs and scaling them. Premise of the model is that if these three things are in place, innovation programs should add value to the organization.
This model is based on measuring leading indicators of innovation initiatives than relying on lagging indicators such as financial measures and traditional ROI models. ROI models are difficult to collect and it will be several years before they are visible and make a dent in large organizations. This model connects the dots for innovation initiatives at ground level to financial and non-financial returns at the top in a very simple and easy way. This model use the business language familiar to senior management and thus can become an effective communication tool between Innovation program teams and larger organization.
Leading and Lagging Indicators:
Leading indicators inform us about the health of current initiatives and help us predict the future. They are difficult to measure but easy to influence. If they are off-the mark, we have time to influence the initiatives, take corrective measures and bring them back on track; Lagging indicators, on the other hand, are easy to measure but difficult to influence as they tell us about what has already happened. In summary:
· A leading indicator measures current initiatives and predicts the future outcomes and events.
· A lagging indicator measures what actually happened and conveys whether the intended result was achieved or not.
So we need to find correct leading indicators for innovation that can be measured and controlled to achieve our goals.
Model for Measuring Corporate Innovation Programs:
The premise of the model is simple. Treat Innovation programs as a system with clear inputs, processes and outputs. Instead of focusing on end result of innovation (Lagging indicators such as revenue), focus on measuring quality and health of inputs and the health of process and the environment under which the process is executed (Leading indicators). If we start innovation programs with good Innovation portfolio (what to innovate), select right innovators and provide them necessary tools, methodologies (how to innovate), and a dose of good innovation culture of the organization (ability to extract value from innovation), then the output of innovation should help addressing end customer’s challenges & their needs and ultimately generate returns for the organization.
Implementation of the Model:
There is no easy way to measure impact of innovation. There is no silver bullet or a quick solution. But with the help of this model one should be able to bring structure to measure health of the innovation programs and their impact.
1. Develop Strategy for Innovation Program: Have a clear idea on purpose and goals of your innovation program. If this is not clearly established, I highly recommend to pause and develop the purpose statement before taking up other initiatives. Ask why is organization supporting this program? Why is it important for the organization? What is the purpose of innovation program? Charter? Who are your key stakeholders and persona? Instead of 20 page business plan document, my recommendation is to use Visual Recording tools and Lean Canvas to answer these questions. Once the purpose and goals are clear, develop strategy for your program and decide the innovation Initiatives (Layer 1 of the model) that caters to overall purpose and goals.
2. Socialize this model: Use this model as a communication tool to discuss how innovation initiatives result in higher ROA and how dots are connected in the organization till majority of stakeholders understand the model, its layers and more importantly how innovation initiates can add value to the organization in the long-run. Socialize the program and sow seeds for future success. Take business leaders input for key Initiatives and metrics that are suitable to the objective of the program and the organization.
3. Decide the metrics to measure, evaluate, improve: Create a cross-functional team to arrive at max 3-4 metrics to measure for the bottom two layers of the model (Innovation Initiatives layer and Internal Impact layer). For top two layers of the model use the existing metrics that finance team may be using instead of reinventing the wheel. Monitor metrics at customer and finance impact layers and see what percentage of credit can be given to innovation initiatives. Please understand that it may take one or two years before innovation programs start creating impact at these layers.
4. Plan-Execute-Measure-Re-plan: Get into the routine of execution, measurement and analysis of results on quarterly basis. See what changes should be made to meet objectives and purpose of your innovation programs.
Take one step at a time. Patience is a virtue here. Innovation Initiatives are like tug boats changing the direction of large ship with care and precision. So be proud of small impacts that you are making every single day and over a period, you are charting the larger corporation towards new territories and markets.
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