Challenges in measuring innovation success
The causes and effects of innovation success are complex. Many of these are difficult to quantify. Questions to be answered are for example
- What influence does innovation have on brand value and image, and to what extent does it influence the customer's purchasing decision?
- If an innovation has a high turnover, how much of its turnover could have been achieved with the existing product portfolio?
- What is the value of a patent applied for, on the basis of which no product followed the market but the competition was blocked?
- To what extent do the skills acquired and built up bring an economic advantage through development in other areas?
As you can see, innovation is a far-reaching topic that has ramified roots of success on many levels and is also spinning its threads into many other areas. Thus, measuring success becomes a complex challenge. In addition, many effects are time and place shifted. For example, earnings from innovations often only come after a few years of start-up or additional sales are generated by synergies with other products.
Relevance of innovation indicators
Although the measurement of innovation is complex, this is precisely why it is so complex. There are a large number of key figures and they all have their meaningfulness and thus also their ability to control. They provide information, tendencies and transparency in terms of innovation activity and thus impetus where to apply the levers. Strategic orientation is also relevant. There should always be a link between the strategic purpose of innovation and its indicators.
Thus, measuring innovation performance is a very relevant part of innovation management. According to Austrian management pioneer Peter Drucker, "You can't control what you can't measure."
Logic of innovation indicators
The plane is the place of effect and influence. Either a key figure refers to an individual project and thus to a single innovation, i. e. a product or a service. Or the key figure applies to the entire company. This results in a measurement on
- project level
- enterprise level
Another classification is based on the type of measurement, which distinguishes the measurement from
- Input: Here, material and immaterial inputs are measured.
- Process: Key process indicators measure the performance of the innovation organization.
- Output: The output is directly linked to the benefit, i. e. what is achieved, delivered or influenced by innovation.
Key innovation indicators at project level
Key figures for measuring individual projects or innovations are closely linked to project management and the financial benefit calculation. Here is a selection of possible key figures:
- Costs per project
- Time expenditure per project
- project duration
- Planned variances in terms of project costs, personnel expenses and time
- Achievement of project objectives in terms of costs, time and quality
- Financial benefits of innovation
- payback period
- Return on Investment
The challenge here is that the individual projects are not comparable. In comparison to production, where each piece is exactly the same and thus comparable, each innovation is individual and therefore has different requirements. For example, it is difficult to compare the lead times of individual projects with each other in order to carry out a meaningful analysis.
Key innovation indicators at company level
The innovation indicators at company level cover all projects and activities and relate to innovation performance as a whole. Here are examples of possible key figures:
- Number of ideas submitted
- Number of ideas released or projects started
- Funded R&D costs (absolute and in %)
- Number of projects funded (absolute and in %)
- Innovation/R&D expenditure (absolute and in % of sales)
- patent costs
- Number of innovation employees (R&D, innovation, product management...)
- % Projects completed within specified time period
- % Projects completed within the specified budget
- Average deviations of the innovation projects with regard to time
- Average variance of innovation projects with regard to costs
- Average project duration
- Number of discontinued innovation projects (absolute and in %)
- Number of cancelled innovation projects by stage
- Number of innovation projects by stage
These key figures are used for portfolio and multi-project management and, above all, provide information about planning reliability and the resources used.
- Number of new products and services
- Number of new products and services by category, e. g. incremental / radical
- Financial user of all implemented projects and innovations (sales, savings, etc.)
- Return on innovation (innovation expenditure for financial benefit)
- Sales of new products and services (under three to five years, depending on the industry's rapidity)
- Profits with new products and services
- Measurement of customer perception with regard to innovation (e. g. through surveys)
The measurement of the key figures usually refers to a time frame. The financial year is taken into account.
The determination of the key figures requires extensive documentation systems in order to have all the data available for calculating the figures. The responsible innovation manager must ensure that the basic figures are correct and that the documentation is meticulous and thorough. A mistake can make all the numbers wrong.
Many of the key figures can also be used for external benchmarking. For example, many companies disclose their spending on innovation, according to which interesting comparisons can be made. However, the peculiarities of companies and industries must always be considered and to what extent one can thus compete with other companies.
Conclusion - Key figures in innovation management and their logic
Innovation indicators are an extremely important measurement and control tool in innovation management. But the figures must also always be taken with caution, because innovation is a complex and interlinked topic. The innovation success is based on various causes in the system and has multiple positive effects in many other areas. These are facts that have to be considered individually for the definition and measurement of innovation indicators.