Most innovation leaders know the paradox: you’re asked to deliver breakthroughs but judged using metrics designed for stable operations. High complexity & uncertainty make it difficult for you to rely on traditional KPIs to drive the correct kinds of growth. Without a clear understanding of what drives innovation success, leadership can unwittingly drive new product development teams in the wrong direction, and this is often compounded by loosely set but strongly enforced directives.
Why is innovation so difficult to measure? Innovation is the space with the highest degree of uncertainty in an organisation. The tension between unknown technical challenges and shifting customer requirements makes it difficult to measure if progress is on track. Long time horizons (between developing a new offering and the revenue generated) weaken feedback loops and combine all efforts into the same result, making it tough to distil which elements had positive effects. Traditional financial metrics like ROI & quarterly revenue growth were designed for stable operations that improve in incremental & well-understood ways. They are useful at ensuring efficiency & comparability in established product lines. But they are too rigid, aggregated & risk-averse for experimentation and new product development processes. Instead, aggressive ROI targets tend to kill promising projects early, which leads to wasteful expenditure, minimal returns, and portfolios that are skewed towards short-term bets at the expense of long-term growth.
How should we approach innovation?
Ask the Right Questions: A good innovation process takes an idea and challenges it to answer various difficult questions to see whether it’ll be profitable or impactful in the real world. This includes questions such as “Does the problem we’re trying to solve actually exist?”, “Who does this affect, and do they actually want it fixed?”, and “Are potential customers willing to pay for this solution?”.
Generate Informed Assumptions: Use the experience of the innovation teams to develop believable assumptions. The role of the innovation process is then to test the correctness of these assumptions against real-world evidence, and to update them accordingly.
Run Experiments to Gather Evidence: Conduct a series of experiments that gather evidence to support the assumptions. Whether these results confirm or reject the assumption, the value lies in the learning gained.
Review Learnings: Validated learnings are the true success metric for innovation. Learnings build confidence by reducing uncertainty and therefore reduces the risk of wasting resources by moving in the wrong direction.
Make the Continue/Pivot/Kill Decision: With validated learnings, managers can decide on the venture’s future: Continue on the current path; Pivot towards a new approach; or stop the venture before more resources are spent
Taking a disciplined approach to innovation is the key to minimising wasteful expenditure and improving your innovation returns. Traditional metrics rarely support these kinds of decisions, and that’s why innovation-specific metrics are necessary.
What can I do now?
Audit your current metrics: Do my current metrics give me valuable insights on which ideas to grow, which to pivot, and which to stop? If not, are they truly serving the needs of my innovation managers? This is the first step in unlocking better innovation performance and sustainable new product development.
Align measurement to decisions: Consider the other key decisions & interventions that innovation managers need to make. Curate a set of metrics that provide valuable insights and better data-driven decisions.
Reframe success: Move beyond measuring outcomes such as ROI or revenue and track the validated learnings that generated by the innovation process.
Redesigning your metrics is challenging, but it’s the fastest lever for improving innovation ROI. We’ll explore practical frameworks & tools for building the right innovation metrics in our upcoming Innovation Measurement Workshop. Reserve your seat today to strengthen your organisation’s success.
