Use Metrics to Evaluate your Innovation Strategy and Portfolio

Some types of innovation are big bets, and some are smaller, incremental innovations. Different types should be evaluated by different sets of metrics.

Figuring out which metrics work for your firm may take time and effort. Don't be afraid to rework them as you learn.

Metric: Return on Investment. This can be useful for existing products, but using it prioritizes measurable markets over difficult-to-measure markets.

Innovative projects are inherently aimed for difficult-to-measure markets. They may not exist yet! So watch for this trap.

Metrics to Evaluate Strategy

Firms committed seriously to innovation should track innovation metrics as vigorously as they track their on-going business operations. Here are some metrics to track.

Metric: Percentage of Revenue Derived from New Products This can be very useful in promoting an innovation mind-set in the firm. But watch out for too many incremental innovations (think pink Post-it® Notes). They are easier than disruptive or radical innovation, and focus on this metric promotes incremental innovations.

Metric: Number of Patents Filed. Pay attention not only to your own firm's number of patents, but also the number of patents filed in the technology field. There is a good correlation between the S-Curve of number of patents filed in the industry and the maturity of the technology.

Metric: Innovation Portfolio Balance. What is the proportion among incremental, radical and disruptive innovations in the portfolio?

Metric: Process speed. How quickly does an idea go through the patent stage and the evaluations? Are there some barriers that can be removed?

Metric: Breadth of the idea-generation process. Good ideas come from all levels in the organization. Sales representatives and third line technical support representatives have detailed knowlege of how users are using products and what they might want for the future. Good ideas also come from customers and competitors.

Metric: Number of new products released.

Metric: Percentage of revenues from new products; and percentage of profits from new products.

Metric: Funds invested in innovation.

"Building an Innovation Evaluation Process for Your Organization," two-weeks of intensive work with your Innovation Team request schedule

"Leading Innovation," a full-day workshop for engineering managers, delivered by Leslie Martinich. request schedule

"Premature opitimization is the root of all evil." --Donald Knuth

"Not to decide is to decide." --Sartre

Traps to Avoid!

Radical or disruptive innovations should have a completely different set of metrics than existing, on-going products. Executives too often kills promising projects (radical innovations) because they do not show the same return on investment as existing projects

On the other hand, it is reasonable to expect incremental innovations to show an ROI similar to existing product lines.

Don't expect radical innovations to follow the same processes and to be subject to the same strict performance metrics as existing products.

Be wary when you notice that your firm is filing patents for patents' sake.

Don't assume that only radical innovations are worthy of pursuit. For a maturing product, incremental innovations are most appropriate.

"Measuring Innovation 2008," Boston Consulting Group.