How to measure innovation [5 Steps]
BY BRUCE FISCHER | 6 MIN READ
Most people imagine that creativity is accidental – a light bulb lit above the head of a cartoon character. Sure, that may be true, but how does an organization create conditions where light bulbs regularly light up over employees’ heads?
The measurement of innovation is necessary to achieve an optimal rate of innovation in an organization.
There is a saying, attributed to Peter Drucker, that “if you can’t measure something, you can’t manage it”. This adage certainly applies to innovation. Innovation is often a fleeting process that defies quantification. But that’s one more reason to measure it. By effectively monitoring the innovation process, we can clearly see who or what is influencing innovation and take action to increase it.
The big question is: how? How do we document the ideation process and give proper credit to creators? How do you quantify ideas regarding their potential costs and benefits to know if they are worth implementing?
Most organizations count their patents, and that’s certainly a useful measure of innovation. (The value of individual patents varies widely, so it’s important to include an estimate of the dollar value of each patent.)
But what about the measurement of different types of non-patentable innovations? The organization should measure all ideas generated to assess the innovation effectiveness of each employee, as well as the innovation rate of the organization as a whole.
5 steps to measure innovation
Essentially, to know how well an organization innovates, we need to measure both parts of the innovation process: ideation and implementation.
- Collect and track every idea
- Estimate the costs and benefits of each idea
- Measure the implementation of each idea
- Calculate the added value of each idea
- Determine the rate of innovation across the organization
Step 1: Collect and track each idea
- People must submit their ideas digitally via email. There will be a record of who submitted each idea and when.
- An idea review committee should be formed and a chair should categorize each idea and respond to the proposer(s) with a status report. It is important to react quickly and provide periodic updates.
- The idea review committee should meet regularly to review ideas. Ideas should be ranked by size and potential for success. It is necessary to maintain a sense of urgency to move ideas through the necessary stages of testing, economic evaluation and implementation. Innovators are discouraged when the organization lags behind in the steps of the “innovation supply chain”. Keeping idea authors up to date on the status of their submissions is essential.
Step 2: Estimate the costs and benefits of each idea
It is important to do a “rough” cost-benefit analysis on a new idea as soon as possible. This will identify the main financial barriers to the idea and determine if the idea is financially viable. If it is a small project, with less than $100,000 in potential profits, a simple payback period analysis will suffice. This should show a payback of three years or less. For larger ideas, a discounted cash flow analysis should be performed using initial costs, recurring costs, and expected revenue stream. Of course, risk is an important factor that should always be considered when evaluating ideas.
Step 3: Measure the implementation of each idea
Once an idea is approved and passes the necessary tests of technical feasibility and financial viability, it is ready for implementation; and it becomes a project. The measurement of project implementation is well established in the practice of project management. The planning stage of a project should involve detailed estimates of its time, cost and scope. Execution must be monitored, which implies a detailed division of tasks and responsibilities. When a project is completed, an analysis of the problems encountered must be made. The difference between the estimated and actual costs and benefits of the project must be calculated.
Step 4: Calculate the added value of each idea
As mentioned above, when an idea is approved for implementation, it must include an estimate of its potential value based on the cost-benefit analysis in Step 2. Note that some ideas, such as ideas security or customer service, may not have an obvious effect. dollar benefits. The organization must estimate the value of these ideas even if they are based on subjective assessments. This can be called the estimated value of the idea until it is implemented.
Next, the real value of the idea must be determined. When the calculation of the implemented idea value is performed, the difference between the estimated value of an idea and its actual implemented value will provide the organization with useful information.
Step 5: Determine the rate of innovation across the organization
An idea measurement system is an indispensable part of innovation management. First, it provides a measure of each employee’s ideation rate. Then the predicted ideation rate for departments, divisions and an entire organization can be easily calculated.
This information will provide an advanced indication of the actual innovation rate of the organization: the sum of all ideas submitted over time.
As ideas move into implementation, they need to be tracked until they become completed innovations. Idea implementation rate provides another key metric that will help manage idea execution.
Why organizations should have an innovation measurement system
Some organizations have strategies that drive them to be innovation leaders and others choose to be followers. But it’s hard to know if you’re a leader if you don’t know when or how much you’re actually innovating.
Reliably measuring the ideation and implementation of new ideas puts an organization on solid ground. Without such systems in place, organizations are likely to select people for pay raises and promotions based on more subjective measures such as political behavior rather than results.
Meanwhile, rewarding people who come up with new ideas creates a powerful incentive to innovate more. Not surprisingly, once an idea measurement system is in place and employees are aware that it will influence their pay raises and promotions, many employees will respond by making a greater creative effort.
The future belongs to innovation. Organizations need to take a systematic approach to innovation, and measurement is a key aspect of this effort. It identifies opportunities and tracks the organization’s efforts to increase innovation. Most importantly, measurement provides the means for an equitable distribution of recognition and rewards for innovation and establishes the organization’s value for innovation.
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