When it comes to assessing the value of Innovation Management, there’s no golden rule or single metric that will do the job. In the past, measures such as customer satisfaction, revenue growth and the percentage of sales originating from new products and services were used as the standard. However, these alone cannot paint a full picture. In this burgeoning community, there have been a number of proposals presented intending to address the concerns about measuring and evaluating innovation.
Surveys amongst leading business executives have revealed that while most are not concerned with the amount of ideas being generated by their organizations, many of them admitted to problems associated with converting these ideas into new products and properly evaluating the results. It seems clear then, that the value of the overall innovative process is getting lost somewhere between idea generating and product sales.
Moving beyond the older notions of a traditional return on investment (ROI) calculation, which many believe can actually stifle innovation due to its strong focus on profits and the bottom line, some companies are shifting towards calculating a more balanced return on innovation (ROI) which tends to place value on both the process and the product.
Along with calculated potential return on investments for each product, it has been suggested that setting milestones and monitoring the time it takes to reach milestones within each project should be closely monitored.
By keeping an eye on the progress of projects as well as the more traditional bottom line calculations, organizations are better equipped to make the right decision on which projects to put through to the end stages of product development. By successfully evaluating the process of innovation, the overall ROI has a better chance of improving.
Experts also emphasize however, that innovators should not be so concerned about measures, indicators and metrics during projects that it stifles the actual product development. Having a small, yet broad set of measures in effect will prove to be the most successful for most companies.
In recent years, a number of organizations have begun to take a look at developing an innovation index to better assess and evaluate the value and effectiveness of innovation within companies. In the United Kingdom, the National Endowment for Science, Technology & Arts (NESTA) are developing a new set of measures intended to evaluate innovation by industry, citing that traditional measures of innovation are unfavorable to certain industries such as finance, where there are few patents created.
A recent study by the consultancy group Accenture supports NESTA’s claims by revealing that ROI percentages fluctuate dramatically by industry. The study found that the average ROI in the chemicals and raw materials industry was 169%, while it was a comparably dismal 5% in the electronics industry.
NESTA has suggested looking at a number of different measures in order to provide a more accurate value of innovation and even the playing field between industries. They propose looking at indicators such as investment in training, organizational change a overall competitive performance over time in addition to the impact and influence a company has on its industry as leading factors in calculating innovation value. NESTA is also looking to business leaders from various industries to provide their own suggestions for the development of the index.
It is clear that the efforts of innovation management cannot be solely evaluated against return on investment. The entire process as well as the product and product sales must all be taken into consideration. Additionally, it appears that innovation is not something that can be measured equally throughout different industries.
Evaluating innovation and optimizing its monetary capabilities is therefore an evolving process of which there is no one universal calculation.