How to Measure Innovation

Innovation is the new app! Bots, chat bots, IoT...everyone’s looking to see what the latest and greatest technology can do for their business. With so much changing so rapidly, our heads are spinning; organizations still rely on us, their IT partners, to help grow the business, our reach, and our successful operations. On the flip side, we all know that you get the results that are measured and reviewed regularly: metrics drive behavior. Yet, while we’re seeking to innovate, we still measure the same old things.

Yet how do you measure for innovation? It could be difficult to find and select the right measures, and the ability to do so may be guided by overall process maturity. It also requires organizations to begin innovating metrics programs: stop producing the same old metrics that have been produced for the past 20 years. Thus, I’ll focus on the metrics conundrum of innovation: measurement programs to measure innovation and the resulting innovation to metrics programs that results from this change.

How do you measure for things like innovation?

To drive innovative solutions, organizations need to be ready for innovation, and many are, charging forward into new technologies at the speed of light. But measurement of innovation might be difficult. Do you measure investments in new technology? Projects to introduce technology? Success of these initiatives? Without a good set of definitions and direction, these become subjective and might lead to a false set of security.

How Do You Measure an Intangible?

The first area to address when developing a metrics program for innovation is defining what innovation means to the enterprise. Wikipedia uses the following definition of innovation:

Innovation can be defined simply as a "new idea, device or method". However, innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs.

To measure innovation by this definition you’d need to be able to measure solutions that enable the organization to improve solutions for new or existing needs. This could be done with any type of technology, some of it not innovative at all, but rather applied in an innovative way. Not a bad approach and one that should be considered and included in your innovation metrics.

In addition to looking only at the definition of innovation, perhaps the definition of innovative technology works as well, but is harder to find. Common place definitions all agree that it’s a combination of new or advanced technology that is used in a creative way to bring innovation to the marketplace.

The problem remains, how can you define/use measures to measure how well the organization is doing in the area of innovation?

One way to approach measuring an outcome that is difficult to measure it is to develop and use leading and lagging indicators, selecting leading indicators that drive the outcome of creating innovative solutions.

The lagging indicator in question is “innovative initiatives” or “innovation” as a whole, using an increase in revenue as a result of innovation as the key performance indicator.

To measure success in this area therefore, leading indicators must first be identified and agreed upon, then reported and used over a period of time to measure the results of an innovation initiative and to help drive innovation in the organization.

Defining Leading Measures for Innovation

The first step to measuring innovation is to agree internally on which activities represent innovation in the organization and select key performance indicators to use as leading indicators. There are several areas that lead to innovative approaches, some of which can be translated into leading indicators for innovation by way of example:

• The organization has a culture of innovation/rewards innovation
• Culture of risk taking and making it okay to fail:
• Number of new ideas tried
  
• % of new ideas that lead to larger initiatives
• Time spent in exploration leads to innovation
• Number of employee hours spent on independent research and ideation (Ideation is simply the creation of new ideas, but in the context of program management is often used to describe the process of taking an idea to a project or strategic initiative
•  Number of innovative projects adopted through ideation and their success rate (described in revenue, outcomes generated)
• Use of innovative technology in new projects/initiatives
• Number of projects that use new technology
• Revenue driven by projects that use new technology
• Changes the way the organization does business with its customers, whether technology or process driven
• Number of projects to change the current way of doing business broken down by new technology, new process
• Revenue driven by changes in technology, process

These are just examples. Ultimately, stakeholders interested in measuring innovation need to determine what innovation looks like for the organization, identify areas in which initiatives should be undertaken, and apply this list to selection of leading indicators (expressed as key performance indicators) which will later be used to measure innovation in the organization.

Innovative Technology: What Counts?

The second step to measuring innovation is to agree internally on which technologies, approaches and types of initiatives will meet the organization’s definition of “innovation.”

When searching for innovative technologies on the Internet, there are several technologies, sometimes referred to as “disruptive technologies” because they disrupt business as we know it:

• Robotics, Bots, Chat Bots
• Internet of Things
• Artificial Intelligence (Watson is most frequently mentioned)
• Virtual/Extended Reality
• Platform Consolidation

The best way to approach this would be to gather executives from business units and technology services, review the technologies thought of as innovative, and discuss how they might benefit the organization. The goal of the discussion is to create a list of technologies that are considered innovative and initiatives they would support. Later, when chartering projects, the organization will have an opportunity to indicate if the technology used for the initiative is standard technology currently in use or a new, innovative technology.

Aligning on Opportunities for Innovation

The third step to measuring innovation is to agree internally on which areas of the business are not effective in today’s market and could use innovation to transform how business is done.

Innovation does not always involve new technology, it can just as often involve a new approach to doing business. Thus, after reviewing new ways of doing business that involve new technology, a review of current business processes should be performed, looking at how process transformation and/or new technology could improve the area. Just like building a list of new technologies that will be considered innovative, projects that transform these areas should be considered innovative or transformative.

Measuring and Quantifying Innovation

After considering these three steps, the organization will have a list of objective measures that can be used as leading indicators (based on the examples used in this article):

• The amount of time employees spent developing ideas into proposals
• The number of employees’ suggested projects attempted (along with the percent of success vs. failure)
• The number of initiatives that included technologies on the “innovative technology” list (along with the percent of success vs. failure)
• The number of transformational change initiatives undertaken (along with the percent of success vs. failure)
• The revenue produced by these initiatives

In some cases, the ability to measure these areas will lead to policy adoption and may drive changes to administrative procedures:

• For example, there may be a new policy needed indicating that employees be given up to 10 hours per week to work on personal ideas.
• Once adopted, there needs to be a change in how time is logged to capture this time and the idea it is being used to develop.

Project categorization may need to have some additional criteria tracked during the charter process:

• Type of initiative: run, grow, transform
• Type of technology: established, new/innovative

The indicators selected should then be tracked, along with the revenue produced by the initiatives undertaken. The result becomes the ability to track the revenue produced through innovation, whether technical or transformational process-driven, which was the lagging indicator selected.

Measuring Innovation Creates Innovative Metrics

The result of this effort is two-fold:

• A clear definition of innovation in the organization is developed, and the ability to measure revenue resulting from innovative technologies and initiatives is created
• The way project success is measured is also transformed from the age-old concept of on-time and on-budget to a measure that in itself is innovative: measuring project success by the outcome it provided, in this case revenue produced through innovation

Ultimately, during the process of developing a mechanism for measuring innovation, several innovative measures are introduced. They change the way success is communicated to the business by introducing terms the business uses. Understanding how much time employees spend on ideation, the revenue that results from successful ideas, and the revenue produced through use of new technologies and process gives the organization new ways to continue to grow and transform operations. 

Phyllis Drucker is an ITIL^® certified consultant and information leader at Linium. Phyllis has more than 20 years of experience in the disciplines and frameworks of IT service management, as both a practitioner and consultant. She has served the itSMF USA and HDI since 1997 in a variety of capacities including volunteer, speaker, board member, and operations director. Since 1997, Phyllis has helped to advance the profession of ITSM leaders and practitioners worldwide by providing her experience and insight on a wide variety of ITSM topics through presentations, whitepapers, and articles and now her book on the service request catalog, Online Service Management: Creating a Successful Service Request Catalogue (International Best Practice). Follow Phyllis on Twitter @msitsm.