DEFINING INNOVATION GOALS What do we want to achieve? How will we know if we are successful?

DEFINING INNOVATION GOALS

Innovation Investment Organizations invest an average of 4% of turnover on Innovation Budget typically spent across various functions e.g. Computer Services Product Design Process Improvements Training etc.

Problem Between 50-70% of all innovation fails to impact organizational goals Implications … Wasted resources – time, people and money Loss of morale High resistance

Primary Causes Poor definition of goals Poor alignment of actions to goals Poor participation by employees in teams Poor monitoring of results Poor communication and participation in communities

Managing Innovation leads to… Better definition of goals Better alignment of actions to goals Greater participation of individuals in teams Better monitoring of results Greater communications and building of communities

Goal Planning Last class

Who are the stakeholders of innovation? I.e. who can impact or is impacted by organizational innovation? ORGANIZATIONAL INNOVATION RegulatorsShareholdersSuppliersCommunityCustomers Complement ors Other Divisions EmployeesEnvironment Not everyone benefits from innovation. Innovation implies change and this is not always well received. Important to consider all stakeholders and the impact innovation will have on them.

Strategic Objectives

Statement of organizational goals Strategic & Tactical ‘Decisions’ Statement on the allocation of resources (people and money)

Objectives for Innovation Most objectives change the operations environment Processes, services, products, etc. Some objectives change the innovation environment itself Innovation process Innovation resources Doblin’s Innovation Typology – the innovation keyboard!

Performance Indicators

Role of leadership in setting metrics: 1. Financial (such as the percentage of total revenue from new products) 20 % of revenue come from products launched within the past three years. 2. Behavioral (such as the “not invented here” syndrome ingrained in many organizations) 25 % of all ideas to come from external sources. “Leadership and Innovation”, McKinsey Quarterly, Joanna Barsh, Marla M. Capozzi, and Jonathan Davidson, Jan 2008.

Performance Indicators Performance indicators are a measurable way of monitoring progress towards defined organization goals Key questions: Given what we want to happen… What has happened ? Why has it happened ? Is it going to continue ? What are we going to do about it ? Financial and non-financial metrics

Indicator Attributes… related directly to strategic objectives consistently repeatable over time, allowing comparisons fosters improvement rather than monitoring Measurements are reliable and verifiable appropriate mix of financial and nonfinancial metrics maximum number of measures simple and easy to use provides fast feedback can be linked in a hierarchy

Macro Level Indicators Operations Sales and Marketing People Research and Development Environment Productivity (hours/unit) Throughput (units per day) Utilisation (output/capacity) Sales per region Sales per model Marketing costs Labor turnover Overtime Absenteeism R&D Expenditure Failure Rates Additional Revenue Created Value Analysis Savings Emissions Scrap and Wastage Accidents Litigation

Innovation Process Indicators Percentage of revenue attributable to recent innovations Percentage of ideas migrating to projects Number of projects per member of staff Percentage of staff involved in generation of ideas or problems Percentage of actions originating outside the organization Percentage of indicators without actions Number of projects per strategic thrust Percentage of strategies without actions Percentage of actions delivered within planned constraints Percentage of actions abandoned during innovation process Cost–benefit ratio of the portfolio undertaken

Performance Horizon over what time period?

Balanced Scorecard Developed by Robert Kaplan and David Norton (1996) as an approach to strategic management and associated performance measurement and development initiatives Divides strategic objectives, performance measures, and any associated development initiatives into four perspectives: 1. Financial perspective 2. Customer perspective 3. Internal processes perspective 4. Learning and growth perspective

RETURN ON INNOVATION ROI NN ©

How do you measure return? How much did it cost to make, sell & ship? How much did you invest into infrastructure? How much did you make on sales? Return on Investment = (sales – costs) / investment Transaction cost and market response based formulas Does this apply to measuring return on innovation?

ROInn © Issues What are the direct costs? What are the indirect costs? How do you account for lag between learning and performance? How do you measure customers who left before buying? How do you measure the future benefits of today’s innovation? How do you measure the learning benefit of failures?

REALITY CHECK

Of those who do use innovation metrics, they cite three main reasons for doing so: To provide strategic direction for innovation activities To guide the allocation of resources to innovation projects To diagnose and improve overall innovation performance

What does get measured?

TYPES OF METRICS USED? Most likely are simple outcome metrics such as: Revenue growth due to new products or services Customer satisfaction with new products or services Number of ideas or concepts in the pipeline Less likely are input metrics or performance metrics such as time to market or time to breakeven Red herring measure: R&D Spending WHY!

Isn’t it just about R&D spending? “After conducting studies of the world’s one thousand biggest spenders on R&D… consulting firm Booz Allen Hamilton concluded both in 2005 and 2006 that there is “no discernible statistical relationship between R&D spending levels and nearly all measures of business success, including sales growth, gross profit, operating profit, enterprise profit, market capitalization or total shareholder return.”

Which U.S. firm spent more money on R&D than any other company in the world during the last 25 years? General Motors

WHY IS R&D SPENDING A POOR INDICATOR OF PERFORMANCE? It’s complicated…

Creating Return on Innovation Innovation Facilitators Leadership Innovation Strategy Vision Champion Tolerance for failure Strategic Assets Input, Process, Channel, Customer and Market Knowledge Assets People Innovation Champions Skills & Competencies Intrapreneurs Organization Culture Values Norms Commitment Resources Compensation Intellectual Capital Financial Time Space Innovation Outcomes New or altered products, services, processes, systems, organizational structures, or business models. Return on Innovation Business Results Growth Profits Increased Margins Market Results Market capitalization Market growth Innovation Behaviors Management Practices Formal Innovation Processes Unstructured Innovation Processes Collaborative Innovation Processes Knowledge Processes Capture of existing internal and external knowledge Creation of new knowledge Dissemination and sharing of knowledge Innovative Barriers Mindset Not-invented-here Nothing-is-invented-here Shortage of resources Organizational bureaucracy Lack of motivation SOCIETAL FACTORS Society / Culture Historical Context REGULATORY FACTORS Government & Social policies ECONOMIC FACTORS Technology Intellectual Resources Strategic Partners National Context

INNOVATION METRICS FOR BEGINNERS Metrics for innovation. A.Muller, L.Valikangas & P.Merlyn. Strategy & Leadership, 2005: 33(1): p.37.

INNOVATION METRICS FOR VETERANS

LESSONS Innovation is a learning process, therefore frequent failures should be expected. Measuring the innovation process and its results should be part of the process through which to improve learning (learning about learning). Develop a comprehensive set of metrics that are simple, meaningful, and intuitive. Resist the temptation to track every conceivable parameter. Resist the temptation to track the easy tangible parameters. Include at least one or two customer-driven metrics. Reassess the results and the metrics against the goals and objectives.