Innovation Leadership Training Goals and Metrics February 5, 2009 All materials © NetCentrics 2008 unless otherwise noted

Welcome For the next hour we’ll discuss the appropriate goals and metrics/measurements for an innovation program We’ll examine why existing goals and measurements will typically kill an innovation program We’ll confirm the need for goals to demonstrate progress

What We Want to Accomplish

Goals for this section Our goal for this section – Identify why existing goals and metrics are barriers for innovation – Identify the appropriate goals and metrics – Communicate the goals and measure progress against the goals and metrics

Key Points What gets measured can be managed – We need to manage innovation and demand positive outcomes However, the work is different and the expectations and measurements should be different – We can’t measure this new thinking with the same tools Innovation does need to demonstrate value in some form

Goals and measurements Thanks to Fredrick Taylor and the scientific management crowd, we are very comfortable with establishing metrics and goals for key activities There are few activities or actions in a business don’t have specific goals or measurements We all understand how we are evaluated and measured and how that relates to compensation

Innovation Trap Innovation suffers from two different and conflicting issues where goals and measurements are concerned – There’s too much focus on measuring ROI too quickly, so no ideas seem “good enough” – Or there’s no clear goals or metrics established, so innovation isn’t measured or managed

Measuring Return on Innovation (ROI) It’s easy to calculate the ROI of a product or service However, for many ideas, while the cost is relatively easy to calculate, the return is difficult if not unknowable We apply too much analysis and inspection to a concept that is still too early Results in a very frustrated innovation team which cannot find an idea to achieve ROI

Don’t worry – be happy In some other instances, innovation is assumed to be a positive force and difficult to measure or manage, so little if any effort is extended to measure or manage innovation The challenge in this case is the absence of clear goals that innovation should achieve, so it becomes difficult to determine which ideas should be prioritized.

New concepts – new measures In most cases, innovation is a new concept – Introduces new risks – Changes existing culture – Creates new processes or products or targets new markets We may not be able to use the same measures, or may be tempted to use appropriate measures too early in the life of the idea

Two cultural challenges Where innovation and measurements/metrics are concerned, there are two significant cultural challenges to address: – Negative bias / positive bias – The fallacy of the “One” idea Let’s look at both of those briefly

Positive Bias Most organizations pride themselves on stopping new ideas – what we call a negative bias An innovative organization has a positive bias – what can we find that’s good or right about the idea? This is a cultural mindset but starts to get to the heart of goals and metrics

Fallacy of the One idea Another common problem when innovating is the desire to move quickly to select ONE idea over all the others This aligns to our internal goals of getting something done and establishing clarity However many ideas may be valid and the one you rush to select may have a hidden flaw You risk narrowing the pipeline too quickly and leaving your team with no viable options

Innovation Goals Innovation goals should – Align to strategic goals – Align to the purpose of innovation If the needs are for disruptive ideas, do the ideas disrupt the market? If the needs are for significant growth, is there opportunity to grow? These goals may be uncomfortable or different from traditional goals – Tie closely to business goals and revenue goals

Two types of metrics Where innovation is concerned, we consider two types of metrics – Process driven metrics – Outcome driven metrics These metrics are used based on the maturity of the innovation capability and process

Process Driven Metrics Early in the maturity of any innovation process or team, what’s important to measure is not the result, but the participation and activity In this case, we want to know – How is the process working? – Are people getting involved? – Are we generating and evaluating ideas?

Process Metric goals The goals for these metrics is to demonstrate that participation and involvement are important early in the innovation process – We can’t yet know the value of the ideas, and if we use financial metrics most ideas will fail early in the process – We need to demonstrate the importance and validity of participation and effort in innovation

Early Metrics As your team builds credibility and works through ideas, generating excitement and participation is important Measure activities – Who is participating – How many people are participating – How many ideas are generated – How long from the generation to the evaluation

Correlation to Academics A professor may test the understanding of basic concepts using quizzes and tests through the year before the “final” The professor is measuring the process and achievement of the process of learning, just as we need to measure the process of innovation

Outcome driven Innovation In a typical product or service development firm, the time from idea capture to revenue can be two to three years We achieve revenue, profits and valuable outcomes on ideas months, if not years, after their launch

Outcome Metrics Of course you’ll need to identify the outcomes – First as a proposed ROI or benefit in a business plan or product proposal – Later as a method to tie actual results to the product or service plan Communicate the appropriate timeframe to expect results Tie results back to the innovation program when possible

Establishing a tolerance for failure Given that it can take several years to demonstrate a return on any one idea, how should the management team consider its investments and goals? Probably the best model is a venture capitalist – Typical VC result from seven investments: 7 failures 2 small successes 1 big success It’s the big success that covers the costs for the rest and provides a large return

Safety in numbers Given the “VC” model of investment, you’ll need to have a significant number of ideas at work at any time, expecting a number of them to fail Many people will be involved and will have an impact on many ideas – this is good for the ideas and good for the culture

Key Takeaways Establishing metrics and goals for innovation is important – Don’t stifle innovation with metrics and goals that are too specific too early Understand the timeframes – financial outcomes are unlikely very quickly Measure what you can – Activity first – Outcomes later

Questions?

Exercise