Large enterprises are rapidly adopting innovation as a necessary tool to react to competitive pressures, capture new business opportunities or to streamline their operations. Many are creating structured innovation programs aimed at exploring major transformations in their business models. Others are using innovation as an incubator of ideas to target their specific business challenges or objectives. These opportunity development activities are collectively referred to as the “front-end of innovation,” or FEI, and most large enterprises have generally succeeded in building program frameworks to support this aspect of innovation.
Where many companies begin to lose traction in the execution of their innovation program is in the “back-end” part (BEI). In the back-end the real business of innovation reigns supreme and here, execution, measurement and effectiveness are the operative terms.
From our perspective, understanding how our clients measure and assess innovation is a key determinant in how successful we might be in engaging with them in our ABS innovation programs.
The following examples1 show how differently three major companies approach the measurement of their innovation results and how diverse is their scope of measurement:
Telefonica Germany takes a very structured approach and measures seven key metrics within their innovation program: (1) amount of invested time, (2) size of funnel of actionable ideas, (3) sales generated per invested FTE, (4) predicted growth from innovation funnel, (5) actual sales within 24-36 months of idea launch, (6) rate of revenue growth, i.e. first derivative of sales, 36+ months post idea launch, and (7) impact on overall company innovation culture.
Johnson Controls places more forward-looking objectives on their measurement of results in their innovation program. As a result, their key metrics comprise: (1) number of new ideas generated, (2) number of people participating in the innovation process, (3) number of people trained in the JC innovation process, (4) number of ideas moving through the funnel, (5) number of commercialized ideas, and (6) sales of products graduated from the innovation process (not time-bound).
And then there’s Toyota which does not address innovation as a distinct discipline at all. Instead, they apply continuous improvement practices to deliver value to the consumers of its products. Their metrics are centered around 3 core principles: (1) simplifying process, (2) speed of information flow from sales to production, and (3) constant measurement of quality.
Positioning innovation with clients with the correct measurement framework in mind is necessary to create alignment with their innovation goals. Make sure you don’t overlook or bypass this critically important research step in assessing the client’s innovation posture.
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1 Research credit: The Institute for Innovation in Large Organizations (ILO)