Corporate leaders often struggle to create meaningful innovation metrics. The same questions keep arising. How innovative are we? What initiatives are giving us the biggest bang for our buck? And what does a good idea look like anyway?
In my experience consulting with a range of companies, I've found five key strategies for developing useful metrics:
1. Use people, product, and process metrics.
Many companies develop metrics systems that focus only on the process. Their intention is to evaluate the effectiveness of various innovation activities. Yet process metrics are just one part of the solution, and they're usually the last part.
Start by measuring your people. What traits are you looking for in your team? What behaviors do you want to reward? Next, move to product metrics. How are you measuring the ideas you come up with? Do you have meaningful ways to evaluate new products, as well as new services and business models? Only when people and process metrics are in place does it make sense to evaluate how well the overall process is performing.
2. Connect the metric to the rhetoric.
Some business leaders hope to inspire their organizations by spending hundreds of thousands of dollars on management retreats, pep rallies, and innovation seminars. While those gatherings can be exciting, most companies discover that their employees ultimately prioritize the activities that they're measured on.
Marketing managers won't spend time thinking about long-term growth if they're being evaluated solely on this quarter's performance. The most successful companies realize that innovation, like any objective, happens when companies ensure that there's a close alignment between stated goals and individual performance measures.
3. Start with incentives instead of controls.
Metrics systems within companies act as both drivers to ensure constant improvement, and control systems to prevent failure. That can be incredibly helpful when everyone has a general sense of what "good" looks like, and how to achieve it. However, that basic notion of what's good is sometimes missing at the outset. In that case, it's more important to create metrics that reward positive results, rather than protect against adverse outcomes. The goal is to get people to start trying a variety of approaches, so you can figure out what works. If you're in the early stage of building an innovation system, definitely focus on carrots.
4. Set up multiple tracks.
One of the best ways to encourage innovation is to stop discouraging it. That can happen when every new product or service idea has to meet the same performance metrics. Invariably those metrics are designed to evaluate base hits, not home runs. This can lead companies to inadvertently kill the best ideas because they don't fit the metrics. Teams pick up on the pattern quickly, and lower their sights to more tried-and-true projects that can get through the system.
If you really want have both incremental and game-changing ideas come to market, develop different sets of metrics for evaluating and managing each idea.
5. Beware of false precision.
Metrics that measure existing systems in current businesses often have a lot of data to draw upon. That's often not the case when a company is trying to do something new or innovative. Still, old habits die hard. Managers can end up trying to evaluate a completely new idea with the same level of precision they had when measuring established businesses. The data that they create may then give a misleading picture of certainty.
Instead of detailed projections, try using round numbers, simple scales of 1 to 5, or "Harvey balls," that system of empty or filled-in circles used by Consumer Reports. Highly detailed metrics make sense for incremental improvements on established businesses, but they can be wildly misleading when evaluating greenfield opportunities.