An Official Measure of Innovation
How best to measure innovation has bedeviled the business community for years. But with the discipline garnering increased attention—and investments—creating an accepted system of metrics to evaluate its impact has become top priority. Now the U.S. Commerce Dept. wants in. On Apr. 13, it issued a Federal Register notice asking for public comment on a series of innovation measurements it might use to drive public economic and innovation policy.
The two-page document is the first tangible product of an advisory committee formed earlier this year by Commerce Secretary Carlos Gutierrez. The panel brings together big names from big business, such as Steve Ballmer from Microsoft (MSFT) and IBM's (IBM) Sam Palmisano—along with some from the academic community, including Dale Jorgenson, professor of economics at Harvard, and Kathleen Cooper, dean of the College of Business at the University of North Texas.
Together, the 15 members make an impressive heavyweight group intended to represent the diversity of the U.S. economy as a whole. And while the balance may seem to lie with big business, the traditional champions of innovation—the entrepreneurs—are represented by Carl Schramm, president and chief executive officer of the philanthropic Kauffman Foundation.
"Looking for a Deeper View"
The first job the panel faced was to define what kind of innovation they're really looking to measure. Here's the definition they came up with: The design, invention, development, and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm.
"That's a really thoughtful definition," says Larry Keeley, president of Chicago-based innovation-strategy firm, Doblin (see BusinessWeek.com, 02/16/07, "The Greatest Innovations of All Time"). "They've been smart enough to realize that they need to look beyond a profound bias in favor of new products—at a policy level. They're looking for a deeper view of innovation, and looking for it systemically, which is pleasing. The wording could be a hair more granular, it could be a shade more rigorous, but at least they haven't started in the wrong place looking for the wrong things."
The document then goes on to define four major categories for which innovation measurements are necessary, and using a series of open-ended questions, calls for public comment and analysis of each one. The first category asks people to consider ways to improve the underlying architecture of the System of National Accounts, the set of accounts jointly published by the UN, the Commission of the European Communities, the IMF, the World Bank, and the Organization for Economic Cooperation & Development which is intended for global policy makers and economic analysts. In this context, the question is whether or not its methods can be improved to enable more effective means of measuring innovation.
Next, the document asks if there are ways to measure economy-wide or sector-specific innovation. For example, can market-share growth be a good indicator of innovation? If so, would estimates in the change in U.S. companies' shares of regional, national, and global markets also be useful innovation measures?
Then it looks at current company innovation measurement policies, which are mainly conducted at a project or portfolio level. "Are these measurement practices sufficiently widespread and uniform to make data collection on either of these bases practical?" the document wonders. "How important is it to distinguish between types of innovation, i.e. radical vs. incremental?"
Finally, the document looks at existing metric systems—and in particular, their limitations. A few problems with the existing systems are highlighted—an inability to co-ordinate or share information, for instance. How could data sharing among federal agencies be improved? Can existing private financial data be combined with official statistics to create some kind of better central system? How could the process be streamlined?
Is Consensus Possible?
Essentially, the document comprises one long stream of tricky questions that range from blue sky to deep dive, all with the goal of getting to the heart of one crucial conundrum: How can the U.S.—and U.S. business—remain competitive? It's not, as Keeley points out, a trivial question. "They're really asking if there's any chance whatsoever that a country like the U.S. can figure out how to maintain a high standard of living in the face of globalization," he says. "To a certain extent, this situation is unprecedented in history—how do you maintain your leadership even as cost-advantaged competitors emerge?"
In other words, just as innovation represents a great, fiery, but sometimes rather nebulous, beacon of hope for businesses, so too does it supply government officials with an area of potential optimism. "Innovation is a driver of our economy, and we need to help policymakers and the business community better measure innovation for the purpose of developing appropriate public policy," Secretary Gutierrez said in a statement.
But given that the business experts and consultants can't seem to agree on a standard system, how likely is it that a government-organized committee representing myriad different interests could ever find consensus for measuring innovation on a national or even global scale?
No Silver Bullets
"Innovation is critical for competitiveness and the health of the country, but when companies find it so difficult to measure innovation, imagine how much that problem compounds at a national level," says Scott Anthony, president of Watertown, Mass., innovation consulting firm, Innosight, and co-author (with Clayton Christensen) of Seeing What's Next: Using the Theories of Innovation to Predict Industry Change (Harvard Business School Press, May, 2004).
In Anthony's view, the group has taken a smart approach—thinking as broadly as possible. "One of the biggest mistakes I see companies make when they try to measure innovation is to look for the silver bullet," says Anthony. "Innovation is complicated and diffuse, so that doesn't work. Here there are ways to approach innovation from a bunch of perspectives, thinking about inputs, outputs, process, and a pretty comprehensive list. I find that very encouraging."
Already, however, there's some dissent. "I would challenge them to look at the impact of innovation on society rather than just ROI [return on investment]," says Krisztina Holly, vice-provost and executive director or the USC Stevens Institute for Innovation (see BusinessWeek.com, 03/29/07, "USC's New Institute for Innovation"). "Financial returns are a huge benefit, but we need to think about creating social capital as well as financial capital."
Keeley, meanwhile, wonders whether some of the questions aren't rather missing the point. "There's little understanding that the very basis of reasonable comparison may have shifted entirely in recent years," he says. "Platforms are bigger than corporations—and more important than industry categories. It's not meaningful to talk about a platform such as Windows in terms of financial services. You have to talk about it in terms of global platform share. Innovation isn't subordinate to the industries they're tracking—the most important innovations have transcended them."
Generally, however, the consensus seems to be that these are questions that must be asked. And by opening up the debate to the public, who knows what solutions or suggestions might emerge? Public contributions can be faxed, mailed or e-mailed to the Commerce Dept. until May 11, at which point the information will be collated before being presented once again to the panel. Actual recommendations will be made to the Secretary at some point in the fall.