Innovation KPIs – How To Measure Innovation

What are Innovation KPIs?

Innovation KPIs, or innovation key performance indicators, are metrics that organizations use to measure the effectiveness of their innovation efforts. These KPIs can be used for innovation management and allows businesses to assess their progress in developing and implementing innovative ideas and strategies.

It’s important for organizations to select and customize innovation KPIs that align with their specific objectives, industry, and stage of innovation maturity. Regularly monitoring and analyzing these KPIs can help organizations optimize their innovation strategies and achieve their innovation goals.

Why is it important to measure innovation?

1. Assessing progress and success

Measuring innovation allows organizations to assess the progress of their innovative initiatives and determine their success. It provides a clear picture of whether the organization is moving in the right direction, because there is nothing as inefficient as working on the wrong things. This innovation quote from Peter Drucker supports this view:

“There is nothing quite so useless as doing with great efficiency something that should not be done at all.”

When measuring innovation, areas where innovation processes may be falling short can be highlighted. It provides insights into potential bottlenecks or challenges that need to be addressed, but can also reveal opportunities for improvement and growth.

2. Resource allocation

Innovation often requires substantial investments of time, money, and talent. Measuring innovation helps organizations make informed decisions about resource allocation. By analyzing the performance of different innovation projects, they can direct resources towards initiatives that show promise and reallocate or halt those that are underperforming. This optimization of resource allocation is crucial for cost-effectiveness and maintaining investor and stakeholder confidence.

3. Risk management

Innovation inherently involves risk. Not all innovative ideas or projects will yield positive results, and some may fail. Measuring innovation allows organizations to quantify and manage these risks effectively. By monitoring the performance of innovation projects, organizations can identify potential issues early, make necessary adjustments, and mitigate risks before they become major setbacks. This proactive approach to risk management is reassuring to investors and stakeholders who want to see responsible handling of resources.

4. Keeping investors and other stakeholders happy

Investors and stakeholders, including employees, partners, and customers, want to see evidence of responsible innovation management. They want assurance that their investments, whether financial or emotional (in the case of employees and customers), are contributing to the organization’s growth and sustainability. Measuring innovation and demonstrating a clear strategy for achieving innovation goals builds confidence and satisfaction among stakeholders. It shows that the organization is committed to delivering value and managing risk effectively, and that they take accountability for the results.

In summary, measuring innovation is essential for maintaining transparency, accountability, and efficiency in the innovation and ideation processes. It provides the data-driven insights needed to assess progress, allocate resources wisely, manage risks, and ensure that investments in innovation are yielding positive results. This, in turn, helps in building and maintaining the trust and satisfaction of investors and other stakeholders who play a critical role in an organization’s success.

Input metrics and output metrics

Focus

When it comes to what the different metrics focus on, input metrics primarily concentrate on the resources allocated and the activities undertaken to foster innovation. They assess the investments made in terms of finances, personnel, and infrastructure to support innovation initiatives.

Output metrics, on the other hand, emphasize the actual results and outcomes of innovation efforts. They measure the tangible achievements that result from the innovation process.

Evaluation

Input metrics are typically assessed during the early stages of the innovation process. They gauge the readiness and preparedness of an organization to innovate by examining factors like budgeting, ideation, and employee engagement.

Output metrics come into play when innovations are implemented and launched in the market. They assess the success of innovation by examining factors like market share growth, revenue generation, and customer satisfaction.

Indication

Input metrics are indicators of capacity and readiness. They provide insights into an organization’s innovation capacity, its commitment to fostering an innovation culture, and its ability to generate ideas and creative concepts.

Output metrics on the other hand, are indicators of innovation effectiveness. They provide insights into how effectively an organization’s innovations are received in the market and whether they are achieving the desired impact on business performance.

Internal vs external focus

Input metrics are often internally focused, emphasizing the organization’s efforts, resources, and culture rather than external outcomes. Output metrics typically look beyond the organization’s internal processes and culture to assess the broader impact of innovation on the market, customers, and stakeholders.

In summary, input metrics focus on the inputs, efforts, and resources dedicated to innovation, providing an early-stage evaluation of an organization’s innovation readiness. Output metrics, on the other hand, concentrate on the outcomes and impact of innovation efforts, assessing how effectively innovations are translated into tangible results in the external environment. Both types of metrics are valuable in measuring innovation, as they provide a holistic view of the innovation process, from its inception to its real-world impact.

25 Innovation KPI examples

1. Innovation and product development:

• Revenue from new products/services
• Number of new product/service launches
• Number of ideas in the organization’s innovation pipeline at the various stages
• Number of ideas turned into innovation experiments
• Number of ideas turned into patents
• Number of innovative projects progressing through project milestones
• The number of major market innovations

2. Investment and financial performance

• Research and development (R&D) investment
• Innovation ROI (Return on Investment)
• Cost savings from innovation
• Royalty & licensing income from patents
• Profit and loss impact of new products or services introduced in a certain time period
• Percentage of capital invested in innovation activities

3. Market and customer focus

• Market share growth
• Time for customers or target audiences to adopt and embrace new products or services
• Customer satisfaction with new products/services
• Percentage of revenue from new products or services introduced in a certain time period
• Revenues from products or services sold to new customer segments
• Percentage of existing customers trading up to next-generation products

4. Employee engagement and development

• Employee engagement in innovation
• Staff satisfaction levels regarding involvement in innovation activities
• Number of employees identifying as intrapreneurs
• Number of managers with formal innovation training and access to innovation tools
• Amount of hours or percentage of time spent on high-yield innovation activities

5. Collaboration and partnerships

• Number of strategic collaborations and partnerships formed as a result of innovation initiatives

Risks with measuring innovation

Focusing on short-term outcomes

One significant risk is that organizations may become overly fixated on measuring short-term outcomes, such as immediate financial gains or easily quantifiable metrics like the number of patents filed. This can encourage a narrow focus on incremental innovations that deliver quick results at the expense of long-term, transformative innovations that may take time to develop but have greater potential impact.

Using too many metrics

While it is easy to think that the more, the better, this is not the case when it comes to picking KPIs for measuring innovation. Using too many metrics is not only time-consuming, but can also create a confusing picture of the innovation initiatives, making it difficult for everyone in the company to work towards the goals.

Innovation suppression

Implementing rigid or narrowly defined performance metrics can discourage employees from taking creative risks. They may feel compelled to optimize their performance against specific metrics, leading to a conservative approach to innovation. This risk can hinder breakthrough innovations in favor of safer, incremental improvements.

Resistance to change

Introducing new innovation metrics and measurement processes can face resistance from employees who perceive them as additional administrative burdens or threats to their autonomy and creativity. Resistance to change can impede the adoption and effectiveness of innovation measurement efforts.

Loss of creativity

Excessive focus on measurement and metrics can suppress creativity and discourage experimentation. When employees fear that their innovative ideas will be subjected to rigid measurement standards, they may become risk-averse, inhibiting the organization’s ability to explore bold, unconventional ideas.

To address these risks, organizations should strike a balance between measuring innovation and preserving a culture of creativity and experimentation. This involves defining a clear innovation strategy, adopting a mix of both quantitative and qualitative metrics, fostering a culture that values innovation and risk-taking, and regularly reviewing and adapting the measurement process to align with evolving business goals. Effective communication about the purpose and benefits of innovation measurement is also critical to gaining the support and buy-in of employees and stakeholders.

The importance of an innovation platform

Not only is an innovation platform useful for improving an organization’s innovation abilities, in ways such as making the collection of ideas, the discussion around them and the involvement of people easier. An innovation platform can also help to track different KPIs and make sure the management gets the information they need.

Vocean is a platform that supports open innovation and co-creation of new solutions. With an easy link handling system that allows you to involve an infinite number of people, and an AI that assists in the different steps, Vocean will help you to take your innovation to the next level. The AI can also create smart reports that can be used as basis for decision, ensuring that you can take action on the solutions you generate.