How innovation can be measured to ensure maximum return

27th June 2017

When running a business, different people have different aims, or Key Performance Indicators (KPIs). But when it comes to innovation, this can drastically change the business model and how it measures up to those KPIs. 

Traditionally, indicators like net profit, revenue, working capital, market share and time to market - the list goes on - all play a key role. 

You want your business to perform well and hit as many indicators as it can. There is no point running a business with sky-high sales that make no profit in the long term.

When disrupting, you have to step back and realise what might be good for developing new ideas, might not initially be good for the company’s bottom line. 

You must accept that to launch a new product or service some traditional KPIs, such as net profit, may not be met, so how do you assess company performance during this time? That is why it is important to introduce new KPIs that accurately measure this transitional period. 

Remember, what might be good for innovation might not immediately be good for your profits or outputs. But once that transitional period is over, your company will be stronger for it. 

Here are a few ways you can look at measuring the process within your company:

Number of new ideas

No idea is a bad idea. When considering disrupting the market, nothing should be off limits. At the ideation phase, generating ideas, no matter how wild, should be considered a success. Within your business, you want to create a culture where the very notion of coming up with something new is celebrated. 

Fostering this culture can be hard, but setting this as a measurable goal will encourage staff to come forward with new ideas without the fear of being scrutinised or told they are wasting time. The more ideas, the better the chance of a success to follow. 

Improved quality of ideas

Once through the initial stage of generating a variety of ideas, the company can then begin to focus on what successful ideas look like. A trend will have emerged of what is worth pursuing and what is not worth pursuing. 

As that trend is formed, it will be clear what direction the company wishes to focus and what is considered a good idea. From here, the quality will only improve as the focus is put on good ideas. 

The company can then measure a number of ideas that progress beyond the initial stage, forming a new KPI that justifies the process. 

Value to customers

Innovation is only worthwhile if it creates value for customers. Creating something new for the sake of it will only see products fall by the wayside. For example, Google+ didn’t provide any extra value to customers that weren't already available through the like of Facebook or Twitter. Or Amazon Local; set to be a rival to Groupon but arriving three years too late and adding nothing that Groupon didn’t already provide. 

One way of measuring the potential value for customers is by releasing the project at an early stage and seeing how well it gets picked up by early adopters. Make the minimum viable product that would appeal to potential customers and modify it according to needs once you have started receiving feedback.

This allows for you to release and trial a cheap and quick product with actual customers in a real-world environment. It will soon be clear what provides value to the customer, and in turn, value to your business.

Development process matrix

When planning a new product, it isn’t just that product that you should develop. For instance, when Apple launched the iPod they considered iTunes, cases, 99p songs, earphones and chargers. Similarly, Lego came back from the brink of bankruptcy by adding new lines and complimentary products such as books, software and sensors – not what you would necessarily associate with Lego. 

These products were developed and refined thanks to a development process matrix. As a business, you can align products on whether it will be an incremental improvement, new offering (new value proposition) or redefining the category (never before seen). No matter what category your product or service falls into, it can then be marked against four key categories – business, product, communication and process.    

The process matrix will allow you to coordinate innovation across the business. Teams will know what needs to be done, and where, while being able to easily track how what they are doing lines up with the company’s goal. 

Not all companies do this well, but when they do, those products or services thrive in the market, allowing for a stronger and all round better product. 

Resultant success

The whole reason for measuring KPIs differently is to produce a more rounded approach. Understanding what goes in to new products or services is as important as the outcome. 

This rounded approach will help you to minimise the damaging impact partially developing new products can have, and how to continue to innovate as the company moves forward. 

As a culture of innovation becomes more embedded in your company and you start to scale up, you can then mix those traditional KPIs with new ones. For instance, how much of net profit comes from new ideas, or the number of prototypes versus the R&D budget.

There are also lagging performance measures that can be used in addition to these. These measures allow you to understand the overall success of your innovation programme and its impact on your business. 

However, by their nature, they are lagging measures and may not be the most appropriate if your aim is to drive a culture of innovation within your organisation.

All of the above will be invaluable and allow for your company to be stronger, enter new markets, or deliver new products to market when sales begin to plateau. Don’t be afraid to look at problems in a different way to ensure you get the right outcome in the long term. Changing your perspective could ultimately change the company for the better.

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