Can Innovation Actually Be Measured?

Yes. And the entrepreneur, author helped create an index to help us better understand how sustained innovation happens.

Innovation is, naturally, a critical ingredient in today’s economy.

It drives growth, brand development, and value--and is essential for enterprises to successfully navigate through the rapid and disruptive, sometimes violent, evolution of our business ecosystem. But innovation is a very wide concept and has many dimensions.

I am constantly being asked, How do we measure an organization’s ability to innovate and the value generated from those efforts? Measuring innovation is indeed a very difficult task to perform.

So I thought I'd provide some insights that may help us understand how sustained innovation can be viewed and measured.

Sustained Innovation is the state attained by organizations that have built a "culture of innovation," capable of innovating at every point of the compass--a full 360 degrees of innovation--in all aspects of the business--management, operations, customers, suppliers, and among every team.

Several research initiatives by my own research initiative with leading academics have found similar insights in the behavior of mature organizations. A couple of years ago, we released the Sustained Innovation Index in my book The Power of Convergence, which showed that sustained innovation predicted greater capital efficiency, better margins, more revenue growth, and more contained volatility--such as evidenced by the performance of various size companies.

Sustained innovation, the index found, is composed of a range of behaviors. Creating value from innovation is a long-term and holistic endeavor; it requires both analytical and creative talents.

The study shows that the high-performance leaders, unlike their more one-dimensional peers, have built a culture that embraces both approaches to thinking, doing, and communicating. This holism finds its way not just into management, but into the cultural character of the organization as a whole. What our research found is that enterprises with a focus on long-term value creation share three common principles--comprising the glue that binds people together in productive collaboration.

Organizational Maturity

The Index reports the maturity of an organization’s Sustained Innovation capability, as measured by the following scale:

To begin with, they have converged disciplines, meaning that ideas from one discipline aren’t isolated from another--management isn’t far removed from technology, for instance. In the same way that rivers and streams converge to form a delta, the disciplines in a sustainably innovative organization form a single entity.

At a more micro level, this entails cross-boundary collaboration, meaning that no enterprise--and no person or element within the enterprise--operates in a vacuum. Every leader, manager, employee, and contractor has latent ideas for latent problems. The more we can include--and the more we can connect--the people within an organization, the greater we can increase our overall capacity.

Finally, sustainably innovative organizations have sustainably innovative structures. This can take many forms; just know that the structure of your organization is going to shape the products and services you provide. Like strategies, the structures can be deliberate or emergent. The bedrock beneath all of these factors is to understand what you’re organizing for--which is largely a question of when.

The Anatomy of Sustained Innovation

As a group, Sustained Innovation leaders highlighted in the index cover a wide range of sizes--revenues ranging from approximately $3 billion to $60 billion. This diversity indicates that Sustained Innovation does not constrain itself to a particular firm size or industry sector.

Sustained Innovation leaders focus on distinct, but intimately related, practices, each of which requires convergence of many skills in order to perform at a high level of maturity. These practices include:

Cascaded Lifecycle. Like most companies with an innovation focus, leaders employ an innovation lifecycle that begins with invention. Unlike their peers, however, innovation leaders extend the innovation lifecycle to include market success, scale, and prominence.

Digital Business Models. Leaders are not content to invent new products and bring them profitably to market, they seek out new business models, which are often disruptive, not only to their competitors, but to their existing businesses. Further, these business models are based on the fundamental principal that digital models are nonrivalrous (*), that is, unlike land, labor, and capital, use by one organization or individual does not preclude its use by another.

Cultural Diversity. Innovation is a holistic human endeavor, it requires both left-brained (analytical) and right-brained (creative) talents. Innovation leaders, unlike their more uni-dimensional peers, have built a culture that embraces both approaches to thinking, doing, and communicating.

These leaders have discovered the difference between innovation and sustained innovation. It is not enough to invent things; the world of innovation abounds with tales of how the initial inventor failed to commercialize. Sustained Innovation leaders, however, don’t stop at creating successful products or services. They seek out new ways of delivering products, services, and customer experiences.

Building a Sustained Innovation organization is not easy. Crucial to success is a relentless focus on continuous improvement at all levels of the organization. Finding those advantages--and maintaining them over time--requires dedication and focus.

* Kling, Arnold and Schultz, Nick, From Poverty to Prosperity, Encounter Books, New York, 2009.

Related

The 3 Pillars Of The Innovation Economy
Why Innovation Fails
3 Leadership Mandates For Sustained Innovation & Growth

[Image: Flickr user Angie Harms]

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11 Comments

  • Nsblack326

    I believe innovation cant be measured. I see it as  just always spinning off from new ideas through a team effort   Innovate, create, expand  then fit

  • Adi

    It seems this article is trying to over-complicate things.  Measuring innovation is as simple as measuring, say, collaboration.  Both are merely methods of achieving something.  That something, whether it's new products, improved processes or whatever, is what you need to measure.

  • Juani Serenellini

    I disagree Adi. Measuring innovation is
    quite difficult since there are many random things involved. Some scholars
    associate innovation with R&D investment (input), on the other hand,
    practitioners think innovation just as product/service innovation and
    concentrate on what innovation produces (output). Other (we, the few haha) try
    to understand (and measure) what are those conditions needed for innovation to
    develop.

     

    By the way,
    there are many debates around this issue. The more elaborated approach is the
    Frascati Manual http://en.wikipedia.org/wiki/F...

  • Adi

    If it's that complex isn't it missing the point somewhat?  How you arrive at an end point may be extremely complex, but that end point itself should be clearly defined and easily measurable.

    Attributing success in the right way or understanding what worked/didn't work may be harder, but understanding in a basic sense if your innovation worked or didn't work shouldn't be difficult.

    I appreciate that understanding the process of innovation enough to analyse it is desirable, but lets walk before we try to run :)

  • gbilder

    Do you mean that measuring the process is not per se valuable? and that only outcomes are worth measuring?. I do not disagree with you in that understanding the process is only worth doing if its going to be conductive to something.

  • Jay Oza

    I don't think innovation can be really measured since there is lot of uncertainty that goes with it.  The book "Wide Lens" by Ron Adner changed my mind on this.  Succeeding in innovation is like threading a needle.  

  • Juani Serenellini

    So, you think that you can't say which company is more innovative if we compare google with a grocery?

  • markzawacki

    Here's a thought: Let's say innovation is about building new revenue streams (and by definition everything else is just improving the status quo, but not actually building new revenue).  Wouldn't the simplest, and most objective measure of innovation be organic revenue growth of the business itself?  Innovation has lost all meaning.  It suffers from Illusory Superiority.  Nearly every company says they're 'innovative'.  By what objective, measurable standard?  Well if you truly ARE innovative, it ought to be showing up in the organic growth of the business, if not I'd respectfully suggest you're not truly innovating, but rather simply improving/improvising under the guise of innovation.

  • Juani Serenellini

    I agree with you Mark. Also, I would like
    to add that neither this article nor cited pdf tells us 'how' innovation is
    measured. It does tells us what happens in the surface, may I say, the consequences
    of innovation and what so called 'innovative' companies do. But this is just a
    correlation, not the cause of high profits.