Barrows Measures 03.18.09

Measuring & Managing Innovation

Ed Barrows, Lecturer Babson College

Babson Executive EducationMarch 18th, 2009

Discussion topics for today

• Survey results on measuring & managing innovation– External Findings– Our Own Findings

• Understand challenges with measuring & managing innovation• Defining Innovation • Consider the Innovation Process• Present a framework for managing & measuring innovation• Test the framework with our own organization• Seven barriers to effective innovation measurement

Most organizations claim innovation is critical to their future success…

Source: JustElite.net, www.eons.com blogs.smh.com.au

… sadly many fail to achieve their innovation goals

Perhaps the problem has something to do with the management system

Survey

In a 2001 survey by the Institute of Management Accountants1

60% of respondents indicating that innovation was a key feature in their company’s mission…

In a 2005 Monitor Group Innovation Survey of senior business executives2

89% recognize the importance of innovation….

In a 2006 Palladium/Monitor survey BSC Online members2

79% of respondents believe innovation is important or critical to achieving long-term strategy…

Good Not Good

… but more than 50% rated their performance measurement system for innovation as poor or less than adequate.

… but only 30% have confidence in the organization’s ability to achieve results.

… but 72% believe their organization has failed to meet its innovation objectives.

1Frigo, M. and Littman, J., Strategy, Business Execution and Performance Measures, Strategic Finance, 2002.2Jonash, R and Donlon, B., Connecting the Dots: Using the Balanced Scorecard to Execute an Innovation Strategy, Balanced Scorecard Report, March-April, 2007

How do we compare?

1. Overall our organization believes innovation is critical to our future success.

2. Our senior leadership supports our organization’s innovation efforts.

3. Our innovation is clearly linked to our competitive strategy.

4. Our performance measures effectively measure our innovation efforts.

5. Our performance management effectively monitors our innovation efforts.

Question Responses (N=18)

-

Strongly Disagree Disagree

Somewhat Disagree Neither

Strongly AgreeAgree

Somewhat Agree

- - - 11% 28% 61%

6% - - 11% 28% 22% 33%

- - - - 50% 28% 22%

22% 17% 6% 6% 28% 22% -

11% 28% 17% - 33% 11% -

Please indicate the response that best represents you answer to the following five questions:

What are your challenges in measuring & managing innovation?

??

There are many definitions of innovation from the simple to complex

Author Study

Knight, 1967 An innovation is the adoption of a change, which is new to an organization and to the relevant environment. Innovation process is a special case of the process of change in an organization. They differ only in the novelty of the outcome.

Thompson, 1967 The generation, acceptance and implementation of new ideas, processes, products, or services.

Meyers & Marquis,1969

A technical innovation is a complex activity which proceeds from the conceptualization of a new idea to a solution of the problem and then to the actual utilization of a new item of economic or social value.

Zaltman, Duncan,& Holbeck, 1973

Innovation refers to any idea, practice, or product that is perceived as new by the potential unit of adoption.

Utterback &Abernethy, 1975

Product innovations are new outputs or services that are introduced for the benefit of customers or clients.

Burgelman &Sayles, 1988

Innovation refers to a company's efforts in instituting new methods of production and/or bringing new products or services to market.

Drucker, 1998 Innovation is the effort to create purposeful change in an enterprise’s economic or social potential.

Burgelman, Christensen, &Wheelwright, 2004

Innovations are the outcome of the innovation process, which can be defined as the combined activities leading to new, marketable products and services and/or new production anddelivery systems.

Source: Yahgi, Bassil, The Moderating Effects of Performance Measurement Use on the Relationship between Organizational Performance Measurement Diversity and Product Innovation, Unpublished PhD Thesis, Cranfield University, 2006.

Regardless, innovations themselves are a result of an innovation process

A simple model of the innovation process

Inputs

Tangible Resources

Intangible Resources

Systems

Networks & Partnerships

Process

Creative Process

Project Execution

Development & Selection

Platform & Portfolio

Management

Outputs

Technology Leadership

New Product Introductions

Marketing Positioning

Business Improvement

Outcomes

Revenue / Profit Growth

Customer Mix Change

Long-Term Value

Adapted From: Davila, T. , Epstein, M., and Shelton, R., Making Innovation Work, Wharton School Publishing, 2006

But the innovation process must be managed as part of an overall business strategy

The strategy map depicts and organization’s competitive strategy

Shareholder Value

New Revenue Sources

Increase Customer Value

Improve Cost Structure

Improve Asset Utilization

Price Quality Timeliness Relationship Service Brand

Innovation ProcessCustomer

Management Process

Operational Processes

Social & Environmental

Processes

Skills & Competencies Technology Culture Leadership

Financial

Customer

Internal Process

Learning & Growth

Customer Value Proposition

Adapted From: Kaplan, R. and Norton, D. The Strategy-Focused Organization, HBSP, 2002

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The key is to select the right innovation objectives and measures to support the strategy

The strategy map depicts and organization’s competitive strategy

Shareholder Value

New Revenue Sources

Increase Customer Value

Improve Cost Structure

Improve Asset Utilization

Price Quality Timeliness Relationship Service Brand

Innovation ProcessCustomer

Management Process

Operational Processes

Social & Environmental

Processes

Skills & Competencies Technology Culture Leadership

Financial

Customer

Internal Process

Learning & Growth

Customer Value Proposition

Adapted From: Kaplan, R. and Norton, D. The Strategy-Focused Organization, HBSP, 2002

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And innovation can take specific forms within the strategy map

Source: Jonash, R and Donlon, B., Connecting the Dots: Using the Balanced Scorecard to Execute an Innovation Strategy, Balanced Scorecard Report, March-April, 2007

Financial Objectives

Customer Objectives

Process Objectives

Learning & Growth Objectives

The strategy map innovation template

Let’s begin with Financial objectives and measures

Financial

Stock Price/ROE/ROI

Sales Growth

Residual Income

Revenue from Innovation

Percentage Sales from New Products

Financial

Innovation Budget

Product Mix

Margin by Product

Product Vitality

Market Share


Next Customer objectives and measures

Customer

New customers gained from innovation

Sales per customer

Customer satisfaction with innovation

Customer attrition / retention

Average Prices Paid by Customer

Customer

Customer Profitability

New segment penetration/share

Customer Conversion

Brand Perception

Share of total spend by customer


Internal Process objectives and measures

Internal Process

Project Performance

R&D Productivity

Patents Granted

Internal Process

Development Time/Cost

Mix of Innovation Projects

Number of New Partners/Productivity


Finally Learning & Growth objectives and measures

Examples of Innovation Measures

Learning & Growth

Individual Obj. Linked to Innovation

Free Time to Innovate

Leadership Support of Innovation

Innovation Competency Rate

Learning & Growth

Culture Climate for Innovation

Job Application Rate

% Compensation Linked to Innovation

Cross Functional Initiatives


Create an innovation strategy for your organization

Learning & Growth

Internal Process

Customer

Financial

Objectives / Measures

Infuse Creativity into Workforce

Build Innovation Process Skills

Establish Platform for Innovation

Partner with Experienced

Patent Holder

Build Innovation Pipeline

Price PerceptionProduct

Newness Perception

Sales from Products < 1

Year Old

Gross Sales

Gross Sales ($)

Sales from New Products ($)

Customer Newness RatingCustomer Price Rating

Number of Products per Pipeline Stage

Status of Partnership Agreement

Innovation Platform Readiness

Number of New Ideas

Innovation Process Training Complete

Some final thoughts…

1. If the strategy’s flawed, so too will be the innovation efforts2. Don’t measure the wrong things3. Objective measures are useful, but some things are inherently subjective4. Use the best information available5. IT is helpful, but not necessarily the answer6. Using the management system incorrectly will lead to perverse

consequences7. The wrong data is the wrong data


For more information

Ed Barrowswww.edbarrows.com

508 400 [email protected]

http://www.edbarrows.com/

1. Overall our organization believes innovation is critical to our future success.

2. Our senior leadership supports our organization’s innovation efforts.

3. Our innovation efforts are clearly linked to our competitive strategy.

4. Our performance measures effectively measure our innovation efforts.

5. Our performance management effectively monitoring our innovation efforts.

Question ResponseStrongly Disagree Disagree

Somewhat Disagree Neither

Strongly AgreeAgree

Somewhat Agree

Please darken the response that best represents your answer to each of the following five questions: