What Doesn’t Get Measured Can’t Succeed

Companies struggle to define and apply the right metrics to their innovation efforts, often setting out to “do innovation” without explicitly defined goals. Three steps to fix that.

Corporate innovation isn’t going anywhere in the wake of Covid-19. Many companies, such as Salesforce, Hershey and The Home Depot, are back on their feet after adapting to the new landscape and doubling down on innovation to fuel growth. And while prioritizing the future is a fabulous mission, many established organizations struggle with one critical piece of innovation: how to measure success.

Companies consistently struggle to define and then apply the right metrics to their innovation efforts. There are a couple reasons for this. One is often that companies will set out to “do innovation” without explicitly defined goals. It’s hard to assign relevant metrics to vague objectives. Another reason is that the metrics used to measure success will inevitably evolve with the maturity of the innovation program. A newly established innovation function may be more focused on activity metrics – number of ideas, for example – while a more mature innovation group may emphasize increasingly more business-oriented metrics.

To monitor progress, maintain momentum, and create more valuable innovation outcomes, it’s critical to define a holistic and flexible set of innovation performance metrics first. In our 20 years of establishing and tracking innovation efforts for notable brands in nearly every industry, we’ve come up with three design principles that the most successful companies employ:

1. Metrics should align to specific goals within your corporate strategy and fit the company structure.

A common misstep is when companies launch innovation programs with vague notions of their mission, large budgets, and a dedicated, trendy innovation space, only to see those programs lose funding a few years later after leaders question their value. The ones that are still around today are the ones where the goals for innovation aligned with the CEO’s priorities and company strategy. For one company, this meant driving greater collaboration with startups by creating a digital sandbox for testing and co-creating new concepts. For another client that wanted to leverage the scale and scope of its multiple business units and geographies, it meant establishing a metric that measured value created when innovation created in one business unit was realized across its other business units.

Also important in complex organizations is ensuring that you’re accounting for the company structure. While this may sound obvious, the goals and constraints of different business units can vary widely, and innovation should be treated in the same vein—”successful innovation” may look very different across different businesses. It’s not one-size-fits-all across the organization.

You don’t need to track all the things—in fact, this is often a detriment. More doesn’t always mean better. Give senior management a core set of metrics that they can focus on – for example, number of ideas submitted by employees, or percentage of executive time spent on innovation, etc. – that are aligned to the company strategy. If you can develop them in collaboration, great. And if you can tie them to executive reviews, even better.

2. Establish metrics that make sense for the maturity of your innovation program.

There is no special sauce when it comes to tracking innovation. We often find that leaders are eager to borrow strategies from other innovative companies – typically tech or CPG companies – but what works for Amazon or Tesla won’t necessarily work for a utility or mining company.

Start with a baseline assessment of your innovation program. Do your employees have permission to innovate, and the tools to do so? Do leaders support or encourage these efforts? Are there processes in place to protect high-uncertainty, long-term horizon opportunities? Make sure you’re not just asking senior leadership these questions. Engage as much of the employee population as possible to get an honest assessment.

Answering questions like these will help you determine where you are on the innovation maturity curve by assessing how you’re doing in each of the six key drivers of innovation performance – leadership, organization, learning, capabilities, process, and culture. Knowing what your baseline performance is in each of these areas will guide what goals to set and metrics to track.

3. Create a balanced, flexible set of metrics that can evolve with you.

As your innovation capabilities grow, you need to continually assess and refine your metrics. Creating a thriving innovation engine requires building out each of the six areas above – for example, employee engagement will be a key metric to track if you’re just starting out, before innovation has become embedded into the company culture.

Furthermore, large companies will often fall into the trap of treating innovation the same way they do their core business, and applying the same operational and financial metrics. Focusing on metrics like new product revenue biases investments closer to the core. Breakthrough innovation requires a dedicated infrastructure and longer time horizon, which should be taken into account when tracking the potential value. Rather than applying the same metrics they do to their core business, companies can employ methods like Real Options Valuation to more accurately value options in a portfolio of innovation projects.

Evolve your metrics as your innovation program matures, and ensure you’re taking a balanced approach by using a mix of early signal metrics (number of ideas and projects, velocity of the pipeline, engagement) and those related to outcomes (return on invested capital).

Paul Donnellan is a managing director at Clareo, where he leads the New Energy practice. He brings more than 20 years of experience leading strategic growth initiatives in both industry and consulting roles, and currently helps businesses identify and pursue new growth opportunities ranging from emerging technologies to new business models.