Are You Innovative Enough to Succeed?
It has been said that innovation is indispensable for economic growth, and businesses in general agree that they need to be innovative in order to thrive.
A quick sweep of the Singapore business scene shows how companies and organisations are acting on this belief:
• In advanced manufacturing, the Government has invested more than SGD 450 million to support the National Robotics Programme.
• In fintech, the Monetary Authority of Singapore (MAS) has continued its efforts to encourage the use of new technology and innovation, as exemplified by its recent collaboration with Hong Kong and its focus on blockchain tech.
That’s a lot of innovation, to be sure, but is it enough? And is it even possible to know what “enough” is?
Measuring Innovation is like measuring Art.
To rate how innovative a business is, is like trying to quantify the beauty of the Mona Lisa or the Sistine Chapel ceiling. Where businesses in general agree that innovation is necessary, experts and observers agree that there is no right or wrong answer, or a single, definitive or “best” set of metrics for measuring innovation.
In the first place, the Harvard Business Review says that what makes standard measurement difficult is how few companies have the necessary statistics, and how few the common definitions are of what innovation actually is. Others say the difficulty lies in how long a company is able to innovate, and how short the incubation period is for innovation.
Yet attempts at quantifying the unquantifiable are repeatedly made simply because of the obvious importance of innovation to business success. The results of these attempts, as well as the attempts themselves, encourage innovation in industries as a whole as well as in individual businesses.
This is how the likes of Amazon, Apple, General Electric, IBM, Nike, and Salesforce.com have been singled out by industry observers as being particularly innovative. But in following the lead of companies such as 3M and Google, which already have innovation metrics of their own, it can be daunting for business owners to distinguish what must be measured from what is measured conveniently.
Six Sigma and “Standard” Assessment Methods
Six Sigma has summed up the “must-measure”s in a set of metrics which should help the average enterprise get started on figuring out whether its innovation efforts are on-point.
Primarily, a company needs to look at how well it is able to provide a total solution for its clients as regards its own requirements, and as compared to its competitors. It needs to know the number of errors or defective products or services it has made in providing this solution, as well as how quickly it is able to get this solution out to its target market.
Six Sigma metrics also include how much a company has spent internally on this solution including development costs for particular projects, as well as how much the company expected to make from the solution itself.
Speaking of financial metrics, or those pertaining to business growth, prevalent metrics used by Fortune 1000 companies as put forth by Innovation Point include:
• Annual R&D budget as a percentage of annual sales
• Number of patents filed in the past year
• Total R&D headcount or budget as a percentage of sales
• Number of active projects
• Percentage of sales from products introduced in the past X year(s)
The problem with these traditional metrics is that some of them actually inhibit innovation where it should now be encouraged, as these metrics fail to cover things like differentiation and competitive advantage.
Innovation Point also proposes that we should measure an organisation’s innovation according to ROI on resources and returns; organisational capability, or the infrastructure and process of innovation; and leadership, or how a company’s key management encourages innovation.
Of the three, ROI is notable for the frequency with which it pops up in the metrics of several companies. A more specific metric, Return on Innovation Investment (ROII) is calculated by dividing the profit resulting from innovation by the investment made into it, and may be used to measure past investments or predict the value of investments already being made.
A similar metric, the Innovation Sales Rate (ISR), is the percentage of sales made of new or innovative products or services.
Other Ways to Measure Innovation
It has been pointed out, however, that since there is no longer any doubt as to whether innovation generates profit, financial metrics alone are insufficient for measuring how innovative a company is.
These other metrics include how many ideas are generated, submitted, and actually acted upon by each employee in a specific period of time. Innovation Management presents concrete examples of these metrics in the cases of Toyota and Subaru, whose employees each gave 70 and 108 implemented ideas respectively.
A company would also do well to take note how many new projects or products were launched (or have failed) over a given period, as well as the lessons that can be learned from these failures and successes. It might likewise reflect on how easy it is for staff to try out ideas or technology from within or outside the company. Innovation training and activities driven by the HR department, and the level of employee engagement with these activities may also be assessed.
These metrics should help give business owners a fair idea of a company’s capacity and potential for innovation, so that they can work on increasing it, and their profitability in the process.
Designed to help corporate managers and entrepreneurs advance innovation in their own organisations, SMU Academy’s Graduate Certificate in Innovation includes courses which are credit-bearing towards SMU’s Master of Science in Innovation, which is one of Asia’s most recognised Innovation programmes.
Modules include Design Thinking as an Innovation Management Tool, an Introduction to Turning Innovation Concepts into Business Cases, and Business Model and Technology Innovation as Levers for Creating a Balanced, Strategic Innovation Portfolio.
To find out how you can become an innovation leader in your industry, email email@example.com for more information, today.