- Innovation is an ephemeral process that is difficult to quantify, but that is even more reason to measure it.
- The ideas must be ranked in terms of size and viability.
- A “ballpark” cost-benefit analysis of a new idea should identify significant cost barriers to the idea and determine its fiscal viability.
Most people believe that creativity happens by chance—like a lightbulb going off in the head of a cartoon character. Certainly, this is true, but how does an organization create conditions in which employees’ heads light up on a regular basis?
Measuring Innovation
To achieve an optimal innovation rate in an organization, innovation must be measured.
According to Peter Drucker, “if you can’t measure it, you can’t manage it.” This adage certainly applies to innovation.
Innovation is often an ephemeral process that is difficult to quantify. But that is even more reason to measure it.
We can clearly see who or what influences innovation and act to increase it by effectively monitoring the process.
Documenting the process
The big question is, “How?” How do we document the ideation process and properly credit creators?
How do we quantify ideas in terms of costs and potential benefits to determine whether they are worthwhile to implement?
Most businesses track their patents, which is an important indicator of innovation.
Because the value of individual patents varies widely, an estimate of the dollar value of each patent is required.
But what about measuring non-patentable innovations?
The organization must assess the innovative effectiveness of individual employees as well as the organization’s overall rate of innovation.
5 Steps for Measuring Innovation
Essentially, to find out how much an organization is innovating, we must measure both parts of the innovation process: ideation and implementation.
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Collecting and tracking
People should submit ideas digitally via email. Each idea will have a record of who submitted it and when.
An idea evaluation committee should be formed, with a chairperson categorizing each idea and responding to the suggestion(s) with a status report.
It’s critical to respond quickly and provide status updates on a regular basis.
The idea evaluation committee should meet on a regular basis to consider ideas.
The ideas must be ranked in terms of size and viability.
To move ideas through the necessary stages of testing, economic evaluation, and implementation, a sense of urgency is required.
When the organization experiences delays along the “innovation supply chain,” innovators become discouraged.
Keeping the submitters of ideas apprised of the status of their submissions is critical.
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Estimating and Benefits
A “ballpark” cost-benefit analysis of a new idea should be performed as soon as possible. This will identify significant cost barriers to the idea and determine its fiscal viability.
A simple payback period analysis will suffice for a small project with less than $100,000 in potential benefits. This should yield a three-year or less return on investment.
For larger ideas, a discounted cash flow analysis should be performed using initial costs, recurring costs, and the projected income stream. Of course, risk is an important consideration when evaluating ideas.
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Measure the Implementation
When an idea is approved and passes the technical and financial feasibility tests, it is ready for implementation and becomes a project.
Project implementation measurement is well established in project management practice.
A project’s planning stage should include detailed estimates of its time, cost, and scope. Tracking execution entails a detailed breakdown of tasks and responsibilities.
After completing a project, an analysis of the problems encountered should be performed.
The difference between the estimated and actual project costs and benefits should be calculated.
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Calculating Added Value
As previously stated, when an idea is approved for implementation, it should include a potential value estimate based on the cost-benefit analysis performed in Step 2.
It should be noted that some concepts, such as safety or customer service, may not have obvious monetary benefits.
Even if the estimates are subjective, the organization should value these ideas. This is the estimated value of the idea until it is implemented.
The actual value of the idea should then be determined.
When the value of an implemented idea is calculated, the difference between the estimated value and the actual implemented value provides useful information to the organization.
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Determining innovation rate
An idea measuring system is an essential component of innovation management. First, it calculates each employee’s rate of ideation.
The forecasted ideation rate for departments, divisions, and an entire organization can then be easily calculated.
This data will give a good idea of the organization’s actual innovation rate: the sum of all submitted ideas over time.
As ideas progress to implementation, they should be tracked until they become finished innovations. Another key metric for managing idea execution is the rate of idea implementation.
Organizational implementation
Some organizations choose to be leaders in innovation, while others choose to be followers. But it’s difficult to tell if you’re a leader if you don’t know when or how much you’re innovating.
Reliable measurement of ideation and implementation of new ideas puts a company on solid ground.
Without such systems, organizations are more likely to choose people for pay raises and promotions based on more subjective criteria such as political behavior rather than results.
Idea management system
Meanwhile, rewarding those who come up with new ideas creates a strong incentive for additional innovation.
Unsurprisingly, once an idea measurement system is in place and employees are aware that it will influence their pay increases and promotions, many will respond by putting in more effort to be creative.
The future belongs to the creative. Organizations must take a systematic approach to innovation, and measurement is a critical component of that effort.
It identifies and tracks the organization’s efforts to increase innovation.
Most importantly, measurement allows for an equitable distribution of recognition and rewards for innovation and establishes the organization’s value for innovation.
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Source: Elmhurst
