Measuring Innovation Effectively—Nine Critical Lessons

Figures & data

Table 1. Participating firms and key socioeconomic data

Firm	Industry	Primary Product/Service	Employees/ Revenues (USD) (approximate)
A	Mining and metals	Highly processed materials and mineral products	4,600 $2.9 billion
B	Home appliances	Kitchen and laundry product (and services)	54,000 $14 billion
C	Forest and packaging	Board and paper products	4,500 $2.7 billion
D	Food processing	Dairy products	560 $220 million
E	Consumables	Hygiene products	48,000 $13.3 billion
F	Consultancy	Services within design and innovation	61 $11 million
G	Machine manufacturing	Tools and tooling solutions	42,000 $11.5 billion
H	Water and infrastructure	Plumbing and infrastructure for home and society	4,100 $1.4 billion
I	Automotive technology	Complex system products and service solutions with a strong focus on advanced technologies	1,400 $1.5 billion

Table 2. Data structure

Themes	Critical Lessons	Exemplary Quotations (in normal font) / Stories from data (in italics)
Strategy	1: Start with strategy, not specific metrics.	“Measuring innovation is about doing it in a good way. Otherwise, you are lost. Breaking down one’s financial and marketing goals into what achieves it.” [Firm F, interview] “We must measure what is important in relation to the goal and set strategy. That is what we will be evaluated on. Innovation measurement as such is completely irrelevant if it does not focus on the goals and the strategy. It must be selected to what we want to achieve, then we need to start with our strategy and where we want to go.” [Firm H, interview]
	2: Focus on ecosystem partners, not just your organization.	“In our industry it is extremely hard to just focus on measures of what we do in relation to measures of impact. We are so dependent on what other actors in the industry do.” [Firm A, interview] “We need measurements that help us to understand the future better, metrics that help us understand in which direction we should go, also depending on the context we are in.” [Firm H, interview]
Organization	3: Establish ownership early.	“Innovation measurement affects many different parts of our organization and also involves competences of these parts; therefore, how we measure and who to report to is very important for us to manage this.” [Firm B, interview] Today, most present measures and KPIs are tracked by production or quality functions; we need to decide on how innovation measures relate to already present measures and who will be responsible for these. [Firm D, workshop]
	4: Secure cross-functional buy-in.	Innovation measurement will affect many different functions of the organization; we must get all relevant departments on board. [Firm D, interview] Understanding, commitment, and engagement of innovation measurement in the organization is crucial for our success. [Workshop with a group of innovation managers]
Measurement Design	5: Define the multiple purposes of innovation measurement.	“Innovation measurements for us also need to focus on learning, not only for following up and evaluating.” [Firm B, Collaborative group work with strategy] We need measurements for openness and understanding in the organization that incorporate experimenting and trying out new things. [Firm D, workshop]
	6: Avoid availability bias when selecting measures.	“The difficulty with innovation measurement is that there are so many different possibilities, and it is so much easier to select to measure things that we already have numbers on or that are easy to calculate, instead of focusing on, for example, measuring soft values and actual impact.” [Firm E, interview] We have measurement processes for production and quality deviation. These do not work well for innovation. We have to refrain from just using what we already have and what is easy to use. [Firm D, interview]
	7: Don’t measure too many things.	It is not hard to find measures. There are so many things that can be measured in relation to innovation. If we have too many, we will lose track of what we aim to do and it is also very costly to follow up on many measures. [Innovation manager, workshop] “Measures have to be meaningful and not too many; we have so many measures and KPIs today that if we introduce too many new ones we will be buried in measures, and it will not make sense.” [Innovation manager, workshop]
	8: Measure the whole, not merely specific parts.	“It is important that all parts of the company develop over time. Whether the advantage over competitors consists of a better product, better process, or better external relations is not the most important thing. It should therefore be important to measure innovation in all these areas.” [Firm A, survey] “Normally, KPIs for R&D might be to measure launched products or projects based on number/time/cost, but that doesn’t say anything about the value of what comes out. It’s extremely difficult to measure ROI on new technical solutions. In the end, it is me who has to deliver and prioritize R&D projects, and I want to know that we are not only doing things right, but also that we are doing the right things. . . .” [Firm A, survey] “We measure what comes in and what comes out and what value it creates. We are better at measuring some things than others. We are good at looking at what is in the development process. Then we are a little worse, significantly less good in fact, at measuring impact; the actual effect afterwards.” [Firm E, interview]
	9: Clarify relationships among selected measures.	“We must make sure that our measures work together, both measures for innovation and other things we measure. Today we have established KPIs in the organization that focus on each division’s performance, but we want to have innovation measures that encompass openness, knowledge sharing, collaboration, and learning across departments. This will be a problem.” [Innovation manager, workshop] “All of these pieces are so extremely contextual and interrelated, and so we all know it’s not an easy fix, push a button and you’re done.” [Firm A, survey]

Table 3. Nine critical lessons for innovation measurement

Lesson	Problem	Consequences	Solution
1. Start with strategy, not specific metrics.	Seizing on specific metrics right out of the gate, while losing sight of the big-picture strategy.	Blind movement in the wrong strategic direction Loss of ground in achieving strategy goals	Choose metrics that fulfill the strategic purpose; no metric on its own is inherently strategic. Articulate explicitly a concrete innovation strategy, in service of a larger business-unit strategy.
2. Focus on ecosystem partners, not just your organization.	Confronting the complexity of external players—customers, suppliers, and other ecosystem actors—that matter in measuring innovation.	Reliance on internal metrics that overlook or misrepresent the roles and value of ecosystem partners Lack of insight about where the organization’s innovation efforts fit in the ecosystem	Assess ecosystem partners’ innovation activities. Identify which of those activities complement your organization’s innovation initiatives and measurement efforts. Raise awareness of how ecosystem partners relate to the organization’s innovation strategy and measures.
3. Establish ownership early.	Failing to define who is responsible for various parts of the innovation measurement process.	Poorly defined roles Tasks with no clear owner Weak alignment with the broader innovation strategy Impediments to acting on captured measures	Decide on a role or function that is responsible for the innovation measurement practice. Have top management give clear directives to the responsible persons or entities. Provide sufficient resources for compiling and analyzing pertinent data.
4. Secure cross-functional buy-in.	Getting all functions that have a stake in innovation measurement to be on the same page.	Stalled implementation processes Political battles over metrics and results Inconsistent interpretation across units, with competing or contradictory effects	Make communication and consensus consistent across departments. Apply cross-functional integration practices, such as the exchange of “rich” information, to help stakeholders collaborate effectively.
5. Define the multiple purposes of innovation measurement.	Framing the purposes of measurement too narrowly, often merely as follow-up and evaluation.	Missed opportunities for organizational learning Limited potential to derive overall value from innovations and from benefits at the project level	Define three explicit purposes of measurement: to plan and focus, to follow up and evaluate, and to learn from experience and identify new opportunities. To fulfill these aims, deploy relevant resources early in the innovation management process.
6. Avoid availability bias when selecting measures.	Finding it easier to rely on metrics that are readily available than on those you actually need to measure.	Selection of measurements that offer poor guidance toward achieving innovation goals Distortion or undermining of the larger innovation strategy	Ask at the outset where the organization wants to go and what it must learn to assess whether it is on the right track. Do not automatically default to data and trackers that are already in place.
7. Don’t measure too many things.	Burying the few meaningful measures in a sea of metrics.	Lack of focus Wasted resources and attention on tasks that lack sufficient value Confusion among employees	Select a limited number of measurements that make sense, point in the same direction, and are understood by everyone. Arrange the measurements in an efficient hierarchy.
8. Measure the whole, not merely specific parts.	Losing the holistic overview of innovation (“the forest”) to an array of subset innovations (“the trees”).	Undue weight given to specific projects or processes, at the expense of the whole Blindness to the long-term value of innovation measurement	Focus comprehensively on the process, portfolio, project, and cultural levels of innovation measurement. Include an appropriate mix of input, current situation, and results measures.
9. Clarify relationships among selected measures.	Facing the challenge that metrics in the innovation measurement portfolio have inherent interdependencies and potentially overlapping goals.	Confusion stemming from a failure to make interdependencies among measures explicit Pursuit of conflicting goals Unproductive internal competition	Map out and communicate clearly to everyone involved what purpose each measurement has in the whole system. Clarify each person’s and function’s role in fulfilling the overall innovation and business strategies.