Top 5 Ways

to Measure Product
Innovation

Choosing Metrics
to Drive Innovation
Performance

© Tech-Clarity, Inc. 2017

Table of Contents

Why Measure Innovation? ............................................................. 3

Measuring by Outcomes ............................................................... 3
Measuring Innovation Capability ................................................... 5
1) Measuring Innovation Contributions ...................................... 5
2) Measuring the Strategic Portfolio .......................................... 6
3) Measuring Calculated Risk Taking ........................................ 7
4) Measuring Time and Space to Innovate ............................... 8
5) Measuring NPDI Control ....................................................... 9
What’s Needed to Measure Innovation? ..................................... 10
Conclusion ................................................................................... 11
About the Author ......................................................................... 13
Footnotes .................................................................................... 13
Copyright Notice .......................................................................... 13

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Why Measure Innovation?
Companies know they’ll be rewarded for innovation. They’ve seen that product
developers who set the agenda in their market and force their competitors to react have a
distinct advantage. But how do they know if they’re being innovative before they get
invited to accept their industry’s “top innovator” award?

One of the most common questions we’re asked is “how should we measure innovation?”
It’s a relatively simple question, but one that doesn’t come with a simple answer. There’s
no “silver bullet” way to measure it. First of all, innovation means different things by
industry and by company. It depends on your business strategy and how you choose to
compete. For example, measures would be different for a goal of true market disruption
versus more incremental innovation.

Innovation also has different levels of granularity. It may apply to a product line, a
product, or a feature – each with different impacts and potentially different ways to
measure success. This is without even considering organizations who call process
improvements, safety initiatives, and lean measures “innovation,” which can further
complicate things. With all of the potential variability, let’s step back and talk about why
it’s important to measure innovation in the first place.

Companies want to ensure they innovate and improve their ability to innovate.

Metrics help drive desired outcomes. We find that companies want to:

• Make innovation as systematic as possible

• Have a repeatable innovation capability
• Drive the right organizational behavior
• Achieve more reliable and predictable outcomes
• Improve innovation performance over time

The bottom line is that companies want to ensure they innovate and improve their ability
to innovate. But as our Creating the Environment to Innovate research shares, “Although
innovation is important and gets a lot of attention, too few companies have a realistic
plan in place to improve innovation performance.” Measuring it is the first step. What
should companies measure, and how? Let’s take a look.

Measuring by Outcomes
Clearly, one way to measure innovation is by its outcomes. One of the most commonly
used metrics, and one we frequently use in our research, is the percentage of revenue
from new products. We typically define “new” as less than three years old, but there

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might be a better definition for your industry. Innovation indicators may also include the
volume of patent filings or invention disclosures to help gauge true scientific discovery.

Other results-oriented metrics are financial measures like incremental revenue, margin, or
market share from new products. These are commonly measured against early
projections. But the numbers on their own aren’t typically enough to measure innovation.
They need to be tied to business goals. For example, was the strategy to penetrate a new
market? Displace a competitor in an established stronghold? Enter a new geography? For
each of these, a strong financial metric could measure innovation achievement.

Outcome-based metrics are tangible ways to measure the results of innovation,

if not measuring innovation itself.

Of course it’s important to ensure that measures aren’t counterproductive. Many

companies put in measurement and performance programs that actually undermine their
strategy. For example, quarterly profitability targets compete with ROI for long-term,
strategic investments. Or metrics that rely to heavily on margins might favor cash cows
over new products that face an adoption curve.

Revenue by Product Age

25%

20%

15%

10%

5%

0%
0 1 2 3 4 5 6 7 8 9 10

Figure 1: Sample Outcome-based Innovation Metric

These outcome-based metrics are tangible ways to measure the results of innovation, if
not measuring innovation itself. Unfortunately, measuring this way is a rearview mirror
approach. It may help keep score, but it doesn’t help ensure the success of future
innovation because companies find out too late what needs to change. For continuous
improvement, we believe it’s also important to measure innovation capability.

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Measuring Innovation Capability
To improve innovation performance, it’s important to make innovation processes more
systematic and repeatable. To do this, it’s necessary to measure the factors that are
conducive to innovation. These metrics are a bit softer than hard financial metrics. But
they can help manage some of the biggest contributing factors to innovation success –
culture and process.

Measuring innovation capability not only helps companies understand

whether or not they achieved their strategy, they give insights into why.

Measuring these elements has the benefit of providing additional visibility to the product
innovation lifecycle. They not only help companies understand whether or not they
achieved their strategy, they give insights into why (or why not). And perhaps most
importantly, they can provide indicators into what can be done to improve innovation
results.

We’ve identified five factors that we believe can help companies monitor and improve
their innovation capability, and in turn their innovation performance:

1. Innovation Contributions
2. Strategic Portfolio Metrics
3. Calculated Risk Taking
4. Time and Space to Innovate
5. NPDI Control

This paper will review each of these, share some examples, and then discuss some
important enablers required to put in place a way to track and analyze these important
metrics.

1) Measuring Innovation Contributions

Understanding the source of ideas answers the question “is my entire organization
effectively contributing to innovation?” Having a variety of resources across the
enterprise participating in innovation is a good indicator of success. Today’s innovative
companies look beyond a few core individuals in R&D.

Today’s innovative companies look beyond a few core individuals in R&D.

Clearly you want contributions from Marketing, Engineering, and R&D. But many other
departments gain insights into customer needs. For example, companies can track ideas
generated from Customer Service Representative insights, Field Service experience,

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Sales win-loss analysis, Manufacturing knowledge, or Procurement perspectives.
Measuring these could be as simple as what percentage of departments submits ideas, or
what number of people across the business participate in ideation.

Another measurement that can provide insights is the participation of external resources
in innovation. Are all of the innovative ideas coming from within your four walls?
Leading companies frequently take advantage of open innovation practices or partner
with external groups. But even without these formal initiatives, companies can measure
the source of their ideas. For example, what percentage of the innovation portfolio comes
directly from customers? How many initiatives have participation from customers to
provide input and feedback?

Another source of innovative ideas is the supply chain. Do suppliers bring us their
innovative ideas? What percentage of new product ideas leverage new concepts,
technologies, or ideas contributed from the supply base? Measuring the source of
innovation can not only help ensure you’re listening, it can help you focus on proven
sources of innovation.

2) Measuring the Strategic Portfolio

One of the areas where companies have made a lot of progress recently is Product
Portfolio Management (PPM). As our ebook, An Action Plan to Improve Your Product
Portfolio, says, “Product Portfolio Management (PPM) has become mission critical for
today’s product development companies. It helps companies drive strategic value by
filling the pipeline with the right ideas, selecting the right projects and products,
applying the right resources, and providing the right level of visibility to manage and
make good decisions.”

PPM serves the highly strategic role of monitoring

whether there is enough innovation in the pipeline.

PPM can be used in many ways. In this context, it serves the highly strategic role of
monitoring whether there is enough innovation in the pipeline. It can show whether the
innovation agenda is balanced across strategic objectives and whether you have the right
resources for the type of innovation you target.

For PPM to help measure innovation capability, it has to be used strategically.

Companies need to classify ideas honestly and objectively, aligning them to the corporate
strategy or the innovation strategy. How unique is the product? Is it really innovative or
just another new offering? Each investment should be objectively measured as to what
goals it fulfills. Do they provide incremental improvements, capabilities that are new to
the world, open up a new market, generate new intellectual property (IP), or provide

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competitive differentiation? These are important factors to complement financial metrics
such as margin potential and payoff periods.

It’s important to make sure there’s enough innovation of the right variety. Some common
PPM measures that can help guide innovation performance include:

• Strategic fit scores

• Risk versus reward
• Balance across brands, divisions, types
• Competitive impact scores

3) Measuring Calculated Risk-Taking

If you’re truly innovating, you will encounter failures. It’s a natural, and necessary, part
of the process. Measuring innovation performance requires answering the difficult
question, “Are people too afraid to fail?” Fear of failure is a sure way to limit innovation.
Punishing failed products leads to incrementalism and “safe” bets that bring limited
rewards.

Some best practices in this area are to learn from failures and to celebrate them. At the
same time, risk needs to be balanced to prevent cascading market impacts. But how can
companies measure this somewhat soft factor? Employee sentiment can be measured by
surveys, assuming employees feel they can participate safely without repercussions. But
there are objective metrics as well. For example, companies can measure:

• Percent of encountered risks that were identified in advance

• Ratio of projects that “fail fast” based on the stage they’re killed
• Portfolio measures balancing risk by type and impact
• Primary sources of late, unidentified risks

Risk factors and failure reasons are only valuable

if people aren’t afraid to be honest.

For example, companies may want to analyze high-risk projects separately compared to
incremental innovation efforts. Is their stage-gate process weeding out most of the riskier
projects? This can help them understand if company risk tolerance is being leveraged or
if people are playing it safe, avoiding the risk of failure at the expense of potential
disruptive innovation.

Companies that want to learn from failures need to make sure they recognize that risk
factors and failure reasons are only valuable if people aren’t afraid to be honest. They

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also need the tools to track and measure risk over time, to show audit trails, and provide
data for analytics and reporting. For example, it’s helpful to see how risks trend over the
course of projects. Are they being worked actively to gain more information? Or are they
just getting shoveled forward to the end of the project? Measuring these factors can be
more objective than measuring sentiment.

4) Measuring Time and Space to Innovate

Product innovation takes time. While some ideas might come from an “aha” moment in
the shower, that isn’t the path to repeatable innovation performance. Obviously one of the
key questions is whether you have enough resources focused on innovation. But there’s
more to it. It’s important to know if people are spending enough time on “research” in
addition to “development.”

It’s important to know if people are spending enough time

on “research” in addition to “development.”

What percentage of time is spent coming up with ideas, experimenting, and exploring?
Are innovators encouraged to work on side projects that could lead to innovative
breakthroughs? How much time is spent furthering other peoples’ ideas including
validating, invalidating, collaborating, and contributing to ideas?

Time spent innovating can be hard to gauge because

innovators are not necessarily on a time clock.

Time spent innovating can be hard to gauge because innovators are not necessarily on a
time clock. It could be determined by surveys or interviews, though, or it can be
measured by tracking the deliverables they generate. For example, companies can
analyze:

• Number of ideas submitted

• Number of comments / collaborations recorded
• Ratio of deliverables by type of innovation and phase of project
• Number of votes submitted
• Time spent on ideation and collaboration

Beyond virtual time and space, it may be valuable to analyze physical space availability.
Do employees across the business have access to some sort of “innovation lab” where
there is an actual space to innovate, create, play, test, and research? The availability and
use of these kinds of spaces could provide a very interesting perspective on the amount of
time people spend innovating. But it doesn’t have to be a permanent, physical space.

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Some companies find success conducting off-site innovation workshops facilitated by
professional external innovation coaches. This format can help encourage fresh thinking
and avoid distractions.

Research

Development

Knowledge
Management
Admininistration

Training

Figure 2: Sample Time-based Innovation Metric

Determining whether time and space are dedicated to innovation can help companies
understand the innovation vector they’re on, and adjust it if it’s off course.

5) Measuring NPDI Control

We’ve focused quite a bit on the front end of innovation, but of course it’s important for
companies to be able to innovate across the product development lifecycle and answer
the question “can we deliver our innovation to market?” Control is not necessarily
innovation, but profiting from innovation requires an NPDI discipline.

Profiting from innovation requires an NPDI discipline.

Measurements for NPDI can include some of the measures listed above, particularly the
metrics measuring risk management and the ability to fail fast. These are key factors.
Beyond that, the ability to manage and control innovation through the innovation
lifecycle can be measured with standard, proven program management metrics:

• Milestone achievement
• Percent of projects meeting deadlines and budgets
• Percent of products meeting full requirements

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 • Resource utilization
• Efficiency, throughput
• Percentage of gate reviews requiring rework
• Percentage of issues identified late in projects

Figure 3: Missed Product Development Targets1

Tracking these metrics helps companies ensure they are not only able to conceive of new
products, but actually deliver them to market. It can also help them better manage the
throughput of their innovation capability to balance with workload with capacity (and
expectations).

What’s Needed to Measure Innovation?

Now that we’ve discussed some things that companies can measure to manage and
improve innovation, it’s important to discuss how to implement the chosen metrics. But
defining KPIs is only part of the challenge. Actually measuring these factors is hard for
most companies. First, it takes a resource commitment. Somebody must be responsible
for measuring and making decisions based on the new information. Some companies
have developed a Chief Innovation Officer position or established an Innovation
Excellence Team that can serve as a resource and handle much of the reporting and
measurement.

Companies need timely, accurate portfolio data in order to measure innovation.

Resource commitment is only one part of the challenge. Companies need timely, accurate
portfolio data in order to measure innovation. They need data transparency and the ability
to visualize metrics to identify improvement opportunities. In addition to reporting, they

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should be able to drill down into the details to understand underlying factors and act to
make real-time changes. In addition, companies will find it important to track a baseline
in order to show trends over time.

PPM systems and innovation portals can also play a role in gathering, managing, and
tracking ideas and innovations. Ideally this is done in an integrated way to trace them
through the product innovation process and gain value from additional reviews, feedback,
and insight. These software solutions can also help direct innovation toward corporate
strategy and target markets, making ideation campaigns more proactive, and use voting
so the best ideas rise quickly to the top. This ensures that ideas contribute to the corporate
innovation agenda and aren’t just a glorified suggestion box.

Measuring innovation performance requires a level of centralized data

that’s consistent across departments and the business.

Measuring innovation performance requires a level of centralized data that’s consistent

across departments and the business. Companies can’t afford to spend time arguing about
what the facts are, they need to be able to focus on the implications of the facts and what
should be done about them (if needed). Reporting that requires lots of manual
intervention will be too late and contain errors. In order to effectively measure
innovation, companies need the right structure to support accurate, efficient reporting.

Conclusion
Innovation is clearly important to company success, and what gets measured gets
improved. This makes measuring innovation an important goal. It’s also a challenging
one. There are a number of ways that companies can measure innovation performance by
outcomes, such as the percentage of revenue from new products, but this information
typically comes too late to make in-course adjustments and improvements.

Another approach is to introduce measures that ensure the environment is conducive to

innovation. Companies can put in place measurements that help ensure the organization
is contributing to innovation and product portfolios contain enough innovation of the
right variety. Organizations can survey whether employees feel they have the ability to
take calculated risks and whether they have the time and space required to innovate.
Metrics can also ensure that their processes and tools allow them to profit from
innovation through effective NPDI.

For any of these metrics to be effective, companies need to have the right process and
data management infrastructure in place, including:

• The right data and a mechanism to gather it efficiently

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 • Accurate, visual reporting tools and dashboards that they can drill down from
• Honest information and the ability to capture knowledge – especially failures – to
drive future innovation

Figure 4: Signs It’s Time to Start Your PPM Journey

None of these can be done effectively with the patchwork of documents and spreadsheets
available to most companies. Without the right tools, companies suffer from some
relatively common challenges, as seen in Figure 4 from An Action Plan to Improve Your
Portfolio. Effective innovation software provides the right infrastructure to enable and
measure innovation. This ultimately helps improve the innovation capability and leads to
better innovation performance. As Top 5 Misconceptions about Innovation Management
Software concludes, “Implementing enterprise-class innovation tools helps companies
grow revenue by selecting higher value products, reduce cost by improving efficiency,
and mitigate risk.”

Effective innovation software provides the right infrastructure

to enable and measure innovation.

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About the Author
Jim Brown is the President of Tech-Clarity, an independent research and consulting firm
that specializes in analyzing the business value of software technology and services. Jim
has over 20 years of experience in software for the manufacturing industries. He has a
broad background including roles in industry, management consulting, the software
industry, and research.

Jim’s experience spans enterprise applications including PLM, ERP, PPM, quality
management, service lifecycle management, manufacturing, supply chain management,
and more. He is actively focused on researching new digital enterprise initiatives and
technologies including cloud computing, digitalization, smart manufacturing, AR, VR,
and the IoT. Jim is passionate about improving product innovation, product development,
and engineering performance through the use of software technology.

Jim is an experienced researcher, author, and public speaker and enjoys the opportunity
to speak at conferences or anywhere he can engage with people with a passion to improve
business performance through software technology.

Footnotes
1. How to Beat Your Competition in Product Development - Tech-Clarity

Copyright Notice
Unauthorized use and/or duplication of this material without express and written
permission from Tech-Clarity, Inc. is strictly prohibited.

This report is licensed for distribution by Planview, Inc.

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