Stop Giving Innovation Preferential Treatment: it’s time to tighten the reins on your company’s innovation function

Klaypso Viewpointby Amber Lyons and Sean Klein
 
Corporations are incredibly efficient at managing traditional business functions and scouring them for any remaining signs of waste. Manufacturing lines are expected to be statistically free of defective parts. Supply chain logistics and tracking are tighter than ever before with data driven forecasting and inventory management. Sales forces are expected to close 40 percent of the time and deliver 115 percent of revenue goals each period. Call centers are optimized to complete 400 calls per hour with 90 percent of issues resolved within the first 20 seconds. Finance managers scrutinize profit and loss statements, and you better believe that Human Resources tracks sick days.With such clear expectations and accountabilities around the performance and optimization of other business functions, how is it that we do not set the same standard for investment in innovation? The truth is, in Fortune 500 companies innovation is largely unmanaged and mostly unmeasured.  For us to hold core business functions accountable for their performance and not expect the same from the innovation engine is unacceptable. Innovation is the last big unmanaged business function, and those that refuse to move beyond the impromptu approach to innovation will find it increasingly difficult to compete. If large companies are to remain relevant, they need clear accountabilities and performance metrics for innovation.

Establish formal accountability for innovation results

Often the most visible differentiator between innovation and other business functions is the absence of a formal leader responsible for performance. Research shows that having a leader who is formally accountable for innovation dramatically improves a company’s innovation success rate. Unfortunately, according to a recent innovation leadership survey conducted by Capgemini Consulting, only 43 percent of companies surveyed had such a position. Worse over, only 16 percent of those companies had a formal organizational structure for innovation. While we’re not saying that all companies need someone with the title of Chief Innovation Officer, due to the cross-functional nature of innovation, it is important that you hold a single individual accountable for results from innovation. These individuals should likely report directly to the CEO.

By establishing a leadership role that is accountable for innovation results, you send a strong message to shareholders that you are serious about driving growth from innovation. Show your investors that innovation means more to you than annual report rhetoric, by treating innovation as its own business function with accountability for its results.

Corporations are incredibly efficient at managing traditional business functions and scouring them for any remaining signs of waste. With such clear expectations and accountabilities around the performance and optimization of other business functions, how is it that we do not set the same standard for investment in innovation? The truth is, in Fortune 500 companies innovation is largely unmanaged and mostly unmeasured.  For us to hold core business functions accountable for their performance and not expect the same from the innovation engine is unacceptable. Innovation is the last big unmanaged business function, and those that refuse to move beyond the impromptu approach to innovation will find it increasingly difficult to compete. If large companies are to remain relevant, they need clear accountabilities and performance metrics for innovation…

While establishing a leadership position accountable for innovation performance is a critical first step toward delivering results, accountabilities are window dressings without meaningful performance metrics to back them up. Other business functions are tracked against key performance metrics; why should innovation be any different?

One theory is that many innovation strategies consist of throwing around the term ‘innovation’ as much as possible in an effort to obfuscate the question of growth strategy. In 2012, a review of quarterly and annual reports submitted to the Securities and Exchange Commission cited the word ‘innovation’ over 33,500 times. Yet, when pairing this number to the previously mentioned Capgemini study, only 42 percent of companies claim to have an innovation strategy in place. Fortunately, for many shareholders, simply mentioning innovation in an annual report is not enough. Some critics go as far as to suggest that we “mandate that publicly traded companies regularly report on their innovation pipeline and the key drivers of their innovation performance.” One thing we are certain of – if you don’t have a clear definition of what innovation is, you cannot even begin to measure it.

Part of the problem lies in the amorphous and slapdash usage of the word ‘innovation’ in the workplace. Employees use ‘innovation’ to describe everything from new-to-world product concepts to ordinary packaging changes, process improvements to employee satisfaction surveys. However you choose to define innovation in your company, make sure the term is used consistently. You can quickly test consistency and effectiveness by polling random cross-functional employees at varying levels in your organization. If your company consistently defines innovation, you should be able to ask the CFO, a plant manager and a project team member for a definition and receive a similar, concise response from each. If responses are inconsistent, your innovation transformation journey begins there.

Set clear innovation performance metrics

Once your company has an established definition for innovation, you can begin to measure it. Undoubtedly, your key performance indicators for innovation will differ from those used by other business functions, however the framework for identifying and institutionalizing them remains the same.

Below is a list of sample metrics that some companies use to evaluate the performance of their innovation engine. Without a doubt, you will want to identify metrics that map to your own unique business strategy, industry, and competitive landscape, but this list may help spark some ideas on where to begin.

  • FEI concept count and value
  • R&D resource utilization
  • Average development stage/phase duration
  • Expected commercial value of the innovation pipeline
  • Portfolio mix by innovation type
  • Technology platform ROI
  • Positive mentions by medium (FaceBook, Twitter, etc)
  • Number of trials and repeats (expected vs. actual)
  • Innovation over time: rolling three year net sales as % of total net sale

As you can see, while innovation metrics are often different from those used for measuring other business functions, they can be just as concrete. Innovation functions can, and should, be measured. It’s unnaceptable for corporations to enforce rigor and accountability in traditional business functions while neglecting to adopt similar standards for the expectation for innovation results. If your company’s annual report mentions the word ‘innovation, you should have a clearly defined innovation strategy, measurable and actionable innovation goals, and someone accountable for delivering them.

 

Kalypso Viewpoints on Innovation

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