How to measure innovation [5 Steps]

Bruce Fisher 6 min read

Most people imagine creativity as something unexpected—a light bulb turning on over a cartoon character’s head. Sure, this may be true, but how does an organization create a situation where a lightbulb lights up regularly over an employee’s head?

Measuring innovation is necessary to achieve optimal innovation rates within an organization.

In the words of Peter Drucker, “You can’t manage what you can’t measure.” This adage certainly applies to innovation. Innovation is often a temporary process that avoids quantification. But that’s even more reason to measure it. By effectively monitoring the innovation process, you can get a clear picture of who or what is influencing innovation and act to encourage it.

The big issues are: How? How can you document the ideation process and give creators proper credit? do you

Most organizations count patents, and this is certainly one of the effective means of innovation. (Because the value of individual patents varies widely, it is important to include an estimate of the dollar value of each patent.)

But what about measuring different kinds of innovations that are not patentable? Organizations should measure all ideas generated to measure the innovative effectiveness of individual employees and the rate of innovation across the organization.

Five steps to measuring innovation

Essentially, to know how well an organization is innovating, we need to measure both parts of the innovation process: conception and implementation.

1. Collect and track each idea
2. Estimate the cost and benefits of each idea
3. Measure the implementation of each idea
4. Calculate the added value of each idea
5. Determine the innovation rate across your organization

Step 1: Collect and Track Each Idea

• Ideas must be submitted digitally by email. It keeps track of who submitted each idea and when.
• An Idea Evaluation Committee must be formed and chaired to classify each idea and respond to the proposer with a status report. It is important to respond quickly and provide regular status updates.
• The idea review committee should meet regularly to review ideas. Ideas should be evaluated by size and likelihood of success. A sense of urgency must be maintained to move the idea through the necessary stages of testing, financial evaluation, and implementation. Innovators get discouraged when they fall behind in stages along their organization’s “innovation supply chain.” It is very important to keep idea submitters informed of the status of their submissions.

Step 2: Estimate the Costs and Benefits of Each Idea

For new ideas, it is important to do a “rough” cost-benefit analysis as early as possible. This identifies key cost barriers to an idea and determines whether the idea is financially viable. For small projects with a potential profit of less than $100,000, a simple payback period analysis is sufficient. This should show a return on investment within 3 years. For bigger ideas, you should do a discounted cash flow analysis with initial costs, recurring costs, and projected revenue streams. Of course, risk is always an important factor to consider when evaluating an idea.

Step 3: Measure the implementation of each idea

Once the idea is approved and passes the necessary tests for technical feasibility and economic viability, it is ready for implementation. and become a project. Measuring project execution is well established in project management practice. During the planning stage of a project, detailed estimates of time, cost, and size should be made. Execution should be tracked and this includes a detailed breakdown of tasks and responsibilities. After completing the project, it is necessary to analyze the problems that have arisen. Estimated and actual variances of project costs and benefits must be calculated.

Step 4: Calculate the added value of each idea

As mentioned above, once an idea is approved for implementation, it should include an estimate of its potential value based on the cost-benefit analysis in Step 2. profit in dollars. Organizations should estimate the value of these ideas, even if they are based on subjective evaluations. This is sometimes called an estimate until an idea is implemented.

Next, we need to determine the actual value of the idea. When calculating the value of implemented ideas, the difference between an idea’s estimated value and its actual implemented value provides useful information to the organization.

Step 5: Determine the innovation rate across your organization

An idea measurement system is an integral part of managing innovation. First, we provide a measure of the ideation rate for each employee. Then you can easily calculate the expected idea rate for departments, divisions, and the entire organization.

This information provides a key indicator of an organization’s true innovation rate, the sum of hours spent on all ideas submitted.

As ideas move into implementation, they need to be monitored until they become full-blown innovations. Idea execution rate provides another important metric that helps you manage idea execution.

Why organizations should have an innovation measurement system

Some organizations have strategies for becoming innovation leaders, while others choose to be followers. But without knowing when and how much you’re actually innovating, it’s hard to tell if you’re a leader.

By reliably measuring the conception and implementation of new ideas, organizations can build a solid foundation. Without such systems in place, organizations tend to select people for pay raises and promotions based on more subjective measures such as political behavior rather than results.

On the other hand, rewarding those who come up with new ideas creates a powerful incentive for further innovation. Not surprisingly, once an idea measurement system is in place and employees realize that it impacts pay raises and promotions, many will put more effort into being creative. .

The future belongs to revolutionary things. Organizations need to take a systematic approach to innovation, and measurement is a key aspect of that effort. Identify where opportunities exist and track your organization’s efforts to foster innovation. Most importantly, measurement provides a means of equitably distributing recognition and rewards for innovation and establishes an organization’s value for innovation.

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