Innovation Metrics - a new white paper by Langdon Morris

Langdon recently presented a webinar on innovation metrics and developed a new white paper to go along with that presentation. To download a copy of this white paper see the publications section of the InnovationLabs web site.

Here's a short synopsis:

Innovation Metrics

The Innovation Process and How to Measure It
By Langdon Morris

Like everything that businesses do which involves the investment of capital and time, innovation has to be measured. But unlike many other forms of measurement in business, measuring innovation presents problems for the process that is to be measured. We might call this ‘innovation uncertainty principle:’ many ways that we might want to measure innovation can significantly impede the innovation process itself. This is because innovation involves a venture into the unknown, and if we try to pin these unknowns down too fast we may make them harder to recognize and realize.

For example, we have to look at the very concept of ‘return.’ ‘Return on Investment’ is a standard and accepted measuring tool that managers have relied on for decades. But it’s now an accepted joke in the research and development community that the term ‘ROI’ really stands for ‘restraint on innovation,’ because ROI-based assessments tend to embrace short term thinking, and to exclude the development of long term, breakthrough, and discontinuous ideas and projects. Using ROI to measure innovation thus endangers the very thing you want to measure, and makes less likely the end goal of the process, which is better innovation.

This presents difficult problems for R&D managers. At a recent meeting at HP Labs, a manager commented that they could not even look at any project that did not have the potential to be at least a $50 million business. The problem, of course, is how you can know. What do you include in your research plan, and what do you put aside? Did the researcher who’s work led to the creation of HP’s multi-billion dollar inkjet printing business know what he was getting into when he became curious about the burned coffee he noticed on the bottom of a coffee pot? Could he have said his idea about superheated ink would be worth $50 dollars, much less $50 million? Unless he was inspired by a fit of hubris, probably not. So if someone had asked him for the ROI on his research work, he could either guess, lie, or say he didn’t have any idea.

Yet innovation has to be measured, surely, or else it cannot be managed. So what to do? Exploring some of the best options is the purpose of this White Paper.


Contents

• Introduction
• Innovation Methodology
• The Innovation Funnel
• Stage -1: Strategic Thinking
• Stage 0: Portfolios & Metrics
• Stage 1: Research
• Stage 2: Insight
• Stage 3: Ideas
• Stage 4: Targeting
• Stage 5: Innovation Development
• Stage 6: Market Development
• Stage 7: Sales
• Inputs, Process & Output
• Conclusion
• References

Creating the Innovation Culture

Langdon has recently published a white paper called Creating the Innovation Culture - in which he outlines the different types of work that takes place in different parts of an organization and what each type of work contributes to forming culture. These distinctions are important to understand if an organization is going to build a culture of innovation.

From the white paper:

Such a culture can be recognized as an organization that is known externally in the marketplace as a genuine innovator, and equally that it is known internally among the people in the organization as a dynamic, innovation-friendly place to be.

Organizations that have attained this culture produce innovations of all types - breakthroughs, useful incremental changes, and even radically new ways of doing business, and they do so with regularity.

It is important to understand how different jobs in the organization have very important (and different) roles to play in creating such a culture.

The white paper is called: Creating the Innovation Culture: Geniuses, Champions, and Leaders.

We've also developed a seminar series based on the concepts expressed in this white paper. These seminars teach the critical skills and essential concepts that are the foundation of the innovation culture. There are three seminars.

The Innovation Leaders Seminar shows you exactly how to set the right policies so that innovation can flourish throughout your organization. Identify and remove the major obstacles to innovation, establish the right goals, and implement the best policy guidelines.

The Innovation Champions Seminar is ideal for managers who support innovation every day. It defines the essential practices needed to engage talented people in developing great ideas.

The Creative Geniuses Seminar explains the inside details of the innovation process. Learn how to see what others don’t see, where to look for new insights, how to turn insights into great ideas, and how to transform ideas into winning innovations.

Sustainability and Innovation

Sustainability is generally defined as achieving 'triple bottom line' success. Triple bottom line has also been called 'full cost accounting' and when successful shows economic profit, environmental profit and social profit (some people say: People, Planet, Profit as a way to refer to the triple bottom lines of sustainability).

A friend of mine used to say Sustainability holds the seeds to the most and widest range of innovation we've ever seen.

Think about it. If one were to completely adopt a sustainability philosophy and approach to doing business one would have to rethink just about everything we know as business today.

Dr. Deming used to talk about the four pillars of quality as:

• improvement of current product(s) and service(s);
• innovation of product(s) and service(s)
• improvement of current processes
• innovation of processes

A focus on products, services and processes will get us to look at the value being added to customers but it will also get us to consider the materials, relationships, and waste. If we take this just a little further it could take us into energy usage, or even energy footprint.

If we go about further we can think about the environment differently. There is growing research that supports the idea that providing a positive, healthy work environment improves productivity. The environment referred to here is the physical, emotional and cultural environment where work takes place. What if that environment included clean air (not conditioned air), pure water (not just city water), healthy carpets (no out-gasing), office equipment that didn't harm the environment (either in its development or in its use), ergonomic furniture, etc? These types of considerations and questions barely begin to explore the areas where we might see innovation if we were to adopt sustainability as a way of doing business. A focus on sustainability will take us beyond process and product and into management policies and practices, organizational structures, and beyond the borders of our organizations into industries, networks and networks or networks.

Some people have argued that triple bottom line accounting is foolish since the measures for ecological and social 'profit' are not easy and possibly impossible to calculate. Just because something is difficult to measure doesn't mean it isn't important! In Dr. Deming's book Out of the Crisis page 121, he says "The most important figures that one needs for management are unknown or unknowable (Lloyd S. Nelson, director of statistical methods for the Nashua corporation), but successful management must nevertheless take account of them."

Honda is said to have begun managing 'from the earth, back to the earth' when they think about their supply chain. That means they are thinking about the disposal of their products way beyond their involvement with them.

From a recent McKinsey article about strategy we see just a glimmer of what might be coming - and this article primarily focused on social issues:

• Chief executives have increasingly incorporated environmental, social, and governance issues into core strategies, McKinsey research shows.
• These CEOs are responding to increasing pressure from employees and consumers, but some also see opportunities to gain a competitive advantage and address global problems.
• CEOs view globalization as the key development reshaping the contract between business and society. They identify talent constraints, poor public governance, and climate change as the issues most critical for their companies to address.
• Competing strategic priorities and the failure of financial markets to recognize the importance of implementing a strategic approach to societal issues are among the barriers to change.

If the kinds of innovation that are possible continue to show up (here's a small example recently shown at PopTech! - portable light project) we will see that financial markets may just start recognizing the importance of focusing on business as a vehicle for profit in more than just dollars, euros, or yen.

Mark my words: Sustainability could turn out to be the greatest inspiration for innovation we've ever seen.

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