How Do You Measure Innovation?

The question is hard to answer mostly because "innovation" is such an overused, elastic word. It can mean a single new product, a whole portfolio of bets, or an organization's underlying ability to keep producing them. So before you can measure innovation, you have to say what you actually mean by it. That makes measuring innovation a three-step discipline, and the steps have to run in order:

1. Scope of "innovation." What are you actually measuring: a single innovation project, an innovation portfolio, or the organization's capability to innovate?
2. Objective. For that scope, what is the objective, and what would success look like?
3. Value metrics. Which metrics show real progress toward that objective?

Clarify what you mean first, then what it's for, and only then how to measure it. Most innovation measurement goes wrong by jumping straight to step three, usually with whatever financial metrics are closest to hand.

Step one: scope of innovation

The first step is to pin down what "innovation" even refers to in your question, because a project, a portfolio, and a capability sit at three different altitudes that call for three different measurements.

• A single innovation project is measured by whether that specific idea is working: does it serve its objective, and is the evidence on its key assumptions advancing.
• An innovation portfolio is measured as a population: is the mix of bets intentional, balanced, and aimed at a strategic objective, rather than whether any one of them happens to succeed.
• The capability to innovate is measured as a discipline: can the organization reliably turn ideas into outcomes, again and again. BRI's Innovation Capability Assessment is one structured instrument for that read.

Each altitude calls for a different measurement, so the scope you choose sets up everything that follows. Settle it, and the objective and the metrics have a foundation to sit on. Each of these three scopes is a subject in its own right, and forthcoming companion pieces take the single innovation project, the innovation portfolio, and the capability to innovate each in turn.

Step two: objective

Once the innovation scope is clear, name its objective. This is the step that makes everything after it possible. A project, a portfolio, or a capability without a clear objective and clear measures of success has no basis for evaluation, because there's nothing to judge the alternatives against. It's also the step teams most often gloss over, assuming the objective is obvious ("grow," "innovate") when the useful version is specific enough to measure.

Naming the objective is also where you decide what kind of value you're actually after, which is the heart of the third step.

Step three: value metrics

With scope and objective set, choose the metrics that show progress toward the objective. The thing to hold onto here is that innovation creates value in several forms, and financial return is only the most visible:

• Direct financial value, which comes in two flavors: top-line growth (new revenue) and bottom-line efficiency (cost savings). Most measurement systems are built for these, and even here the two don't answer to the same yardstick.
• Indirect or strategic value. Still ultimately financial, but implicit and much longer-term: building a capability or position the business will monetize later, such as entering an adjacency, developing a technology or operational competence, positioning against a coming disruption, or shifting toward a service-based model. BRI's own view of a portfolio objective includes exactly these, from market entry into adjacencies to defensive coverage against disruption threats.
• Mission or values-based value. Genuinely non-financial: progress against a societal or mission objective, including ESG commitments. As we've written about mission-driven innovation, an outward-looking mission generates commitment that a pure financial target rarely does, and it deserves measures of its own.
• The innovation capability itself, a special case that cuts across all of the above: the learning, option value, and reduced risk that early work produces, along with the durable ability to innovate again, which can later be aimed at any financial, strategic, or mission goal.

Match the metric to the kind of value the objective is after. Measure an efficiency project on growth, or a transformative bet on this quarter's margin, and the number will mislead you no matter how precise it is.

Putting it together

Measuring innovation isn't about finding the one true metric. It's a sequence: say what you mean by innovation (the scope), name the objective for it, then choose value metrics that fit. Skip to the metric and you get the black box, activity that looks measured but answers no real question, and, as we've argued in The Elephant in the Room, that absence of meaningful measurement is itself a primary driver of innovation-program failure. Work the three steps in order and the right measures become almost obvious, and each level, from a single project to the whole capability, becomes something you can actually govern.

Getting scope, objective, and metric to line up is what turns innovation from an act of faith into something you can measure, defend, and improve, and it's what our consulting work and Growth Forge® Software are built to make repeatable.

BRI Associates helps companies grow by drawing on decades of practitioner experience in corporate innovation and new business development — practitioners, not pundits or academics — through direct consulting, training workshops, and Growth Forge® Software, built for the unique requirements of corporate innovation and growth organizations.