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| Shyamal Majumdar: Measuring innovation | | Without well-laid-out performance metrics, the idea of an innovative mindset can be just another fuzzy concept |
| Shyamal Majumdar / Mumbai Jul 09, 2010, 00:44 IST |
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How do you measure a company’s innovation mindset? Ask the Tata group.
The Tata Quality Management Services (TQMS), in alliance with Julian Birkinshaw, professor of strategic and international management at the London Business School and world-renowned innovation expert, has developed a tool called Innometer that helps companies manage innovation and its complexities.
The Innometer assesses the “innovation process” and “innovation culture” of companies, and helps design interventions. The Tata Group Innovation Forum (TGIF) is using the Innometer to encourage innovation in Tata companies, first, by enabling a company to compare its innovation propensity to domestic, sectoral or global benchmarks, and second, by developing a sense of urgency among employees to improve the processes that support innovation. In essence, the Innometer helps a company think and strategise its innovation initiatives.
The entire concept is based on Prof Birkinshaw’s Innovation Value Chain. The aim is to generate ideas from various sources: from within a particular team; from other teams across the company; from customers, end users, competitors, related industries, etc. The list of new ideas is then screened and categorised to determine the degree of technical difficulty to develop in terms of engineering time and resources versus the commercial return on developing such a product or a new feature. It’s possible that the new idea will not bring the company or business unit direct commercial success but will help it maintain the products’ competitiveness.
The benefits of Innometer and the move to drill down innovation to every person on every shop floor have been tremendous for the Tata group, most of which have been well chronicled. To be sure, the Tatas are not alone; there are quite a few Indian companies that are doing cutting-edge innovation.
But, where most fumble is on how to measure their innovation efforts. That’s important because an intangible thing like innovativeness of an organisation and its employees can often become just a fuzzy idea in the absence of well-laid-out performance metrics. The biggest hurdle that companies face is speed, or the time it takes to move from idea generation to initial sales, which makes setting timelines and milestones that much more difficult.
Indian companies aren’t alone — this is a problem being faced by companies all over the world. A Boston Consulting Group study in 2009 found that companies routinely do a poor job of measuring their innovation efforts — and, as a result, often make decisions more on the basis of guesswork than hard data. This comes at a potentially sizeable cost.
The survey, covering 2,700 executives, found that only a third of company executives were satisfied with their company’s innovation measurement practices. While most executives believed that innovation should be tracked as rigorously as other business operations, less than half said their company actually did so.
A majority of companies continues to rely on a handful of metrics to measure the full scope of their innovation activities. One of the key findings was that companies consider themselves most effective at measuring innovation outputs (such as revenue growth, shareholder returns, and brand impact). They consider themselves far less successful at tracking innovation inputs (for example, dedicated resources, such as people and funds invested) and the quality of their innovation processes.
Broadly, most companies agree that innovation activities should be measured, but do not follow through with that conviction for a number of reasons. Uncertainty about which metrics to use was the most common one (32 per cent of respondents). Tellingly, though, a nearly equal percentage said it wasn’t a high priority — which speaks volumes about the problem and suggests that for those companies, things are unlikely to change for the better, BCG said.
A smaller number of respondents blamed the lack of support from top executives and the cost of constituting an effective measurement programme. A few also said that many in their company believe the myth that innovation equals creativity and that creativity can be stifled by measurements.
This is surprising considering that innovative companies generate vastly superior total returns for shareholders. Globally, on an annualised basis, innovators outperformed their industry peers by 430 basis points over three years; over ten years, they outperformed them by 260 basis points. The pattern of superior performance for innovators held when viewed along regional lines as well.
The point is that for any such scheme to succeed, there has to be a buy-in by employees. And that can be done through incentives. But surveys have found very few companies make aggressive use of this lever and do not consistently tie incentives and rewards to innovation metrics.
However, the success of the Tata group and others shows there is reason to be encouraged.
BCG says over the last three years, companies have gradually been raising the number of metrics that they employ. In 2007, 60 per cent of respondents said their company uses five or fewer; in 2009, that percentage fell to 52. The number of companies that use 11 or more metrics has also increased appreciably.
This suggests that at least some companies are getting the message and acting on it. What about your company?
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