As a segue from the previous post on scoring innovation with metrics, Harvard blogger Scott Anthony posted a continuation this morning on The Danger of Innovation by the Numbers.
In short, he stresses that R&D must be tied to the market and that effort should be made to track the long-term impact of innovation development efforts.
His argument is backed by the claim that too much focus on the numbers will push researchers into a corner. A recent Harvard study showed close to 80% of respondents say they tie innovation success to the number of patents filed.
Scott takes the lead in asserting that patents for patent’s sake can be a null metric despite its current status as industry best practice. This metric can derail potentially lucrative research and prevent an opportunity to reach true value and success for the organization.
Instead of measuring the number of patents, a fool’s game for quite some time now, start measuring revenue generation tied to each patent in relation to its initial investment in the greater context of product adoption. Scott’s onto something by recommending taking an output focused approach to metrics beyond the walls the organization and into the market where ultimate success lives.
A recent paper by McKinsey proposes a new way to measure innovation.
Assumptions the paper makes:
- most metrics fail to connect innovation to company performance,
- innovation can be tracked against competing firms,
- if a company is out-performing the market, it must be innovating,
- the impact of innovation can me measured over the long-term.
These assumptions roughly comprise their new innovation performance score (IPS) which shows the compound annual growth rate for a specified period (multiple years) that can be attributed to innovation. It measures excess company growth.
Mistakes the paper makes include:
- seeing investment into a particular technology as innovation,
- that culture and agility can be measured as part of the metrics,
- revenue growth can be compared to the overall market.
The lessons McKinsey reports includes:
- ‘strong’ innovators do consistently well,
- top innovators continued to perform well through economic downturns,
- product, process, and business model innovation in particular are necessary for superior innovation impact, there may be optimum levels for achieving innovation.
This is a bold attempt by McKinsey to get into the market of measuring and influencing investment in the future growth of companies. What it does well is begin the conversation around formalizing the idea of innovation as an investment to determine growth.
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