Measuring ROI–when it comes to innovation–can be tricky. Michael Graber uses three categories of metrics to gain a holistic picture of how to measure innovation, and how investment in innovation correlates to concrete ROI and revenue.
When organizations begin their innovation journey, they have no idea how to account for the many forms of value that get created. They may also have dormant fears about changing modes of work to effectively innovate.
Yes, there is tangible value (read: real and significant ROI) generated from innovation, but there are also many other forms of value that range from concrete and easy-to-measure to soft and fuzzy.
Without having a set of metrics some professionals are justifiably reluctant to invest resources, time, and money into an innovation program.
This hesitancy is understandable, as innovation can carry within it the power to transform an organization and lever its growth, meaning that the discipline is a mandate for positive change. Change in any form can be perceived as a threat to those embedded in operations and well-defined processes. Therefore, many will not endorse even a single innovation project without the guardrails of metrics.
May this guide ease any concerns about measuring the value of innovation. Think about Innovation as having three types of very hard metrics, more fluid ones, and some that are as difficult to capture as air. Let’s call the three categories Rock, Lava, and Smoke to make them a little more evocative.
Rock metrics are rock solid: things you can count. Here are a handful of Rock metrics. The first one is the most telling metric of how well your organization creates, launches, and markets innovation: revenue of innovations launched.
The revenue can come from new products, services, and business model innovations. When robust you can account not only for the value for things sold, but also a rise in brand equity and market share.
Lava metrics are a little harder to capture at first but are important inputs when understanding how much an innovation program can generate different types of value. In any Innovation Project a portfolio of market-tested concepts is generated that has short-term, mid-term, and longer-term and longer-reaching concepts. Many clients perform business cases on the whole portfolio and create a total valuation on the option value created in the process.
Then, a unit of measurement needs to look at the cultural influence of working on innovation. How much is deeper collaboration, short time cycles, cross-functional training, and key market insights worth to your organization? These elements of value are more fluid, but critical to the healthy growth of an organization.
Lastly for lava metrics, find a way to measure the value created by innovation work creating new strategic growth areas for the company and its influence on the organizational strategy.
Steam metrics are the hardest to capture. The include performance metrics on how many boot camps, hack-a-thons, workshops, and projects were completed as well as the anecdotal feedback from employees. This metric also puts a value on feedback from customers, partners, and consumers who participate in the process. In Steam you can find the cultural impact of an innovation program.
Between these three metrics you can capture all of the value of innovation.
Michael Graber is the founder of the Southern Growth Studio. He helps smart companies grow by fusing design thinking, innovation methods, brand and business strategy, behavioral economics, market research, ethnographic studies, and focused creativity.
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