Sunday, March 24, 2013

Innovation Metrics

Innovation metrics is always a hot topic and a welcome ice breaker in any cocktail party (at least at my house). It's a topic that I discuss at length in my book, Living in the Innovation Age (TekNirvana, 2011). In Chapter 9, titled "Knowing What to Measure – Picking the Right Innovation Metrics", I explain how picking the correct mix of innovation metrics is key to inducing the desired behavior. That's because, as I explain in the chapter, what you measure will most certainly have an impact on how your organization behaves and views your innovation initiatives. Some of the more common innovation metrics include:
  • Return on Investment (ROI)
  • Total Research & Development (R&D) budget or total research and development headcount
  • Number of ideas submitted by employees
  • Percentage of sales from new products or services
While all of these metrics can be valuable for driving investment in innovation and evaluating results, each metric by itself provides a narrow view of the total innovation picture. Additionally, each metric by itself can induce both positive and negative behavior. For example, consider the seemingly straightforward and innocuous metric ROI. While ROI is most certainly a meaningful measure, it might cause an organization to avoid a potentially risky but highly lucrative market in the long term in favor of a lower potential but more measurable market in the short term.

Scott Anthony recently posted a blog entry titled "How To Really Measure a Company's Innovation Prowess" in HBR, which also addresses the topic of innovation metrics. Since the primary purpose of innovation for private companies is financial impact, Scott discusses Return on Innovation Investment (ROII) as a reasonable, aggregate measuring stick for innovation. Not surprisingly, ROII is calculated by taking the profits or cash flows produced by innovation and dividing that figure by the cumulative investment required to create those returns. ROII can be further sub-divided into three more micro metrics as follows:
  1. Innovation magnitude (financial contribution divided by successful ideas)
  2. Innovation success rate (successful ideas divided by total ideas explored)
  3. Investment efficiency (ideas explored divided by total capital and operational investment)
While ROII and its sub-divided forms appear to be reasonable measures, the challenge is always having the data to actually calculate them. The lack of common definitions and publicly available statistics makes bench marking difficult. Simple questions, like "what defines an idea?" or "what does 'success' mean?" need to be answered in consistent ways - a concept that I discuss in my book as well.

The Bottom Line
Defining the right metrics for your innovation efforts is both an art and a science. It can especially be tricky since there is no single answer that is appropriate for every organization, which means that the optimal set of metrics will vary from company to company. Therefore, the best approach is to use a balanced mix of metrics that focus on the entire innovation life cycle from inputs to outcomes.

Sunday, March 17, 2013

Let there be [more] light...

Innovation is not just a fancy term for entrepreneurs to make more money with new ideas and products. Innovation has real value in helping improve the lives of people and our society as a whole. This is an area that I focused on in my book, Living in the Innovation Age (TekNirvana, 2011). One fascinating example of this was how students from the Massachusetts Institute of Technology created the solar bottle bulb – a simple, yet effective innovation that costs less than $3 and only requires a one-liter soda bottle filled with a mixture of purified water and bleach to provide approximately 55 watts of daylight. This innovation solves a challenge faced in numerous poorer communities with cramped settlements of small metal roofed houses that do not get any sunlight in their homes.

Businessweek recently covered the story of an innovator who has created one more way that the poor can get clean and cheap light. Better yet, this one doesn't require daylight, which means it can provide light even after sunset. Kerosene lamps used in many developing countries in addition to posing fire hazards and injurious to health are also a major expense for many of the world’s estimated 1.5 billion families without electricity. Poor households typically spend at least 10 percent of their income on kerosene, as much as $36 billion a year worldwide, according to the World Bank. British industrial designer, Martin Riddiford, has figured out a way to use gravity instead of kerosene. He has created GravityLight - a pineapple-size lamp powered by a 25-pound weight that falls about six feet in a half-hour and shines slightly brighter than most kerosene lamps. The catch - once the weight reaches bottom, it must be manually lifted to repeat the process since GravityLight ingeniously uses human power stored as potential energy. GravityLight is slated to have its first field tests this summer in Africa, Asia, Latin America, and the Middle East. Once Riddiford’s team works out the final kinks, the basic model is expected to retail for about $5. Not bad at all.

The Bottom Line
Innovation can help proactively improve the quality of life for those less fortunate. Even simple innovations such as enabling members of poorer communities to get daylight in their homes or providing a safer, cleaner, and cheaper alternative to kerosene lamps can substantially improve the lives of those who live in under developed parts of the world.