Proving The Value Of Innovation – How do you prove to management that innovation is important?

Innovation is one of the key catalysts from the economic recovery – but only if senior management protects and support it, rather than cut it or even eliminate it.  The reason senior managers consider cutting innovation programs is because of the impression that it delivers little to no impact. Are there ways to prove the value of innovation?

So, how do ensure senior management sees and appreciates the value of innovation?

One method to prove there is value from innovation is through metrics. Word of warning - be careful what you measure as it can lead you to make decisions that will have unintended consequences.

Here is a process I go through when I'm working with a new organization/team:

• What is the process to build up the proof?
  • Benchmark yourself
  • Benchmark your industry/competitors
  • Define the gaps shown by the benchmark
  • Develop steps (in priority order) to eliminate the gaps
• What are the right set of metrics?
  • Standard financial metrics (revenue, gross margin, operating profit and R&D spend and then drill down and capture these numbers at the product line level.  At the product line level, also capture the CAGR (compounded annual growth rate)
  • R&D labor costs
  • IP creation (not for every industry)
  • Idea funnel (new ideas, ideas killed, ideas resulting in products)
• What are the right ratio’s to use to understand effectiveness?
  • GM/R&D (covered in more detail on a post on the blog) – The theory being that if you build a better mouse trap, the customer will reward you with a margin premium.
  • R&D per R&D person
  • Patents per employee (not my favorite but some find it useful)
  • Revenue and gross margin impact based on age of introduction (products introduced < 1 year ago, < 2 years ago, etc)
• Now what? … Go back 3 years and ask ..
  • Are these the right metrics?  If so …
  • Have they improved?
  • What plans are in place to improve them going forward?

The point is:

• Innovations can be measured
• Therefore management can “see” the impact
• If the impact is consistent, then your innovation efforts will be resilient during the touch economic times

What if you’re trying to launch a new innovation team?

• Do it .. don’t let the current economic turmoil scare you off
• Use the competitive benchmark to show what others are doing
• Show the impact if your organization were “best in class” compared to your competitors
• Show a well thought out plan to move the organization towards that target

What if you are an individual looking to secure your job during these tough economic times?

• Show your creative/innovation skill by applying them to a really tough problem facing the organization (e.g. increasing revenue, reducing costs)
• Show where previous ideas had impact
• Run a training class and show others how to use creativity and innovation in their roles … become an innovation mentor/evangelist
• Create a proposal to management showing how innovation could have impact to the organization

Conclusion

The value of innovation can be hard to prove but not impossible. It requires perseverance to dig into your organizations data and find the right set of measurements.