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In a previous
article, we wrote of the need for what we called a Strategic
Scorekeeping System. The system must be designed to measure the success of the
strategy from four perspectives, the first three of which are the
traditional financial measures, customer satisfaction measurements,
and the effectiveness of internal business processes. These are
essential tools for understanding how successfully your strategy
has been, and will be, implemented. But the fourth area is perhaps
the most critical since it drives the other three. And that is innovation.
Innovation is the driving force behind the success of the business.
It ensures that the company is producing products and services that
will generate future revenue.
But how do you measure innovation? In our Group's work with clients,
we use a set of measurements designed to look at innovation from
different viewpoints. As with any system, there is no single measurement
that can capture the entire innovation process. But it is a good
idea to ask yourself the following 10 questions to assess your own
company's capability to innovate.
1.
How many of your products introduced in the past three years are
still in the market?
This measurement is designed to assess the survival rate of your
product launch. It allows you to assess the response of the market
to your innovation.
2.
How many of your new products are exceeding the original revenue
forecasts you made for them?
This measurement is designed to determine how successful your product
has been in terms of revenue and your ability to judge markets.
But innovation must be effective...
3.
...so how much gross profit has been earned from these new products?
This
measurement is designed to determine whether you are spending enough
in research and development (R&D) and whether you are spending it
effectively. R&D investments must be converted into new products
that yield a solid return.
4.
What has been the cumulative three-year R&D expenditure
allocated only to new products?
This
measure is designed to determine how much of your total R&D
investment is being allocated to the development of new products.
5.
What has been the cumulative three-year annual revenue generated
from new products?
This measures the revenue from your innovation efforts compared
with the total company revenue from sales. If innovation is important
to growth, then this ratio will probably be 15 to 25 per cent annually.
6.
What is the cumulative three year expenditure allocated for new-to-the-world
products?
This measurement is designed to assess the level of investment allocated
to totally new and different products as opposed to line extensions
of existing products.
7.
What percentage of new product revenue comes from the following
types of product innovations?
New to the world.
New
to the company.
Line extensions.
Product line improvements.
If
you are attempting to have a balanced portfolio of sources of innovation,
then 40 per cent of new products should be in the “new-to-the-world”
and “new-to-the-company” categories.
8.
What number of new product concepts is at each stage of the development
process at year's end?
This measure gives you an indication of how full the pipeline for
new product development is. You should be able to judge the potential
revenue from future products generated by your innovation process.
9.
What is the total annual revenue from new products per employee?
This measurement is designed to assess the effectiveness of your
employee resource allocation and the learning rate of your employee
base. Innovation from the internal knowledge base is critical for
the future success of your company.
10.
What are the cumulative three-year net profits from commercialized
new products?
This will give you an indication of your total return on innovation.
This is derived by dividing your three-year net profits from new
products by the cumulative three-year total spending on new product.
Thomas Kuczmarski, in his book Innovation, reminds us
that innovation is a mind set as much as a process. What you are
is based
on what you think. 
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aining
a competitive advantage is only half the battle. Sustaining this over
a long period of time is the way to win the war. In our many years
of working with CEOs and their executive teams in formulating strategy,
We have always emphasised the need to review strategy continuously.
To do this, it is essential the organizations have a clear way of
monitoring and measuring strategy.
