Innovation Balanced Scorecard (Step2/5): Defining the Innovation Metrics & Goals

15 Aug

In the previous post of this series I discussed how to design strategic objectives in a strategy map canvas, in this post I want to talk about the criteria that we need to consider when defining our metrics and goals.

Indicators are intended to measure whether we are on the right track towards our strategic objectives. Therefore its composition must assure that we receive the right information at the right time, this is critical because it will help us to identify deviations from our strategic route and make the decisions needed to correct them.

The first step is to understand that there are different type of metrics, according to Jimmy Feldborg, who is R&D Manager at Grundfos in China pointed out that according to their timing there are three type of indicators:

• Lag indicator. The results are lagged with weeks, months or years and cannot be changed. Some examples are rewards and the number of patents.

• Current indicator. The results happen right now giving you some possibilities to act and change and thus affect the future results. Some examples are the number of ideas generated and ongoing projects.

• Lead indicator. The results are predictive for the future. You can make radical change in your approach and thus affect the results. Examples are pretty hard to give here.

Once we understand the type of indicators that we can use, the next step is to analyze the objectives of each perspective in order to translate them in metrics that best support its definition.

In the financial perspective we need to use indicators that let everyone clear the growth we are looking for in innovation. The tricky part comes when we have to decide our efficiency indicators, if we intend to pursue radical innovation the cost is not that relevant because first we need to make sure that we strength the value proposal first. When we pursue an incremental innovation, cost will be relevant because the value gap is minor than in the radical innovation.

In the market perspective we need to create a combination of metrics that show our source of incomes: income from new products to current customers, income from new products to new customers, income from new segments, income from new geographical markets, etc.

According to Jeff Murphy , an Executive Director at Johnson & Johnson, suggests that innovation metrics (internal processes) need to be dynamic by design. He continues:

1) Initially, metrics should focus on engagement, training and participation of individuals.

2) Then, as you begin to build a critical mass of capable individuals, the focus of your metrics shifts to your innovation pipeline (active projects by stage, flow of projects through concept, development, launch or kill…) and early wins. This is in addition to item 1 metrics above.

3) Finally, as your organization’s initiative begins to mature, your focus shifts to the end goals – return on investment, successful new products or services launched, revenue from new launches, etc. as well as optimizing your development and commercialization process. This is in addition to the item 2 metrics.

If an organization gets ahead of itself in the metrics area, it can lead to unrealistic expectations during the early stages. On the other hand, if it gets behind on implementing the appropriate metrics it leads to under performance, and activity without business results.

The learning and growth perspective should measure the competences we look in the people in order to generate ideas, creativity and carry out the innovation processes.

A good practice is to broken goals down from a range of years to yearly and monthly goals so we can keep track of them. Some companies build a financial map using all the indicators of the BSC and project them to represent the vision of the company.

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