Why are innovation key figures important?
Innovation managers are often faced with the challenge of having to develop key figures. These should provide management with feedback on the success of the innovation work and highlight potential risks.
There are several good reasons for developing key performance indicators (KPIs). :
- Strategic alignment: Innovation key figures help to ensure that innovation efforts are aligned with the company’s strategic goals.
- Evaluation of research progress: Without concrete key figures, it is difficult to measure the progress and success of innovation activities.
- Risk management: Innovation projects are often associated with major risks. Key figures can help to manage these risks and make them visible
- Making innovation culture visible: Key performance indicators can help to create a culture in which innovation is seen as an important part of the corporate identity
Challenges in the development of innovation key figures
Innovation is by definition something new and often of a qualitative nature, which makes it difficult to quantify and integrate into existing management systems. The challenge is to find suitable key figures that measure both the process and the result of innovations without becoming an obstacle to innovation themselves. Key figures that are too rigid or inappropriate can restrict creative thinking and the willingness to take risks. It is therefore important to develop key figures that promote innovation rather than preventing it.
Companies must not only consider product innovations, but also process, service and business model innovations. Key figures that cover these different types of innovation are difficult to develop.
At the verrocchio Institute, we often use methods such as the Innovation Performance Radar when it comes to making the innovation performance of the entire organization discussable (company, division, team). The aim here is not to develop quantitative and comparative benchmarks, but rather to create clarity within the team about weak points and opportunities for improving innovation performance.
Classic innovation key figures
There are a number of key figures that are commonly used by companies. I have described the respective advantages and disadvantages:
- Share of sales from new products/services
Description: The percentage of total sales generated by products or services introduced within a certain period of time (e.g. in the last three years).
Advantage: Measures directly how successful new products are on the market.
Disadvantage: Focuses only on short-term market performance and does not take long-term innovation potential into account. - Return on Innovation Investment (ROI2)
Description: A financial indicator that measures the relationship between the profit from innovation activities and the investments made for this purpose.
Advantage: Measures the financial efficiency of innovation expenditure.
Disadvantage: Can promote a short-term view and overlook long-term innovation benefits. - Time-to-market
Description: The period from the generation of an idea to the market launch of a new product or service.
Advantage: Measures the speed from idea to market launch, an indicator of agility and efficiency.
Disadvantage: Does not take into account the quality or market success of the innovation. - Number of patent applications
Description: Counts how many patents a company has registered within a certain period of time, which is an indicator of research and development activities.
Advantage: Quantitative indicator for the extent of research and development activities.
Disadvantage: Not all patents are commercially valuable or lead to marketable products. - Number of ideas submitted
Description: Measures the number of ideas submitted by employees or external partners for innovation projects.
Advantage: Shows the extent of employee involvement and the creative potential within the company.
Disadvantage: Quantity says nothing about the quality or feasibility of the ideas.
Measuring innovation culture
An important task of an innovation manager is often to improve the culture of innovation in the company. The success of measures here is often difficult to measure, as many qualitative factors play a role. Nevertheless, there are a number of key figures that (especially when measured over a longer period of time) give an idea of the effectiveness of measures:
- Employee participation in innovation activities
Description: Measures the proportion of employees who actively participate in innovation processes, e.g. by submitting ideas or participating in innovation workshops
Advantage: Shows the commitment and involvement of employees in the innovation processes
Disadvantage: Only measures participation, not the quality of the contributions or their implementation. - Internal innovation rate
Description: Percentage of innovations developed and implemented internally compared to those acquired externally
Advantage: Shows the extent of internal innovation capability and activity.
Disadvantage: Can undervalue external sources of innovation and cooperation, in some projects it is difficult to differentiate between external and internal developments - Investment in employee development and training
Description: Financial and time resources spent on promoting creativity, critical thinking and innovation skills among employees, e.g. training to become an innovation professional.
Advantage: Indicates the company’s willingness to invest in the development of an innovation-promoting workforce, enables comparison with the development of other skills
Disadvantage: Direct effects on innovation performance are difficult to measure as they also depend on other factors
Measuring the quality of innovation projects
It makes sense to compare innovation projects with one another in order to put the quality of the processes and work steps to the test. It is important to select the right key figures here, as projects are often designed very differently, e.g. in terms of scope and size. In our work at the verrocchio Institute, we often use the Project Value Radar. This is not a classic KPI tool, as it does not focus on quantitative benchmarks, but rather a method for discussing our own innovation performance within the team and making projects comparable.
Other key figures for measuring innovation projects:
- Degree of innovation
Description: Measures how much the project deviates from existing products, services or processes. Distinguishes between disruptive (radical) and gradual (incremental) innovations.
Advantage: Helps to understand and evaluate the type of innovation. If the type of innovation is anchored in the strategy, this allows clearer project statements to be made
Disadvantage: Subjective assessment; radical innovations are not always more successful than incremental ones. - Market success
Description: Includes key figures such as market share, customer feedback or sales figures for new products/services.
Advantage: Gives direct insight into the success of a newly developed product or service
Disadvantage: Market success is usually also influenced by external factors that have nothing to do with the innovation work itself (e.g. marketing expenditure) - Development costs
Description: The total costs incurred for the development of a new product or service. Provides a comparison of cost efficiency between different projects
Advantage: Allows a comparison of financial efficiency between projects.
Disadvantage: More complex or more valuable innovation projects often require higher costs. Without taking into account the innovation potential of a project, it is rather difficult to evaluate it using this key figure.
