5 Steps for measuring the ROI of innovation
- Business Model Innovation
A successful innovation team needs more than just good ideas – it needs tangible systems and processes that encourage ideation, collaboration, and experimentation. In a recent post, we talked about the importance of establishing a governance framework around your innovation portfolio. Here, we’ll share the steps you need to take to set the right strategic metrics and ensure your team’s efforts are measurably successful.
5 Steps for measuring the strategic success of your innovation portfolio
Setting strategic metrics helps ensure that your innovation initiatives are fully aligned with your business objectives. Here are five steps to help you do just that.
1. Know where you want to play
Before you build specific metrics, your business should have a collective vision on the role it wants to play: what is the impact you want to have on the world, within the industry and for your customers? This vision should be reflected in the way you operate your business today, as well as how you will develop your business in the future. The latter should lead to a roadmap of the strategic bold steps your business needs to take in order to realise the vision. Your innovation portfolio should be a representation of those bold steps.
2. Define your strategic metrics and targets
How successful you are in the realisation of your strategic bold steps can be measured by linking metrics to the strategic choices. Your metrics and targets should be formulated in three key areas:
- Financial (e.g. percentage cost reduction or revenue growth)
- Strategic (e.g. a set percentage of revenue from services or the percentage of customers of which you have behavioural data)
- Corporate (e.g. enhanced brand recognition or CO2 reduction)
These targets will set tangible, measurable goals for your innovation team to work towards – while also enabling visibility into the success of your efforts.
3. Review your innovation portfolio
Once you have your set metrics, you need to take a look at your existing innovation initiatives and determine which one contributes to each strategic metric – and how. Basically, each innovation project should ladder up to at least one strategic metric and help advance it in a valuable way. If not, you should ask yourself why you are putting effort into it.
The first time you do this, it’s likely you’ll find some gaps where some metrics aren’t being supported at all, or very limited. If that’s the case, we recommend a strategic review of your innovation portfolio so that you can add new projects that fill the gaps.
4. Integrate success metrics into your innovation process
It may seem counterintuitive, but innovation teams need clearly defined processes to do their best work. As you establish a scalable, repeatable process for your organisation, be sure to incorporate checkpoints between each phase so that people are trained to check for alignment with strategic metrics. This will prompt your team to innovate with the end in mind, instead of just trying to prove that their idea is successful. With that process in place, everyone on the team will have the language to talk about the strategic targets and you can have collaborative discussions around where to focus your efforts and resources.
5. Build a culture of continuous evaluation
As your team moves forward with their innovation initiatives, it’s important to periodically review how the different innovation initiatives contribute to the strategic metrics. This way, you can have a clear, real-time picture of how your innovation portfolio is contributing to the business’ goals. For some metrics, it is quite obvious to show the contribution of the innovation initiative, for others a direct relationship is more difficult to prove. For the latter, we advise to use the ‘confidence score’, a level showing the confidence you have that the initiative will eventually result in the targeted contribution to the metric. This will help you to make decisions on what initiatives to continue, pivot, stop or start. Normally, this happens in the innovation board.
Bonus tip: supplement your strategic metrics
As you evaluate your projects in terms of how they align strategically with the business’ objectives, there’s another layer to keep in mind: innovation effectiveness. These metrics, like the ease of reaching customers, level of management buy-in, value driven mindset within the company and number of innovation partners in your network, tell you how good you are at innovating. Consider incorporating these elements into your measurement dashboard so that you have visibility into the overarching success (or lack thereof) of your innovation portfolio.
These forms of innovation accounting will facilitate the freedom for the innovation team to get creative in reaching the different objectives while keeping your innovation team accountable and ensuring you have tangible outcomes to put in front of decision makers. A win-win all around.
Curious to see what this approach could look like at your organisation? Get in touch and let’s chat about how your team can implement these five steps to measure the ROI of your innovation efforts.
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