It is perhaps Canada’s worst-kept secret when it comes to the potential growth of its economy: Canada does not take enough advantage of its innovation capabilities, and this is impeding its overall growth.
Innovation is defined as a process by which economic and social value is extracted from knowledge by generating, developing, and implementing ideas to produce new or improved strategies, capabilities, products, services, or processes.1
By that very definition, the only way for companies to know if they have produced something new and improved is to measure the outcome. Through an examination of the innovation metrics currently used by Canadian firms, we get a window into their criteria for selection and their associated performance values.
Why Measure Innovation?
Above all, the evidence shows us that Canadian companies can effectively use metrics to improve their innovation performance and competitiveness. This is an important underlying reality. Evidence also points to the importance of having corporate leaders actively involved in innovation and assuming accountability for the results. By using innovation metrics effectively, corporations can help to fine-tune their innovation activities, increase their innovation success rates, and contribute to firm-level productivity gains.
Our research demonstrates that Canadian executives generally recognize the value of innovation metrics for the management of their innovation activities. They also realize what this contributes to the alignment of corporate culture with business goals and the enhancement of people’s capabilities, and what it means for better communication with the key players in their innovation ecosystem (i.e. customers, suppliers, partners, financial institutions, and regulatory agencies).
Most surveyed companies (60 per cent) evaluate their innovation activities to determine their performance, and take corrective action if necessary. But most of them do not use the minimum number of metrics that provide the biggest return on investment (ROI). Even so, a large percentage of Canadian firms surveyed feel satisfied with their current innovation metrics. Further, a substantial 40 per cent of surveyed companies do not use any innovation metrics at all.
Companies that use 6–10 innovation metrics achieve significantly better performance, on average, than those firms that use either fewer or more metrics.
There is a relationship between the number of innovation metrics that companies use and their financial performance. Our research demonstrates that companies that use 6–10 innovation metrics fare much better. They achieve significantly better performance, on average, than those firms using fewer or no metrics at all. Our findings show that 40 per cent of companies surveyed do not use any innovation metrics and that a further 30 per cent of companies use fewer than 4 metrics to assess innovation performance, while fewer than 8 per cent of companies use 6–10 metrics: the innovation metric measurement “sweet spot.”
A Framework for Measurement
A strong innovation measurement framework enables firms to take a systematic approach to measuring activities across competitive domains to address present and future needs. They are valuable tools to help firms select and use innovation measurements.
Considerable care is needed when selecting the important aspects of the innovation cycle to measure, and the right elements of innovation performance on which to focus. Much is dependent upon specific company goals and characteristics. They include the firm’s areas of strategic importance and the innovation programs identified as those that matter for achieving the competitive business goals of the company.
There are several pitfalls to avoid in acquiring meaningful measurements. Innovation targets should be decided upon before measurement metrics and indicators are established include both quantitative and qualitative (e.g., ROI, number of patents, and asking how well a particular strategy matches the market evolution).
Guidelines for Measurement
There are overarching guiding principles to help organizations select a balanced portfolio of innovation metrics. By following key steps in designing, using, and adjusting innovation metrics, corporations can meet their innovation needs and, at the same time, help to ensure internal company accountability for innovation investments.
Developing and using metrics to manage innovation and competitive growth is a multi-stage process. Organizations can help meet their corporate needs by following some simple yet key steps in the design, use, and adjustment of innovation metrics to measure innovation performance elements, both quantitatively and qualitatively.
Analysis of the usage by Canadian industry of more than 80 innovation metrics shows that companies prefer financial, product, and customer outcome measurements.
Conclusions and Recommendations
Canadian businesses need to make the best use of innovation metrics to improve their innovation performance and competitiveness. The following recommendations will help them achieve their maximum potential:
- “What gets measured gets done,” goes the saying and, indeed, metrics do drive behaviour. Our findings suggest that over 60 per cent of the firms surveyed use few, if any, metrics to manage their innovation activities—and their performance suffered. This area can, and needs to, be addressed through management practice and process.
- Firms need to select a balanced and tailored portfolio of innovation metrics to suit their organization. The “sweet spot” from the survey results pointed to the optimal number of metrics as being 6–10. Anything less than this number is unreliable; anything more than this number can become an administrative burden. The most important criteria for selecting the metrics are alignment with business strategies and correlation with competitive performance in the market.
- Chosen metrics need to evolve and be adjusted to reflect competitive imperatives and industry realities. These metrics must be consistently applied throughout the organization, with appropriate incentives and rewards to recognize the importance of the innovation process.
- Some metrics are more important and valuable than others. Often, those that are most used are not the most valuable. Our research has shown that use of certain combinations of innovation metrics can affect financial performance. Use of the “relative associated performance” (RAP) value of a metric, introduced in this report, can provide a better indication of the corporate culture and the quality of the innovation management process. The RAP metric value identifies how well a company is performing by the relative value that it is receiving. These pre-established tools help to design, use, and adjust innovation metrics to meet organizational needs.