What are the most effective innovation metrics for identifying areas of improvement in your process?

Innovation inputs are mainly activity metrics that, in themselves, don't create financial value but are necessary for innovation. Think about how many ideation session/ online campaigns you did, how many people you trained in innovation methods, how many pitch events organized, etc. Also, you can look at the participation per BU or department and use that to further stimulate engagement.

The following metrics empower the innovation adoption: 1- Time-to-Market: Measure the time it takes for an idea to evolve into a market-ready product or service. A shorter time-to-market indicates efficient processes, agility, and the organization's ability to adapt swiftly to changing market demands. 2- Idea Conversion Rate: Track the conversion of ideas into implemented innovations. By monitoring the progression from ideation to execution, organizations can identify bottlenecks and streamline processes.

You have to be careful to drive the right behavior. Focusing on a certain number of idea submissions per period, will drive quantity but not quality. Looking at the ratio between selected and submitted ideas is a better indicator of success.

There are two simple ways to measure a company's effort in this area. The first is R&D intensity, which is the percentage of R&D expenditure relative to the company's sales. More generally, there's innovation intensity, which measures the percentage of innovation expenditure relative to the company's annual sales volume. At a more detailed level, we can make a costs breakdown such as research, personnel, machinery and technology, or current expenses, among others.

I like how 3M defined their innovation targets and turned it into a measurable financial metric: ⅓ of current revenue should come from products or services that didn’t exist three years ago

According to the Oslo Manual (2018), which is the global reference for measuring innovation, we can use various indicators to measure innovation outputs. These include the introduction of new or significantly improved products and the development of new or significantly improved processes as primary output indicators. Additionally, other measures can be employed, such as the percentage of sales attributed to new or improved products introduced in the past five years, or whether the business has entered new markets or customer segments as a result of its innovations.

It is being said to evaluate processes not just results. Seeing innovation like a classic funnel, gives a prespective to all stake holders. ROI on portfolio in the financial side, and seeing innovation in its steps and in timeframes not the overall results, are among best metrics

Tracking the number of experiments and the experiment velocity is a good indicator of activity in your innovation process. I respect how Jeff Bezos turned Amazon into an experiment factory, and measures how many experiments are done every day. He even said something in the lines of “A day without an experiment, is a day lost”.

'Time to Market' is crucial—it shows how fast you go from an idea to a product launch. Then there's 'Innovation ROI,' which looks at the financial return from your innovation projects. 'Percentage of Revenue from New Products'—tells you how much new products are contributing to your total revenue. Also, keep an eye on customer feedback and satisfaction to see if your innovations are hitting the mark. The number of new ideas generated gives you a sense of your innovation pipeline's health. The 'Failure Rate' helps you learn from what didn't work. And 'Process Efficiency' tells you about the effectiveness of your resources & cycle times. Tracking these gives you a solid idea of where your innovation process stands and where you might improve.

Looking at ROI per innovation project is a difficult one as it doesn’t fairly reflect your innovation activities. One project may be a unicorn and another may be deliberately deactivated following disappointing experiment results. The latter may show a negative ROI while deactivating it was the right thing to do. Better is to look at the ROI on your total portfolio of innovation projects.