This article discusses how measuring innovation should be approached differently for different types of innovation. It also talks about why this differentiation is so important for corporates in order to succeed in business model innovation to gain long-term sustainable growth.
Companies shouldn’t approach measuring innovation as one size fits all
To effectively measure and manage innovation within a company, it is crucial to differentiate initiatives between various types of innovation and determine which system they belong to. Incremental innovation, which aligns with current business goals, can be handled within the existing system of processes, rules, and key performance indicators (KPIs). This includes initiatives like digital transformation and customer centricity, which enhance current services.
However, business model innovation, characterized by high risk and uncertainty, necessitates a separate system with its own set of processes, rules, and KPIs. This type of innovation aims to explore new business opportunities in the future and cannot thrive within the constraints of the current system. In other words, measuring business model innovation should be approached differently than measuring incremental innovation.
How Innovation Accounting Should be approached
The first step in getting innovation accounting right is to acknowledge the necessity for these two distinct systems and ensure a clear understanding of which initiatives fall under each. By doing so, stakeholders and members of the innovation team will have a clear direction, knowing what actions to take, what outcomes to expect, and what not to expect when engaging with these initiatives.
Now, start by measuring the teams that do the actual testing. As ventures based on new business model takes time to generate a return on investment, it is important to find other KPIs than traditional financial KPIs to measure if a team is making progress. We start by measuring how fast a team is able to run experiments, this KPI is called experiment velocity. Another KPI is the learning ratio which indicates how well a team is able to learn from the experiments that they conduct. By starting off with these two KPIs, you start measuring the actual progress a team is making.
How you can start with Innovation Accounting
One way to implement Innovation Accounting is by using a tool. GroundControl, for example, is one of the first innovation accounting tools for corporates. By running the experiments on the platform, day-to-day work is instantly transformed into metrics that indicate how well different innovation teams are performing. This could be a good starting point for measuring your innovation efforts.
