Community Forum – Innovation Index

Resource Type
Survey (Community Forum)
Author
Innovation Research Interchange
Topics
Innovation Metrics, Finance for R+D
Associated Event
Publication

Do you use an Innovation Index?

At John Deere, we are considering developing an “Innovation Index”, an indicator that measures the health and performance of our innovation efforts. We recognize that no single metric can provide an adequate picture of innovation health and performance, but the notion is that an index, comprised of a few key metrics, each measuring some different dimension of innovation health/performance, and integrated into some type of algorithm, could be a dashboard-level indicator. Certainly, the scope of innovation of interest, based on the overall growth strategy of the enterprise, will be a foundational piece that the index would need to focus its measurements around.

We have several innovation metrics that we track, some being lagging and some being leading. We are interested in other companies’ experience with the idea of an Innovation Index and the individual metrics that might comprise an index.

Thank you for sharing your views on this subject. – Carl Loweth, Manager, Technology Innovation Strategy, Deere & Company

Community Responses

Glenn Vonk, Director/BioVenture Centre, BD​
I think it could be interesting. History suggests that it’s hard to measure R&D productivity in real time with a single indicator. The pitfalls of NPV, number of patents, number of publications, or other productivity indicators (lines of code written, or number of “new products”) are well-known. Also, it seems this would be dependent on a company’s predisposition towards leading innovator, fast follower, or integrator. What indicators make sense to you?

K. Anne-Rivers Forcke, IBM Certified Project Executive, IBM Research :: Human Ability and Accessibility Center​
One of the key tools we use is an innovation adoption index; because our team sits within the Research organization (as opposed to a brand, product or line of business), the “innovation’ we bring to the table is far less of an issue than the adoption – by internal and external groups – of that innovation.

Having the “adoption” element within the index is equally important for us.

Miles Drake, CTO, Weyerhaeuser
It was not clear if you were looking for the set of metrics that comprise an innovation scorecard or a means to combine leading and lagging into a single dashboard metric.

As you indicate the metric needs to fit the strategy and be a relevant driver for the business model. The metrics should lead to improvement actions for the high priority innovation processes that deliver increased company value. The challenge is finding the balance between direct business outcome measures that are always lagging and complex – such as cost or market share relative to competitors. Finding a simple leading indicator is tough.

I believe there should be metrics that support clear targets from business outcomes including growth and business portfolio aspirations, then create the necessary pipeline response with quantitative impact on the required targets. 

In our product manufacturing businesses we use output/lagging metrics related to new product impact and cost reductions. These measures are reviewed against strategic targets. The lagging measures and the forward strategic target are then in turn the target for the forward looking pipeline measures of risk adjusted impact from the pipeline projects. Rohm and Hass had a ‘coverage metric” which looked at growth aspiration gap and determined if the portfolio of innovations was sufficiently robust to deliver the gap.

Through this cascade, the front end technology organization can start to identify important boundaries such as necessary scale of innovations – they need to move the dial, costs to develop, impact on the existing production process and  capital constraints. It makes the domain for innovation harder but drives the development of innovations that are the ones we want –  in our case -big, differentiated, fit the assets and low capital. You will of course have very different drivers and strategies.

Rob Kirschbaum, VP Open Innovation, Royal DSM​
I believe the metrics and score are coming from McKinsey, but I am not 100% sure. See slide of the DSM score 2006 ; 2010 and Industry (peers) average.

Bill Miller, IRI Emeritus, President, 4G Innovation LLC​
An Innovation Index (II) should first measure how well your people, including executives, understand innovation that transforms markets and  industries and specifically how markets and industries evolve with dominant designs that are built with three layers – (1) capabilities including internal and  external supplied to customer with partners as products and services; (2) business models with partners and (3) industry structures. Then the II should measure secondly the activities that discover new opportunities driven by fundamental trends such as empowerment of the customer or changes in energy supply and create new capabilities to serve those opportunities. The capabilities should cross all functional disciplines, including finance, engineering, marketing, production, IT, sales and service. The metrics of activities need to measure not just targets such as new products or services, but changes to business models and industry structures, such as distribution and service channels. Customers want solutions that a single company can’t provide so partnerships are needed. The II should measure the pipeline of  projects as experimental activities intended to produce all the mentioned results. One key metric is the amount of investment in these pipeline activities. The pipeline should be doing experiments with customers and suppliers using supplements like open innovation and co-creation.   For an example of innovation that targets new dominant designs, take the hypothesis in an innovation roadmap that the internal combustion engine (either CI or SI) is approaching certain death (inefficiency, emissions, high lifecycle costs …) and will be replaced by a family of hydrogen fuel cells with electric drive. In addition, hydrogen production capability as a fuel is an opportunity for Deere because the production can be distributed at the point of use and farmers have the land needed. The opportunity is to take a bigger part of the new dominant design. In the meantime before the switch to fuel cells, electrification of the drive train can be done. There should be a pipeline of projects to create the capabilities needed to serve that hypothesis. Here’s another example of innovation that targets a new competitive capability. Engineering is too costly and still produces inadequate quality especially when systems have high software content. There is a game changer in capability called immune system engineering that produces systems with greater productivity in less time but with higher quality that have lower lifecycle costs because they are largely self-diagnosing and  self-healing. Here’s another example – business models of manufacturers have changed and become hybrids with services. GE pioneered this shift about 20 years ago with earlier forms of embedded immune systems in their products linked back to monitoring services. Airlines wanted an expanded value proposition from GE such as uptime rather than spare parts. Railroads wanted logistics. Analytics is part of the technology portfolio that enables immune system engineering. GE is continuing to do strategic acquisitions to build that portfolio. After GE pioneered the shift to services, IBM followed their example. All of that innovation is based on capability development that needs an architecture to describe the structure of capabilities that can become new dominant design based on platforms targeted at separate markets and industries. In 1999, I had recommended that Intel buy PWC in 2000, but IBM acted and Intel didn’t. So, acquisitions are an important part of capability development. The construction industry has had low productivity improvement for decades and is ripe for a major acquisition to create a new dominant design. Finally, the II should measure economic value added (EVA) and the pipelines should form a dynamic model that produces EVA. All of this thinking is part of the fourth generation (4G) of innovation theory and practice. I’d be glad to send you a white paper. BTW, Stanford is teaching a small part of 4G as lean innovation for more effective, faster and lower cost entrepreneurship. Other business schools are laggards as they were with lean production. No university has yet recognized that 4G covers more than business and includes engineering. No university has yet recognized that innovation needs a School of Innovation equivalent to law and medical schools.