Measuring Innovation:

Challenges and Best

Practices
SubmittedBy:
Principal Author: - Ms. Kanika, Asst. Prof., BMIET, Sonepat

Abstract
Innovation has become a significant concept in present state of affairs. It has become
imperative to calculate the innovation in order to handle it effectively and efficiently.
However, measurement & calculation of the concept of innovation has turned out to be a
difficult task. On the basis of literature review, policies of the organizations, professional
knowledge and analysis of data collection findings, this paper explains a larger view of
challenges and best practices in measuring innovation. After having a glance at key
challenges, the recommendation regarding use of an innovation control panel was presented.
The control panel should comprise a set of measurements in each of the three groups of
inputs, process and outputs of innovation. The Metrics for in depth explanation of each
group is detailed in the later chapters.

INTRODUCTION
The business surroundings has become increasingly active and cut-throat. Modern
developments and trends in globalization and technology are the main factors contributing to
these predetermined changes. In such a changing environment, only those businesses will
succeed that can cope up with day-to-day changes quickly. A base for such competency is the
capability to innovate. Innovation as a term is not only related to products and process only,
but is also related to marketing and organization. Schumpeter (1934) described different types
of innovation: new products, new methods of production, new sources of supply, the
exploitation of new markets, and new ways to organize business. Drucker (1985) defined
innovation as the process of equipping in new, improved capabilities or increased utility.
Innovation is closely related to organizational learning. Thompson (Thompson VA, 1965)
defines innovation as the generation, accept- ance, and implementation of new ideas,
processes, products, or services. According to Zaltman et al. (Zaltman G, Duncan R, Holbek
J., 1973) and (Rogers., 1983, 1995) , it is an idea, practice, or material artifact perceived as
new by the relevant unit of adoption. Amabile et al. (Amabile TM, Conti R, Coon H, Lazenby
J, Herron M., 1996) define innovation as the successful implementation of creative ideas
within an organization (Hurley RF, Hult GTM, J., 1998). The innovation process involves the
acquisition, dissemina- tion, and use of new knowledge (Damanpour F., 1991; Johnson JD,
Meyer ME, Berkowitz JM, Ethington CT, Miller VD, 1997; Moorman C, Miner AS, 1998;

Verona G., 1999). There seems to be wide agreement that learning climate and firm
innovation are highly correlated, and many authors have called for an examination of how
they are linked (Hurley RF, Hult GTM., 1998; Damanpour F., 1991; Goes JB, Park SH, 1997;
Sinkula JM, Baker WE, Noordewier TA, 1997). Innovativeness is one of the primary
instruments of firms strategic movement to increase the existing market share, to enter new
markets, to gain reputation in customers perception and to create cut-throat and healthy
competition. In the past decades, the essence of innovation is largely superior and it has
become an important supplier to the long-term survival of the businesses, since marginal
value of old products and services are reducing as it becomes outdated with the fast changing
modern techniques, technologies and tuff world-level competition. This process has caused
an even greater interest on improving products, services and processes for which innovations
are indispensable.
An innovation is defined as an new idea or noble product that is accepted by the markets as a
novelty object. The perceived newness of the idea from the individuals point of view
determines his or her reaction to it. If the idea seems new to the individual, it is an innovation
(Robertson and Tu, 2001). An innovation consists of many technical information about how
the products and processes can be improved which is much effective than existing set of
products or processes. The innovativeness of a new product and firm innovation synergy is
crucial for which many factors are responsible. An innovative product present opening for
firms in terms of development, profitability and expansions into new areas as well as allows
firms to increase ready for action improvement, innovation by itself is defined as the
generation, acceptance, and implementation of new ideas, processes, products or better
services. The innovation process includes the acquisition, dissemination and use of new
knowledge (Calantone et al., 2002) and successful implementation of creative ideas within
an organization (Amabile et al., 1996). Innovation is a process of embryonic some values for
overseeing new product development while a product is something that is sell by an group to
its customers. It can be referred to as goods (physical, tangible products) or services
(intangible products). Product development is the set of activities beginning with perception
of a market opportunity and ending with production, sale and delivery of a product (Ulrich
and Eppinger, 2007). Product development demands the integration of many actors of
different knowledge and expertise in order to develop a high technological product (Chux
Gervse Iwe, 2010). There are a number of remarkable studies that emphasized product
development innovation, and performance, relationship (Zirger et al., 1990; Drucker, 1997;

ImS and Workman, 2004; Wei and Morgan, 2004; Yannele, 2005), Wheelwright and Clark
(1992), Page (1993) among others, they found a strong support for the basic proposition that
product development and innovation influence the overall performance of an organization.
Below is the table 1 showing the definition of innovation contributed by researchers and
table2 showing the examples of companies practicing innovation.
Table1 : Definition Of Innovation
Dimensions
Innovativeness

Definition
Innovativeness refers to:
Proposing
new
ideas
for
product/service improvement,
Proposing new ideas for market
development,
Proposing new ideas for process
improvement.

Authors
Khandwalla (1974), Miller and Friesen
(1982); Drucker (1985); Covin and
Slevin (1986); Khandwalla (1987),
Covin et al. (1990); Covin and Slevin
(1991); Zahra (1993); Knight (1997);
Hamel (1998); Hornsby et al. (2003);
Khandwalla (2003), Kuratko et al.
(2005), Hamel (2006)

Table2: Examples of Companies Practicing Innovation

Firms
Sources
Merck, Motorola, Nordstrom, 3M
Collins and Porras (1996)
Wal-Mart, MCI, ConAgra, Coca-Cola
Gertz (1995)
Intel, Whirlpool, Gillette, Union Carbide
D Aveni (1994)
Nike, Johnson and Johnson, 3M, IBM, Hewlett- Treacy and Wiersema (1993); Kuratko
Packard, and Gamble, Ford, Chrysler, Honda,Pearson
et al. (1992); Lengnick-Hall (1992)
Proctor
Emerson
Sony, Sharp, Yamaha, Toshiba, Motorola, AT&T,Hamel and Prahlad (1991); Davis et al.
3M, Barret and Weinstein, 1998
Source:
Innovation has become a vital function in the modern world of worldwide trade. To cope
innovation successfully, it has to be measured. However, as many companies have exposed to
their disappointment, measuring innovation is a very taxing task. The objective of this paper
is to walk around the challenges and best practices in measuring innovation and more
specifically identify metrics to measure the innovation method well. The conclusion of this
research can make available favourable information to practicing managers, help them to
understand the issues and challenges implicated and offer guidance for effectual enlargement
and use of metrics. The study method includes review of literature on measuring innovation,
companies' practices, consultants experiences and investigation results.

II.APPROACHESTOINNOVATION
Innovation is an indefinable, vibrant and lane concept that is hard to define. Consider
examples of innovation at Apple, in its superior understanding of customers needs in
designing iPot; at Toyota, in designing the production system that revolutionized the auto
industry; or at Dell, in rethinking the supply chain that established it as the market leader. It is
hard to find much similarity among their practices (Shapiro, 2006).
There is a broad variety of approaches to innovation. Traditionally, the concept of innovation
was chiefly determined on know-how developments, associated with a companys in-house
R&D. More in recent times the accent is broadening to include other aspects of business.
Han, et al. (1998) suggest a dichotomous view: technological and administrative. Damanpour
and Gopalkrishanan (2001) focus on product and process innovation. Product innovation is
defined as new products or services introduced to meet an external user or market need; and
process innovation is defined as new elements introduced into an organization's production or
service operations to produce a product or render a service. A product innovation is the
introduction of a good or service that is new or significantly improved regarding its
characteristics or intended uses; including significant improvements in technical
specifications, components and materials, incorporated software, user friendliness or other
functional characteristics (OECD Oslo Manual, 2005). Product innovations can consume
new information or technology, or can be based on new uses or combinations of existing
knowledge or technologies. The term product covers both goods and services. Product
innovation is a tricky process driven by advance technologies, varying customer needs,
curbing product life cycles, and increasing worldwide rivalry. For success, it must involve
strong interaction within the firm and further between the firm and its customers and
suppliers (Akova et al., 1998). Process innovation is defined as the execution of a new or
considerably improved fabrication or delivery way. Note that the product innovation and the
process innovation are closely related to the concept of technological developments and
usually referred to as the technological innovations in the narrative. A marketing innovation
is the execution of a new marketing means involving major change in product plan or
wrapping, product placement, product promotion or pricing. Finally, an organizational
innovation is defined as the execution of a new organizational system in the firms business
practices, workplace organization or external relations. Some authors prefer the term
administrative innovation (F.Damanpour, 1987; C.Y., Y.Lin and M.Y. Chen, 2007).
Boer and During (2001) focus on three types of innovation. In addition to product and

process, they include organizational innovation. North and Smallbone (2000) take yet a
broader view of innovation by including any changes across five different dimensions,
namely: (1) products and services; (2) market development; (3) marketing methods; (4)
production processes; and (5) the technology used in administration.
Booz Allen Hamilton Consulting Firm, based on a survey of 1000 companies with the highest
R&D spending, identifies three distinct innovation strategies: need seekers, market readers,
and technology drivers (Jaruzelski and Dehoff, 2007). The know-how drivers scheme is
more in line with the conventional definition of innovation, focusing on a companys inhouse R&D and technological capabilities to dole out the requirements of the customers. The
need seekers actively engage customers and potential customers to shape new products,
services and processes. They discover first-to-market products. The market readers watch
their market very closely and retort to what customers ask. They are more vigilant and create
worth through marginal changes.
Another approach divides innovation types into two categories: incremental vs. radical
innovation. The incremental innovation emphasis on improving the old product to create
some changes to serve the old customers efficiently. While, radical innovation is a evacuation
from existing products and explores new technology, market, process, or business model to
create new market and meet the needs of new customers. Radical innovation is more pricey
and riskier, but it can be more worthwhile.
Boston Consulting Group offers five types of innovations, primarily based on how new
and radical the products are:

New to the world products and services that create entirely new markets,

New offerings that allow expansion to new groups of customers,

New offerings for existing customers,

Minor changes to existing customers, and,

Cost reduction to existing offerings (Andrew, et al., 2007).

More recently, the concept of innovation is growing even outside the firms precincts. Due to
the high global competitive pressure, some leading innovation companies such as Procter &
Gamble, Eli Lilly, IBM, and Hewlett-Packard are moving toward open innovation, tapping
talents from outside the company and soliciting solutions to science or product development
challenges (Hamm, 2009). Procter and Gamble considers the use of external sources very

precious to their innovation process. It is moving from R&D to C&D (Connect and Develop),
because effective innovation is no longer a one-company task; it is a mutual job. Procter and
Gamble has set a goal of having 50% of its ideas come from outside the company (Sakkab,
2007).

III. MEASUREMENT CHALLENGES

Measurement is a significantly necessary bustle in managing any function. Measurement
permits the organizations routine. It guides the organization toward attainment of key
business results and strategic objectives. It identifies success and failures, resulting in the
required remedial actions, if required. It guides the allotment of resources. In particular, it
visibly communicates the organizations priority to the employees. And, it is a sturdy lift that
senior management can use to persuade employee behavior.
Can innovation be measured? Some distrust it. Given the breadth, complication and elusive
nature of innovation activities, its measurement is very testing. Measuring the
immeasurable, is how some companies view innovation measurement. The essence of
innovation is novelty, so it stands to reason that some innovation will elude any pre-set
measuring scheme. It may even be that the most effective innovation is that which so changes
the scheme of things that it makes the old measuring scheme obsolete! (Shapiro, 2006) Rick
Rashid, the head of Microsofts research department does not have any interest in
measurement. He says Research management, and its measurement one can assume, is
almost an oxymoron.(Walters, 2009) The 850 Microsoft researchers are given wide leeway
to pursue their own interests, without much guidance and direction. However, the Microsoft
approach is an increasingly rare one. Most companies, motivated by recent thriftiness
pressures, try to manage and guide their researchers to spotlight on realistic ideas that are
more likely to lead to short-term monetary payoffs.
While the importance of managing innovation and its measurement is well recognized by the
majority of companies, still many (about one-half) do not have a enough measurement system
in place, due to challenges in measuring innovation. For example, in a Boston Consulting
Group (BCG) survey (Andrew, 2009), 73% of the respondents agreed that innovation should
be tracked every bit as rigorously as other business functions. However, only 46% of them
said they did so. While some organizations might take no notice of measurement because
they dont see the benefits of measurement, or do not want to spend time and resources, or

even because they are afraid of checking problems; most ignore it because they dont know
what to measure. In the BCG survey, when respondents were asked why they did not measure
innovation rigorously, the most common answer (from about one-third of the respondents)
was uncertainty about which metrics to use.
Given the environment of innovation activities, deciding what to measure is a very taxing
task. There is no standard set of metrics appropriate for all companies. Specific metrics
should be developed to fit each companys needs. Metrics should echo the nature of the
industry and the market, the companys goals and strategies, its capabilities and weaknesses,
and its move towards to innovation, among other factors. Metrics should focus on key
success factors critical to company routine and/or its customer contentment.
As discussed, the traditional course of innovation was on hi-tech development focused on inhouse R&D activities. This orientation was reflected in the trendy metrics of the past, such as
R&D spending, the number of patents, and the number of practical journal publications.
More recently, due to the highly competitive environment, the focal point of measurement
has shifted more toward the productivity of innovation (Studt, 2005), emphasize on meeting
customer needs and financial performance, through measures such as number of new
products launched, percent of revenue from new products, return on innovation investment,
ability to solve customer problems, etc. However, getting the desired innovation outputs, that
are lagging indicators, requires tracking the right inputs and the right processes. Many
companies are focusing on these three categories of inputs, process and outputs, and
developing some appropriate metrics for each (Anthony, 2007; Hempel, 2006; Mankin, 2007;
Andrew, 2009)
The National Academy of Sciences in a report on Measuring R&D Expenditures in the
U.S. Economy indicates that innovation measures must cover five activities:

Introduction to the market of new products

Development of new processes to produce or deliver products to the market

Funding of new sources of supply of raw materials

Development of new markets

Changes in the organization of firms (Studt, 2005).

IV. BEST PRACTICES

4.1. Innovation Dashboard
Given the breadth of innovation activities, the use of a single metric, or a few, is insufficient
and can be misleading. It is important that measurement to be ample, measuring several
actions and characteristics. Various companies use an innovation control panel well. A control
panel is a set of measures that displays an array of different performance criterion for a
company. A dashboard allows management to examine the companys performance along
altered aspects of innovation. Given the elusive and broad nature of innovation, the use of a
dashboard is highly recommended. In designing a dashboard a key question is: How many
metrics should be included in the dashboard? While the exact number of metrics depends on
the specific project and company, the recommended number is between eight to twelve
(Andrew, 2009; Hempel, 2006).
While measurement should be comprehensive, but not everything that possibly could be
measured should be measured. It is observed that for some companies, the challenge is one of
abundance rather than scarcity. Too many measures can be overwhelming and confusing
(Mankin, 2007). An effective approach is to first identify all the measures considered
important, and then to begin reporting on a few critical metrics before deciding to expand
further.
4.2. Metrics
What metrics should be included in the dashboard? This section identifies and discusses some
popular innovation metrics: input metrics, process metrics and output metrics.
Input Metrics
The two most important inputs for the success of innovation projects are portion of financial
resources and obligation of key people. The financial metrics basically determine the amount
of financial resources due to a project, as an fixed amount or as a percentage of sales.

Financial resources are requisite for the success of any innovation project.
While a vast fund does not guarantee success, the lack of sufficient funds can lead to crash of
the project. A precious metric is R&D spending as a percentage of sales. This metric relates
spending to the productivity of the project revenue. It can be calculated at the product level,
business unit level, or company level. It also allows for evaluation with spending on other
projects and benchmarking against competition. This metric can help management to balance
provision of financial resources among different business units of the company, or between
different types of projects such as incremental innovation projects vs. radical innovation
projects.
The number of important people focussed to a project is another important factor. The
required quantity and skills of critical staff should be identified and monitored. Dedication of
senior management time deserves special attention. Some projects such as radical innovation
projects might require higher investment of senior management time.
Process Metrics
Four aspects of innovation process needs to be emphasized: managing time, managing
innovation pipeline, new projects performance projection, and staffing against plan. A
important factor in managing the innovation process is time. How fast can the company get
projects done? Meeting the project target date or being first-to-market can be decisive in
getting the wanted market share and establishing authority and effectiveness. There are a
variety of time metrics used, some examples include:

Time to market

Milestone progress

Time to break even.

Time to market measures the time from product concept to its initiate in the market. The
project can be wrecked down into milestones with distinct, measurable deliverables in order
to enhanced monitor the project progress in critical phases of the project. Time to break even
relates the project time to its costs and revenue.
Another critical part of the innovation process is managing and checking the innovation
pipeline. It is important to generate sufficient new ideas, move them forward through

progressive stages of the process and keep the pipeline full. Some examples of pipeline
metrics include:

Number of new ideas generated

Number of projects in the pipeline

Number of ideas that get funded

Sum of the projected net present value of projects in the pipeline

Breadth of the idea-generation process.

Idea generation deserves management notice. It is where the innovation projects begin. The
number of ideas/projects at precise milestones, such as consent for funding, could be monitor.
The breadth of idea generation among employees is important and is a clear indication of
supportive organization culture and effective innovation management process. An important
factor in checking, in general show of the innovation process is to see whether the real
projects performances assemble their usual targets, measured in terms of time, market share,
revenue, cost, etc. Some examples of such metrics are:

Projected vs. actual performance

New product forecast accuracy

Number of projects that meet planned targets.

Finally, another valuable process metric is staffing against plan. It shows how well a project
is staffed. It is an effective leading indicator to warn management of problems ahead. If a
project is 50% staffed, it will result in some unsatisfactory results, either in delayed
completion of the project or not meeting the deliverables. It helps to keep management
focused on projects on hand and to allocate the required resource.
Output Metrics
The main focus of output metrics is on financials and in meticulous on revenue generated
from innovation projects.

Percentage of revenue from new products

Percentage of profit from new products

Percentage of revenue growth from new products.

Two comprehensive measures of innovation projects impact are:

Innovation ROI,

Total shareholder return.

Both show the generally impact of innovation projects, but neither is defined very visibly.
Typically, each company should identify its approach to calculating these metrics based on
some detailed assumptions. Innovation ROI is an eventual financial measure that has to take
into account the innovation projects accepted revenue, investment costs, the time it took to
start on the project, and the costs of the projects that were initiated but killed before launch.
While process improvement projects can lead to superior revenue by, say, improving quality
and routine of the product, they often lead to cost savings in manufacture and delivery
processes. So, a measure of total cost savings is also needed. This is a relatively
straightforward metric to calculate and interpret. Finally, two nonfinancial measures are
popular:

Patents granted, and

Number of new products launched.

The number of patents granted is not important for some industries. However, for some
companies that have to spotlight on development of rational property and need to apportion
some resources to basic research, the number of patents is an vital metric. However, it should
be noted that it is an provisional goal, and invention is not unavoidably innovation.
Number of new products launched is a very lucid measure, once you establish what
constitutes a new product as discussed before. Monitoring the number of products launched
shows how fine the innovation process is working. However, just counting the number of
new products launched, exclusive of considering the superiority of these products and their
bang on customer pleasure and revenue augmentation can be ambiguous.
VI. CONCLUSION

As the business environment has become more sensible, managing innovation function has
become more important for continued existence. To manage innovation efficiently, it has to
be measured. However, as many companies have uncovered, measuring innovation is a very
taxing task. Innovation is an impalpable, vibrant and lane concept that is hard to define and
therefore hard to measure. Given the width of innovation deeds, the use of a particular metric,
or a few, is inadequate and can be ambiguous. It is important that measurement to be allinclusive, measuring compound activities and characteristics. It is suggested that companies
use an innovation dashboard, including a set of about eight to twelve metrics. The console
should include three categories of metrics: inputs, process, and outputs. Popular metrics that
have proved efficient, and their connected white-collar insight, were presented in this paper.
Of course, there is no benchmark set of metrics fitting for all companies; rather the metrics
should imitate the scenery of the industry and the market, the companys goals and strategies,
and its move towards to innovation, among other factors. It is a vital, yet challenging
assignment that deserves consideration.

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