Make innovation measurable - move beyond post-it notes | Lean Apps GmbH

Make innovation measurable – move beyond post-it notes

02 February 2021

A lot of companies are putting an end to their innovation labs. It all started with a lot of noise: PR and marketing and promises to disrupt. But if you ask what real value these companies achieved from such innovation initiatives, most of them don’t have a solid answer. 

 

These companies typically run hackathons, design thinking training and innovation workshops that result in great innovation theatre. A lot of post-its are used and a handful of design prototypes are created. Such activities can surely look like signs of success, but they DON’T win wars. They fail to ship scalable business models and products that generate revenue for companies.

 

At the end of the day, innovation needs to have a real impact on a company. This needs a clear innovation goal and a way to measure the impact in terms of cultural change, revenue and profits of a company. 

 

Top innovative companies like 3M and Google have had a clear innovation goal metrics for years. The most noteworthy goal is that at 3M. They have tried to mandate that 30% of each division’s revenues must come from products introduced in the last four years.

 

And Google allows 10% of employees’ time to be dedicated for experimentation with new opportunities.

 

What gets measured drives behavior

 

Google, Microsoft, LinkedIn and all the world’s topmost innovative companies measure innovation at every step of their way.

 

The hard fact is – ROI for innovation in financial terms does not get visible before 4-5 years. And it becomes really difficult to measure innovation when it doesn’t immediately bring any financial returns.

 

For instance, let’s say you’re a company that is still creating and testing new ideas. This means that your teams will need at least 1–2 years to go from idea to product-market-fit stage and another 1-2 years to bring any significant new revenue. In the total of 4-5 years, you will have no financial indicators to measure your innovation success.

 

That’s why you need to find non-financial indicators to measure innovation at every step of the way. These measurements should clearly tell you that you are in the right direction to eventually get financial returns in future from your initiatives.

 

Think and act like a venture capitalist (VC)

 

VC data tells us that it takes more than 250 ideas to create a multi-billion $ return. This means if you are currently exploring 10 new ideas every year in your corporate innovation, it will take you 25 years to create a billion-dollar portfolio. I am sure you don’t want to wait that long.

 

So to move faster – you have to make small investments in 100s of ideas and at a very fast pace, test which ones could have a scalable business model. This way you would de-risk your investments early on with small investment. And you will have enough data to make a decision, on which ideas to invest further.

 

While innovating, you can’t pick up the winners without actually investing in a lot of losers.

 

So to measure success initially you can look at things like: Do we have enough ideas in the portfolio (remember you need 100s of ideas)? Are we running experiments to continuously validate these ideas and de-risking our investments? Are we building new products for validated ideas and pushing them to achieve product-market-fit? How fast are we moving through the cycle of idea generation, validation, MVP development and product-market-fit? How much are we investing in each stage?

 

Ultimately, innovation teams want to hunt for new business models that are scalable. You keep repeating this cycle of innovation such that you reach a point where you can measure your innovation in revenue and profits every year.

 

Measure your Innovation activities

 

Your company innovation goal or intent has to be the starting point. You break it down into smaller, yearly goals. You define clear success markers to measure each of these goals. And you are good to go on the path of innovation.

 

Here’s how it’s done in practice.. 

 

First thing that you need to make sure is that every member in your team should be clear about the overall company innovation goal.

 

Let’s say your company innovation goal is:

“Transform the company digitally as well as connect with customers digitally”

 

Now let’s break these down into small, yearly goals. And measure them with success markers (which are non-financial in the beginning).

 

Year 1 Goal – LEARN

 

Before you set out to hold workshops on Lean Startup or design thinking, first find out what is already working and what is needed in your company for innovation. Accordingly create your innovation intent and strategy (as explained in the last blog).

 

Your goal is to learn different innovation processes and methodologies, pick up one that might work best for you (may be also start by copying top innovative companies in the world or xin your industry) and try to implement it in your company.

In order to measure this goal, you could use the following Success Markers:

  • 20% of the workforce should go through trainings on Design Thinking and Lean Startup
  • Using the learnt methods, test 10 new ideas using interviews and experiments and achieve problem-solution-fit for 3 ideas

 

Here are some general Success Markers that you can use to measure your Year 1 goals of Learning:

  • Number of employees engaged in learning
  • Number of ideas generated
  • Number of ideas chosen for testing
  • Number of assumptions identified
  • Number of hypotheses developed
  • Number of experiments launched
  • Number of customer interviews conducted

 

At every step of the way, you should document your learnings, so that at the end of  Year 1, you can say – what went well, what did not go so well?

 

Year 2 Goal – EXPERIMENT, BUILD AND LEARN

 

Based on your successes and failures of Year 1, you can create a process and structure that could speed up innovation activities in your team.

 

Your goal is to test the final process of innovation, and become really good at experimentation, though still keeping it small scale.  

In order to measure this goal, you could use the following Success Markers:

  • Using the final process, 20 new ideas should be tested through rigorous problem interviews and experimentation
  • Achieve problem-solution-fit for 6/20 ideas
  • Run design sprints to create 6 design prototypes and test them with end users
  • Build  3 MVPs (for year 1 ideas), acquire users, make them active and achieve product-market-fit for 1 of the products

 

Here are some general Success Markers that you can use to measure your Year 2 goals of Iterating/testing:

  • Number of hackathons
  • Number of customer interviews
  • Number of customer observations
  • Number of experiments run
  • Number of design prototypes created
  • Number of MVPs built
  • Conclusive decision making (pivot or persevere)

 

At every step of the way, you should document your learnings, so that at the end of Year 2, you can say — how you arrived at the final process of innovation which is ready to scale up?

 

Year 3 Goal – Generate revenue, integrate in core and scale

 

Once you’ve got the right knowledge and skills in your team. And you’re running the right processes, it’s time to scale up.

 

Your goal is to scale up your innovation to 50+ ideas so that you can get to the winning business model faster. 

In order to measure this goal, you could use the following Success Markers:

  • 50+ ideas should be explored and tested – using interviews and experimentation
  • Launch 6 new MVPs (for year 2 ideas), acquire users, make them active and achieve product-market-fit for 2 of these ideas
  • Integrate 1 idea from year 1 that achieve product-market-fit into the core business unit where it originated from
  • Generate 10k+ revenue from the new product integrated in the core

 

Here are some general Success Markers that you can use to measure your Year 2 goals of Scaling up:

  • Number of growth tactics tested
  • Number of experiments run
  • Number of customers engaged
  • Number of channels tested for acquisition
  • Number of usability tests run
  • Speed of validation of idea
  • Acquisition, activation, retention, revenue, referral
  • Lifetime value and retention rates
  • Revenue and profits

 

When you keep repeating this cycle of innovation, you reach a point where you can measure your innovation in profits every year.


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