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Defining the right indicators and measurement for Research, Development and Innovation has been a long time challenge for companies, since:
Not too many companies have been able to tackle the innovation measurement question yet, although some, such as P&G, Philips and Natura are consistently reporting on them. Yet, measuring R&D and Innovation results is becoming highly necessary and required by shareholders, since R&D investments can be very large, especially in industries like pharma and software and shareholders are eager for return on their investments.
Although investments in R&D are sometimes equivalent to betting, bets need to be managed well to improve the chances of a positive result, as one can see at the world championship of poker. To be able to define or improve your measurement “results,” I suggest applying the 6Ws (5Ws and an H) to your innovation measurement:
“WHO” do you measure for”? Which stakeholder in your innovation investments are interested in understanding the results of the investments? Is it yourself? The CEO of the company? Your internal or external clients? Your shareholders? Society? The government?
Defining who you need or want to report to is fundamental in defining the right indicators.
Defining who you need or want to report to is fundamental in defining the right indicators. You need to understand who the clients of your innovation efforts are and what their needs are. While a shareholder wants to understand the return on innovation investments, the business manager wants to know what you can contribute to his short and medium term business results.
“WHY” do you measure? Do you need to improve communication with your stakeholders? Do you need to better understand why certain projects fail? Do you need to improve the distribution of your investments between high and low risk projects? Do you need to evaluate the contribution of your innovation partners? Do you want to evaluate your staff for their yearly bonus? All of them are important questions when defining your indicators.
“WHAT” do you want to measure? Do you measure output, input or process efficiency and/or effectiveness? Do you want to measure individual projects or the overall innovation portfolio? Do you measure financial impact only? Knowledge generation? Avoided Cost? What does a good result mean to you? The answers to these questions will be highly influenced by the definition of your Who’s and Why’s and are highly needed to understand and communicate the different aspects of your innovation efforts and results.
“WHERE” do you measure? Do you need to measure Research or Development projects or Commercialization and Implementation efforts? They are different types of animals. The first has to focus on contribution to knowledge and decision making, while the second needs to be measured as a project and the third on its effectiveness in really contributing to business.
“WHEN” do you measure? Do you measure at the beginning, middle, end of the project or years after the end of a project? For example, at the beginning you will have potential contribution to company results, while years after you should have better understanding of the real contribution. Also, do you measure per calendar year or more frequently?
…it’s not only difficult to define, it also ends up generating controversy and has those involved change their behavior.
“HOW” do you measure? Do you measure mathematically, based on peer review, on customer satisfaction? This is probably the most complicated question, since it’s not only difficult to define, it also ends up generating controversy and has those involved change their behavior. For example, when one of your indicators is the number of new products launched in the last three years, managers will make sure that their product somehow fits the definition.
Measurement of innovation needs to be an iterative process, you will need to find the right indicators communicate, take decisions and manage Research, Development and Innovation.
How do the 6 W’s apply to your company?
By Caspar van Rijnbach
Caspar van Rijnbach, Dutch from origin, lives and works in São Paulo where he is an Executive Director at Ernst & Young’s Advisory. Passionate about Innovation, he has been working as a consultant for over a decade with large Brazilian companies and multinationals to improve their capabilities in innovation and knowledge management.
Caspar is author and co-author of several books and articles about innovation, some of them published internationally and others in Brazil, in Portuguese. Also, he has given classes at renowned universities in Brazil, spoken at both national and international conferences and has lead many in-company courses.