We’ve written a few posts criticising some of the more common innovation metrics in use, so I thought it would be smart to outline some ways that we can actually develop more effective metrics. Here’s a story that might help:

A while ago I was in charge of managing student recruitment for a tertiary education institution. One of the first things I looked into when I started the job was metrics – how did we measure how well my section was doing? The answer was one number: total number of enrolled students each year. The job that I was given was to increase that number by as much as possible (which begs all kinds of questions about quality, teaching and so on, but let’s set those aside for now…).

The problem was that managing that number as a standalone was hard. Well, impossible, actually. So I looked into what other numbers we had, and I found a that we had measures for total applications received, and total enrolments. I worked with my teams to figure out the path that people took to become students, and we then also figured out a way to measure enquiries. Once we had these numbers, here’s what we did:

We made three metrics: total number of enquiries, the ratio of applications/enquiries, and the ratio of enrolments/applications. Then I made the marketing team responsible for enquiries, the information team responsible for applications/enquiries, and the enrolments team responsible for enrolments/applications.

When my boss told me to increase enrolments as much as possible, he was hoping for a 5% increase. By breaking down the process, developing new metrics, and making people accountable for the measures, we were able to increase enrolments by 12%.

There are several lessons from improving innovation metrics in this:

• Innovation is a process not an event: many things that we often think of as an event are actually processes. Enrolments is a good example – previously my institution only considered the end point, enrolled students. By breaking down the process that we went through to actually get an enrolled student, we were able to improve our ability to get enrolled students.

  I think of innovation as a process too – this is the diagram that I use to describe it:

  

  To improve our innovation metrics, we need to first think of it as a process.

• Use multiple metrics: in the enrolments story, we used three metrics that led to the one that we were most interested in (total enrolments). We can do the same for innovation. Once we think of it as a process, then we need to develop metrics for each of the steps that lead to the outcomes that we are looking for from innovation. Innovation is a complex process, and to manage it we need to use multiple metrics.
• Link Your Innovation Metrics to Your Strategy: my tertiary education institution saw increasing enrolments as a central part of its strategy. At the time, the educational sector in New Zealand was fairly turbulent, and there was a strong message from government that it wanted to see the sector consolidated. Increasing enrolments was seen as a way to signal that we were a thriving institution, making it less likely that we’d get absorbed by a larger polytechnic.

  We need to do the same thing with innovation – link it to our overall strategy so that it can help drive success. There are a number of broader strategic goals that can be supported by innovation – we just need to be clear about which ones we’re targeting.

• Improve the part of the process that is weakest: when we started tracking the enrolments process, we discovered that we were pretty good at generating enquiries, and very good at converting applications into enrolments. The weak link was converting enquiries into applications.

  The information team had been given some sales training before I arrived, which they strongly resisted. They saw their role as helping people, not selling them. We implemented a lot of ideas, but the one that had the greatest impact was getting them to ask at the end of each enquiry that they handled “if you’re interested in the course, would you like to put in an application?”

  When they started doing that, the applications/enquiries ratio shot up from about 12% to 18% in a couple of weeks. And we weren’t forcing people to apply – the enrolments/application ratio held steady. If the quality of applications had decreased, this metric would have gone down. It turned out that a lot of people really did want to start studying, but they just needed a small nudge to get started.

  In looking at our innovation processes, we need to do the same thing: find the weak link, and figure out how to best improve it. As we’ve said many times before, usually the problem in organisations is not that they don’t have enough ideas, but rather that they need to get better at selecting ideas, or at getting them to spread. In any case, once we have identified the part of the process that is most in need of improvement, then we can figure out to best go about making it better.

Getting innovation metrics right is a challenging task. There is no single number that will tell us everything we need to know to manage innovation. I hope these ideas help you figure out how to measure it better in your organisation.

Note: There is also a good series on innovation metrics by Boris Plukowski on Blogging Innovation: Part 1, Part 2 & Part 3.

After Ralph Ohr’s excellent post on innovation and human capabilites, I’ve been giving some more thought to the three horizons model and how innovation is different within the horizons. The big takeaway from Ralph’s post for me was that we need to manage innovation differently accross the horizons. In other words don’t manage an H1 innovation project in the same way that you would manage innovation in an H3 business.

Today I want to think about the relationship between innovation and value creation in Horizon 1. To quote Ralph:

Horizon 1 represents the company’s core businesses today. It involves implementing innovations that improve your current operations. People most familiar with the needs of the existing customers and deployed technologies are in the best position to identify opportunities for incremental improvements.

So Horizon 1 strategy is about improving performance in the current business. This could be growing market share, driving down costs, or improving margin. Here, innovation needs to focus on improving the current business model. I’ve given some examples of this in a previous post but to make that point again, successful H1 innovators have a disciplined approach to business. In terms of the model set out by Treacy and Wiersma in their book The Discipline of Market Leaders, they make choices to lead on one of three dimensions and benchmark the other two as being fit for purpose, but not the focus of efforts to generate competitive advantage.

I teach all of my strategy courses for corporates with Kevin Hendry, who is a rare combination of excellent presenter, published academic and former vice-president of a Fortune 500 company. Kevin uses this slide to emhasize the importance of choice in where to focus efforts for improvement, but at the same time he reminds us to not ignore the other two dimensions.

OK, so now you’re probably thinking something like…. “Well, if we are innovative then we can be be excellent at everything and blow the competition away”. It’s an attractive thought until you think about the capabilities, people, systems and resources that are required to execute the three value disciplines. Kevin’s corporate experience gives him a keen insight into the difficulty of execution and it’s worth sharing his thoughts from a video we made from one of our courses in May last year.

In other words, think about the strategy map for the three disciplines. The people, systems and operations are quite different and trying to combine them all will result in a very internally conflicted organization and usually result in poor performance.

If the “market leaders choose” principle is true then the role of innovators in horizon 1 is to back up those choices. Clarity and discipline are keys to innovation success in Horizon 1.

I’ve always been a numbers guy. Growing up, I was always pretty good at math. And I enjoyed it – when I went off I thought I wanted to be a math major (until I figured out that at least at my university, all of the math majors were a bit off in the head (and, also, way smarter than me)). I ended up majoring in economics because the math parts of it were attractive.

So it pains me when I have to say that in business, our attempts at measurement are often ill-founded. Many times we end up using numbers as a defence against ambiguity and uncertainty. Most of the time, instead of trying to measure things, we might be better off just getting more comfortable with these states – because bad numbers are worse than no numbers.

I was reminded of this during a conversation last week with a guy with whom I occasionally collaborate. He was bragging about how his company had 5000 followers on twitter, and that they had hired a social media consultant that was adding 300 followers a week.

Pretty impressive numbers.

Except that I know that they’re garbage. They often end up tweeting about posts of mine, and the net result of all this activity in terms of traffic is…. nothing. They have 5000 followers, but none of them are taking any action as near as I can tell.

This reflects the problem with having only one goal, in this case, followers. If you only have one goal, and it isn’t aligned with your overall strategy, you’ll fail to achieve your aims.

I’ve talked before about the problems with innovation metrics, and I’ve include a number of suggestions in this post, and in this one too.

The main points with metrics are:

• Don’t mistake metrics for what we’re actually trying to measure: metrics are proxies – especially if we are trying to measure something abstract like innovation, or the quality of universities. So don’t get too hung up on your metrics – concentrate on your overall goal.
• Align metrics with strategy: no one really wants twitter followers. You want something else – influence, or interaction, or something that one way or another actually does you some good. The interim steps are important, but don’t only measure these. You also need to figure out a way to measure the outcomes of your strategy.
• Use multiple measures of success: this follows from the first two points. Most of the things that we really care about are hard to actually measure. If we are going to try, we need to use multiple measures so that we can triangulate on our desired objectives.

But sometimes, even if you follow all these tips, even if you’re a numbers guy (or girl) like me, you just have to really think hard about whether or not you’re on the right track. That’s often hard to measure, but surprisingly simple to figure out.

(picture from flickr/alist under a Creative Commons License)

I’ve said it before.

Andrew Hargadon has said it too – and in doing so he quotes Malcolm Gladwell saying it too.

Now one of my favourite current authors Charlie Stross says it as well: ideas are cheap.

Ideas are cheap.

They’re so damn easy to come by that I have difficulty understanding why so many people seem to want to ask me where I get my ideas from. All I do is read widely, and periodically bang a couple of random ideas together until I get a spark. It takes, on average, six to nine months to write a novel; but in brainstorming mode I can come up with half a dozen book-sized ideas in a week.

I have more ideas for books than I have time to write them. Also, some of these ideas are of … dubious, shall we say … commercial value.

The problem for innovation isn’t that we don’t have enough ideas. We might not have enough good ones, but there are always plenty around.

But to innovate, we need great ideas, we need some way to figure out which ones to pursue (a selection process), and we have to figure out how to get the ideas to spread. Successful innovation takes all three.

Stross’ post is interesting because in it he starts to describe his selection process (which ends up being a central part of his creative process). Interestingly, the novel-writing selection process is a funnel – just like the innovation process is in most firms.

He starts out with a bunch of ideas. Many of them fail to merit further development, but for others he starts taking notes. With a subset of those, he starts writing. There are multiple filters in place. It sounds like Stross screens ideas based on a combination of how interesting the idea is, how equipped he is to execute it (is it a story that he’ll be able to write?), and how sellable the book might be.

I’ve got some ideas about how to get better ideas, but before I write them up, I have to figure out which ones are the good ones. Then I have to write them up in a way that makes sense. Similar process – there’s a funnel of blog posts too.

In all of these processes of innovation, the problem is rarely lack of ideas. People and firms usually get stuck either because they have problems selecting the best ones, of they have problems executing the ideas. Those are the things that we need to get better at to be more innovative.

A consistent point of controversy is whether or not innovation can be managed. If you think of innovation only as generating new, novel ideas, then it is very difficult to see how this could be actively managed (although there are in fact things we can do to encourage and improve creative thinking, so even here there is some scope for managing). On the other hand, if you view innovation as a process that includes steps such as generating, selecting, executing and diffusing ideas, then it is a bit easier to see how it might be managed.

Part of the problem here is how we define management. If we view it only as control, then it is hard to manage innovation because control will stifle the creativity needed at the front end of the process. However, if we view the main job of managers as enabling, or removing obstacles, then managing innovation starts to make more sense.

I ran across a quote today from the performance artist Marina Abramovic that helps illustrate the issue. She is talking about how working in a studio can inhibit creativity by encouraging artists to follow a formula:

You understand the kind of work tha twill have success with your audience and you start making it again and again, and you lose yourself. The worst part is that you don’t surprise yourself with your work, you don’t get new ideas, or take risks, because of the possibility of failure. But failure is an incredibly important part of the work. Life itself is what’s important, not studio space.

So this is the problem: to create novel ideas, we have to be working at the edge – out where failure is a distinct possibility, out where the artists are. However, within organisations, unlike artists once we discover something new, we also have to figure out a way to make it again and again.

Managing the tension between these two acts – creation and re-creation – is the core challenge in managing innovation.

It’s so important that the people that write about innovation keep coming up with new ways to state the challenge. James March talks about the need to be good at both exploration and exploitation. Roger Martin reframes this as the need to be good at both reliability (producing consistent results) and validity (producing novel outcomes the fulfil important needs). John Hagel, John Seeley Brown and Lang Davison contrast the creative activities that take place at the edge with the re-creative activities that go on in the core of an organisation.

To innovate we have to discover new things. This requires creativity, experimentation, risk, failure, and novelty. At the same time, to innovate we have to be able to consistently re-create the things that we have discovered. This requires discipline, the elimination of variance, and efficiency.

Michael Tushman calls organisations that can both of these things ambidextrous:

“The Ambidextrous Organization” describes how mature companies can pursue breakthrough growth through a two-pronged effort in which they separate their new, exploratory units from their traditional, exploitive ones while maintaining tight links across units at the senior executive level

Those are the skills we need to be building if we are going to successfully manage an innovation process.