How (not?) to Measure Innovation

Recently I wrote a short article about the OECD assessment of the status of NZ’s national innovation policy. Now Fujitsu Consulting have published a piece of commissioned research that purportedly measures innovation levels within organisations in Australia and New Zealand.

I have to confess that I’m still struggling with the mere concept that you can actually measure innovation, let alone draw any scientific conclusions on the subject from polling a bunch of potential clients for your consultancy offering. However, I’m not saying we can’t learn something from this industry study (or others), because it does at least provide a useful benchmark for a number of key organisational issues. Unfortunately there are almost as many “innovation matrices” as there are innovation commentators.

The Economist Intelligence Unit (EIU) describe innovation as “the application of knowledge in a novel way, primarily for economic benefit”. The Economist publish a global innovation survey involving 485 mainly large corporate firms and which results in country comparisons of innovation output. Japan, Switzerland, the United States and Sweden lead the pack on this basis. However this survey is heavily weighted towards using numbers of patents issued as a lead indicator. Some would argue that patents actually crush innovation.

To their credit, the EIU also produce a composite index by including other innovation drivers such as educational levels, regulatory framework and broadband penetration. They also observed that the rankings in the composite index closely match the patent output index. To my mind, these indices are simply a guide to innovative potential because intangibles like creativity, knowledge and effects of organisational culture are either difficult to measure or simply not considered. Furthermore, many patents never see the light of day, let alone generate any economic wealth through commercialisation.

An interesting observation to emerge from the Economist survey is that “small countries with clusters of world class companies in research intensive sectors” outperform on the innovation index. I hope this important point does not go unnoticed. New Zealand’s ranking of 22nd out of 82 countries survey, is forecast to remain static over the next 5 years according to the EIU. But bootstrapping smaller technology firms around a number of emerging core industries could easily put paid to this forecast.

My pal Simon Young reported on last year’s Fujitsu innovation report for an Idealog article and he noted that a number of academics had questioned the intention and methodology behind the annual survey. The Fujitsu research samples 175 New Zealand firms, but no doubt mainly medium to large firms were hit because that is their target client base. That only leaves about 350,000 small NZ enterprises that were left out of the study. So I think we need to be a wee bit careful about making overly general statements about the state of innovation in New Zealand business.

Oddly, the Fujitsu report suggests that increased spending on innovation related activities appear not to improve a firm’s overall standing in the innovativeness stakes. That might not be quite the result Fujitsu was hoping for.

2 thoughts on “How (not?) to Measure Innovation

  1. Innovation is one of those words, a little like commercialisation, it has a straight forward common meaning. Translating it into a practical day to day business environment is more testing.

    Working with client companies of the innovation consultancy, Ideas Accelerator Ltd, I have become convinced that you can measure innovation and that there is a tanglible benefit in the New Zealand business environment for doing so.

    In general New Zealand companies are good at running programmes for business improvement and efficiency. These are not always considered innovation programmes. They can however be based on ideas submitted from employees to find efficiencies and they can in fact be considered an innovation system or programme.

    Once you have found effciencies invest the savings in growth. Running a programme for disciplined growth within a company is generally considered an innovation programme. It may result in new products and services. It may even result in a new venture being created. New Zealand companies often find this a major challenge to commit to at a senior level. It is that senior support that makes innovation growth programmes really fly in the long term.

    My point is that on a company level measuring innovation is like measuring a system or a complex project. Measuring a system with results that your company is aspiring to achieve. It’s very doable!

    Many innovation programmes are based on stage gate principles and/or innovation funnel principles. These provide many performance indicators to measure along the way to achieving a great result for you innovation programme.

    And ultimately measuring all the indicators of success along the way is what gives senior leadership the confidence to support the time and investment in innovation.

    I believe that you can meaure innovation very effectively at a company level. The benefit of doing so is to increase the importance of growth of high value products services and businesses. It is all about a more prosperous New Zealand with a wider variety of inspiring and interesting careers.

    Ask your staff for ideas and listen to them – you may just be blown away with what they contribute!

  2. Thanks for those insights Andy. I suppose it’s analogous to keeping your (organisational) garden weed-free and then being rewarded with a bumber crop of veges. In other words innovation is a fundamental discipline.

    I think success factors for innovation must vary depending on the scale and nature of the individual business concerned. And I agree that it is very important to report back on successes frequently in order to keep management engaged.

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