How to Measure Innovation

In spite of years of effort, no one has been able to prove that increased spending on innovation activities actually increases innovation.  For example, R&D spending doesn’t correlate with any financial measure of company success.  Neither does the number of patents granted to a company.

But these are all measures of inputs to the innovation process.  What we really need is a way to measure how good a firm is at transforming inputs into innovation outputs: successful new products and services.  And for the first time, we now have such a study.*  Three researchers studied 750 publicly held companies across 17 countries, and their findings were intriguing.  First, they did not find that national cultural characteristics had any impact on innovation.  That contradicts a commonly held belief that some Asian countries are less able to innovate than Western countries (and it’s not only Americans that believe this; many people in China, for example, also believe this).  Instead, the researchers found that innovative companies are similar, no matter what country they are in.  Two innovative companies in different countries were more likely to be similar in corporate culture than two companies in the same country.

Second, the researchers found that although patents don’t correlate with company success, radical innovation increases company success.  The lesson is that the small, incremental patents don’t help that much.  A third finding was that the level of R&D employment was correlated with the number of radical innovations, and thus with enhanced market performance.

Finally, the authors conclude that in innovative companies, management is future-oriented: that means they are willing to trade off investments that maximize profits from a present technology, in exchange for increased investments in the next generation.  This means that management empowers product champions, and encourages experimentation with new ideas by providing time and resources.

*Tellis, G. J., Prabhu, J. C., & Chandy, R. K. (2009). Radical innovation across nations: The preeminence of corporate culture.  Journal of Marketing, 73(1), 3-23.

11 thoughts on “How to Measure Innovation

  1. just some thoughts, how does non-profit/non-governmental/governmental organisations can measure the level of innovation? any ideas, anyone?

    1. I think that’s even harder than with a for-profit organization, because at least with a for profit there are well-established quantitative measures of success (Total shareholder return, profit margins, etc.). Any measure would have to be a measure of how well the mission of the nonprofit was being accomplished–number of people served? Lives saved? Lives made better…with “better” having many different potential meanings?

  2. i guess it’s tough. i work for a non-profit organisation. am in the midst of formulating some form of measurement for the level of innovation, or prolly the innovation climate within the organisation.

    what happens is we are looking at 3 areas, capacity, capability and outcome. so in a way, i’m pretty much stuck with capability. i’ve read up quite a fair bit of literature, however, most seems to suggest no. of patents, revenue which is of no use to me, coming off a non-profit organisation.

    mgmt wants to see some form of measurement, i guess it sounds sexy to have all these jargons and terms to spice up the measurement, however, it is tough. hence, was hoping to get some bouncing of ideas from this platform. 🙂

  3. hey man. thanks for that.
    the article gave some insights.
    but my main challenge remains that, how does an governmental agency or non-profit agency measure its internal level of innovation?
    i work for a government agency. it’s been trying to push for a culture of innovativeness within itself.

    they are looking at creating some index. however, they dun want it to be restricted to the number of suggestions given, number of projects. hence, looking at some holistic figures. BUT the problem is, what is holistic yet measurable? that’s the hair-pulling bit. esp when u are trying to convince the chair that something’s gotta give.

    any suggestions from ur end? and nope, we dun roll out projects for the mass population. but affect them more on policies. however, policy innovativeness is very intangible and subjective. what would you have prescribed if you were in my shoes?

    much thanks! 🙂

  4. I don’t have any great suggestions for how to measure innovation. (I have several posts on that topic on this blog.) But I’m not sure what your agency is looking for…what are “holistic figures” if not aggregates of things like number of suggestions, number of projects? Maybe they mean “subjective” as in, interview everyone to ask them “How innovative an organization do you think we are?”

  5. that’s the very prblem we are facing. 🙂

    we swing between two extremes. one wanting somewhat freeform. on the other end, the need for structured approach (with the hard numbers coming in as tracking).

    the problem with something holistic is, it is something easily oft-quoted but no one knows how to measure “holistic”.

    but nonetheless, it was interesting trying to bounce off info. 🙂
    Thanks for the various insights.

  6. am currently working on how to measure the innovativeness of infrastructure funds by comparing their performace with certain innovative variables. Suggestions are welcome

    1. I took a look at your consulting firm’s web site and it looks like important work! Of course, measuring a company’s innovation culture, or its potential for innovation, is a different thing from measuring innovation performance itself–which was the topic of my post. There are a lot of instruments out there for assessing an organization’s innovation potential (like yours). Maybe I’ll do a post on them one day…

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