How to Measure Innovation


Measuring innovation is an important practice of management. If you are a good manager or leader, you would like to know how good your business is doing related to innovation. How innovative your people and products are will determine your strength in the competition. Imagine if you keep marketing the same product or service over time when your competitors or even new players have been introducing new innovative ones, you will lose the customers. There are some techniques to measure innovation. Among two of the most well-known are balance scorecard or also called KPI (Key Performance Indicator) and six-sigma.

The balance scorecard can help you to monitor and analyze four major areas of perspective in your company in their relation to innovation, which are financial, customer, internal process, and education and growth. The Key Performance Indicator is one of the procedures in balance scorecard, uses both financial and non-financial indicators in metrics to help you evaluate how successful they are in meeting long-term goals of the company. While the six-sigma is a more specific analysis of production which helps to evaluate the quality by identifying defects and other fluctuation in production. Six-sigma has focused more on improving the quality of production through the belief that better production processes means less costs. You can implement six-sigma as part of balance scorecard.

The basic and new areas of measuring innovation have gone deeper than those of traditional ones. They include the measuring of performance, quality, timing, financial, and cost of development. Measuring performance means how your product and service can give solution or service that satisfies the need of market and competition. Measuring quality can be simply counting the number of defects in production and number of delayed production. The timing includes the improvement of lead time, how fast you can deliver the product or service to the market. The area of ​​financial includes your sales revenue, cost, margin, return on investment, and other aspects. While the development cost may be tied to specific project you have started. In more specific terms, your measurement may include analyzing the rate of turnover, percentage of product reuse, percentage of new components in production, percentage of changed or new specification, percentage of new vendors, percentage of unique parts as compared to competitors, percentage of lost productivity, and so on.

By using specific method like balance scorecard, KPI, or six-sigma, you would have better measurement of innovation since there are set procedures, standards, and metrics to help you with the process. Look into each one to choose what fits your company the best. There are four processes in implementing balance scorecard: translating company's vision into operational goals that is more identifiable, communicating the vision to individuals in the company and link between vision-performance, business planning by using set index, and the last one is feedback. The last process will also implore that you learn from the feedbacks and adjust them to your new strategy. The balance scorecard will include the application of strategic management. You can include the metrics of KPI to measure the financial and non-financial aspects, and the six-sigma to measure the improvement in production.

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