Back in 2021, I published a whitepaper on Innovation KPIs. At that time, we saw an urgent need to use a specific set of KPIs and metrics to measure the progress of innovation, business building and corporate venturing.

We also identified two main risks that arise, if a head of venturing or innovation manager sticks to the standard set of corporate (project) KPIs instead of using specific innovation KPIs:

• Risk 1: Innovation managers focus on exploitation metrics (e.g. profitability, ROI, etc.) within their standard corporate benchmarks, which are normally used for corporate success measurement. This runs the risk of innovation being seen as less successful than standard business development processes within the organization.
• Risk 2: Innovation managers focus only on short-term factors of activity or impact. As a result, the long-term impact of innovation within the organization and the transformational power of innovation are neglected.

At the time, I identified OKRs, Family Metrics and OMTM (The One Metric that Matters) as useful tools for innovation managers and venturers to measure their progress. What has changed since then, and are there other methods to address the two risks mentioned above?

New Trends and Methods in Innovation KPIs

1. Multi-Funnel and Value-Driven Measurement

We have introduced a multi-funnel and value-driven measurement approach to our corporate innovation measurement projects. Innovation usually happens in different vehicles or formats within a company. What these vehicles usually have in common is that there is an innovation funnel. However, the funnels themselves are very heterogeneous. An intrapreneurship program can last three months, and that's when you can measure the first results. An innovation foresight process, on the other hand, has a completely different timeframe and will deliver tangible results in the medium to long term. So how do you compare these very different formats and measure the success of one against the other? By creating a multi-funnel view of all the innovation formats and vehicles in place,. Such a multi-funnel approach allows a portfolio view onto all initiatives running. Because the formats and vehicles are so different, you also have to take a value-driven approach. A value-driven approach means that by looking at the expected or created value of a format for the company as a whole, the vehicles are calibrated so that they are ultimately comparable.

2. External Benchmarking – Competitive Intelligence Index

Another recent development in innovation measurement is the growing trend towards external benchmarking, which we have been incorporating more into our innovation KPI projects in recent years. External benchmarking here means looking other corporate venturing units or at peers from the start-up or venture capital world to see if the business-building part of innovation is really working. This is obviously more difficult for internal or transformational innovation, where the focus is on cultural change.

One way to externally benchmark your innovation progress is to use a Competitive Intelligence Index. This index assesses an organization's ability to gather and interpret data about its competitors, focusing on their innovation approaches, products and market positions. It helps identify competitive risks and opportunities, and facilitates informed strategic decisions.

3. Tailored Metrics for Different Innovation Vehicles

Innovation metrics are essential for measuring and managing the effectiveness and impact of innovation initiatives within an organization. Beyond the use of a multi-funnel and value-based approach and a competitive intelligence index, the question of which metrics to measure remains open. Ultimately, the set of metrics is highly individual to each innovation vehicle. In corporate venture capital, one might look at overall fund performance, while in venture building, time to market is an essential metric of success. Meanwhile, in internal innovation vehicles, cost savings or capability creation might be the key metrics to consider. Below are some examples of metrics categorized by innovation vehicle.

Corporate Venture Capital

Corporate venture capital focuses on investments in external start-ups. Key metrics include:

• Portfolio Performance: Assessing KPIs by business model group, such as annual recurring revenue (ARR).
• Portfolio Composition: Assessing diversity by stage, industry, risk and maturity.
• Fund Performance: Measuring the overall return and success of the fund.
• Strategic Fit and Payoff to Core: Determining how well investments align with and benefit the core business.

Venture Building

Venture building involves creating new ventures from scratch. In addition to corporate venture capital metrics, key metrics include:

• Idea Kill Rate Average: The average rate at which ideas are discarded after evaluation.
• Time to Market/Breakeven: The time it takes for a new venture to reach the market or break even.
• Funnel Healthiness: The robustness of the idea funnel from conception to market entry.

Acceleration

Acceleration programs aim to rapidly grow startups through mentorship and resources. Key metrics include:

• Co-Funding Rate for Accelerator Ideas: The proportion of ideas that receive additional funding.
• Option Value for Core Business: The potential future value that accelerator ideas bring to the core business.
• Portfolio Performance: Similar to corporate venture capital, evaluating KPIs per business model group, such as ARR.

Innovation Towards Core

This focuses on innovations that directly benefit the core business. Key metrics include:

• Revenue/ Cost Savings/ Service Improvement: Financial and service enhancements developed in the last five years.
• Capability Generation: The development of new capabilities within the organization.
• Option Value of Ideas/ Projects: The potential value of ideas or projects handed over to the core business.

9 Lessons for Measuring Innovation in Organizations

In today's competitive business environment, effective innovation measurement is critical to success. Drawing on insights from the paper "Measuring Innovation in Organisations: Frameworks, Approaches, and Best Practices," we have summarized nine key lessons for improving innovation capabilities through the use of tailored KPIs and metrics. These lessons emphasize understanding the organizational context, fostering a supportive culture, and leveraging external networks, all while using specific innovation KPIs. By implementing these strategies, organizations can ensure that their innovation efforts are aligned with strategic goals and market demands, and provide a clear path to effectively measure progress and impact.

1. Start with strategy, not specific metrics: Innovation measurement should be aligned with the overall strategic goals of the organization. Metrics must be selected based on what the organization is trying to achieve to ensure relevance and strategic alignment.
2. Focus on ecosystem partners, not just your organization: Collaboration with ecosystem partners such as customers, suppliers and other stakeholders is critical. These partnerships drive innovation and provide valuable insights and resources that extend beyond the organization.
3. Establish ownership early: It is important to determine who will be responsible for innovation metrics early in the process. Clear ownership ensures accountability and effective management of innovation measurement.
4. Ensure cross-functional buy-in: Getting buy-in from all relevant departments and functions is essential. Cross-functional commitment and engagement are critical to the successful implementation of innovation metrics.
5. Define the multiple purposes of innovation measurement: Innovation measurement should serve multiple purposes, including learning, experimentation and understanding. Metrics should not only focus on evaluation, but also facilitate openness and organizational learning.
6. Avoid availability bias when selecting measures: Selecting measures based on ease of availability can lead to ineffective innovation measurement. It is important to select measures that accurately reflect the impact of innovation, even if they are more difficult to quantify.
7. Don't measure too many things: Having too many metrics can be overwhelming and costly. It is important to focus on meaningful measures that provide clear insights without overburdening the organization.
8. Measure the whole, not just specific parts: Innovation measurement should encompass all areas of the organization, including product development, processes and external relations. This holistic approach ensures a comprehensive assessment of the impact of innovation.
9. Clarify the relationships between selected measures: Measures should work together coherently, reflecting the interrelated nature of innovation activities. Ensuring alignment between measures helps to accurately track and manage innovation performance.

Summary

In conclusion, the landscape of innovation KPIs has evolved significantly since my initial whitepaper in 2021. With the introduction of multi-funnel and value-based measurement approaches, as well as external benchmarking methods such as the Competitive Intelligence Index, organizations are now better equipped to capture the nuanced and multifaceted nature of innovation. These advances highlight the need for tailored metrics that reflect the unique timelines and objectives of different innovation vehicles. By implementing the lessons learned from recent frameworks and best practices, companies can ensure that their innovation efforts are strategically aligned, holistically measured and effectively managed. Embracing these new trends not only improves the ability to track progress, but also fosters a culture of continuous learning and adaptation, ultimately driving competitive advantage.

Sources

• Björk, J., Frishammar, J., & Sundström, L. (2023). Measuring Innovation Effectively—Nine Critical Lessons.Retrieved from https://www.diva-portal.org/smash/get/diva2:1744481/FULLTEXT01.pdf
• Frick, G. (2021). Dead End KPIs. Retrieved from https://medium.com/v-labs/dead-end-kpis-17146b3f9e82

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