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Benchmarking & KPIs - how to keep your program healthy and know when it's performing well

Posted by Khattab Al-Ali on Jul 2, 2014 8:00:00 AM
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"Not everything that can be counted counts, and not everything that counts can be counted."
- Albert Einstein

In the innovation management ecosystem analytics are often not taken seriously enough. Throughout the last 13 years we have been working with multinational companies it became clear to us that Innovation Managers often neglect the fact that decision makers base their judgment on strong and meaningful indicators.

What Einstein is referring to is the fact that not all measurable figures are important, and that not everything that is important can be measured. Non-software related factors impacting the success of innovation programs like the level and quality of management support, effective marketing and communication strategies and the usage of innovation advocates cannot be measured within a tool (if you are interested in those topics you can watch aligned webinars here.

kpi-diagram

Quite often the important things to measure in business, namely Key Performance Indicators, are hard to measure, and it's often because we are thinking about measurement in the wrong way. The challenge is to count the things that count (good KPIs) and to get the right numbers right (ROI). So what makes a performance indicator important?

quote-kpis-not-metricsBy definition, a KPI is a measurable metric that informs us how the business is doing against Critical Success Factors that are aligned to the overall objectives and goals of an organization. KPIs are characterized by being easy to understand and helpful to analyze our success. But ultimately KPIs lead to actions – KPIs that do not support you in making decisions are just metrics.

Which KPIs should I measure?

“KPIs should not constitute every company metric for analysis and evaluation. Rather, KPIs should reflect the most important objectives of the business.” (Avinash)

To select the right KPIs for your innovation program your management should first define the goals and ambitions of your organization – not in the context of innovation, but in the context of your business activities. What does your organization want to achieve in the next 6 months – or in the next 10 years? What business model should you follow? What are your business targets? Some organizations struggle to do that. If that is the case for you, try to push your management to accomplish this task. Without strategic business goals your innovation program will not be able to steer in the right direction and deliver a substantial part of your organizational success.

If your management can deliver those goals you should ask yourself if you have understood those targets fully, even before you start with defining your first KPI. If that is not the case, try to close those knowledge gaps. A full understanding of what your management is looking for enables you to move your innovation program forward and deliver the value that the organization is looking for. Try then to tie your KPIs with those business targets, and focus predominantly on the value / ROI your organization is eagerly anticipating. KPIs related to participation are helpful as a driver for quality and ultimately value, but they should not be focused on.

What not to measure?

Your management will predominantly ask you about achieved value or the return-on-investment of your innovation program. Hence, you should focus on quality rather than on quantity. Delivering the wrong KPIs might lead to the wrong decisions, which can have a harmful impact on your organization. These are examples of destructive KPIs:

  1.        KPIs that are not aligned to your organizational strategic goals
  2.        KPIs that are vague or unclear
  3.        “Nice-to-know‘s“ and not actionable KPIs
  4.        Refutable KPIs
  5.        Having too many KPIs (“Which are the key KPIs?“)
  6.        Outdated KPIs (KPIs should be reviewed annually)

KPIs that will enable you to make wrong decisions can in fact be described as Key Performance Inhibitors. They prevent your organization from performing up to its potential, and can severely harm its success.

How to benchmark

Imagine you are the CEO of an organization that wants to start a new innovation program. What targets should you focus on? What are achievable outcomes? What participation-levels should you try to reach? Those questions are often answered by looking at already innovative organizations. Let’s try to do that. You're the CEO of Company 1 in the below comparison:

kpi-company-comparison

Innovation-performance of two organizations

Would you believe that you are outperforming Company 2?

Let’s look at the detail success metrics:

success-metrics-two-companies

Success-metrics of two organizations

As you can see the each organization is better in some and worse in other measurable metrics. The metric that actually is a KPI is the one related to the ROI and the value that has been generated. Ask yourself as the CEO of Company 1: Would you like to have as many implemented ideas as Company 2 (10x the amount of ideas your organization gets implemented) - with the ROI of Company 2?

What makes benchmarking so difficult next to those aspects is the fact that, as previously mentioned, numerous factors that impact an organizations innovation performance simply cannot be measured. Let’s take a look at two organizations that have a nearly similar performance:

innovation-performance-two-companies

Nearly similar innovation-performance of two organizations

Do the numbers tell you anything about the culture, the structure, the level of management support, the market or the competitors of any of those organizations? Do they tell you anything about the “Innovation Journey” that both organizations went through, and which obstacles they had to solve and hurdles they had to jump over? An innovation culture is not fully represented by the sheer numbers you create and measure, but also by softer aspects that cannot be quantified.

Every organization is different, even the seemingly similar ones, which is why comparing yourself to others purely based on numbers might lead you to making wrong decisions. So what can help us to get a good view on our performance?

Internal Benchmarking

We have seen organizations achieve better results by conducting internal benchmarking, and rating themselves against their own past performance. You can do this on multiple levels - try to compare your own campaigns against each other. Do you see higher participation over time? Are new users from different business units participating? Are sponsors more satisfied over time with the achieved results?

Additionally you can also run campaigns with very generic topics multiple times (e.g. annually). Are future iterations of those campaigns performing significantly better in terms of higher ROI or participation? Example campaign topics could be how to save energy / water / electricity / costs etc. These campaigns can be run numerous times with an identical setup, and then be compared against each other. If they perform better over time this can be an indicator for a healthy innovation program. Are there other indicators next to this one?

Indicators for a healthy innovation program

Healthy innovation programs are indicated by a lot of factors, some of the most important ones are:

cultural-shape-of-your-organization

Analyze your cultural shape regularly. Do people move from the bottom up? If so, your innovation program is performing well.

  • Continuously growing participation

If your participation rate is going up over time your program is attractive enough to motivate users to engage continuously. This will influence the outcome you will achieve, in terms of quality and quantity. A participation rate of ≥ 30% in campaigns indicates good health.

  • Not always the same people participating

A healthy diversity in your participation (new engagement from previously inactive user-groups) will motivate others to participate.

  • On average “# Comments = # Ideas (1:1)” in Campaigns

This has been proven a good indicator for activity. Active, maybe even moderated discussions drive the quality of ideas dramatically.

  • More satisfied Sponsors over time

Your innovation program runs on a healthy foundation if you reach the tipping point that sponsors of potential campaigns actively reach out to you first, and if they get more and more satisfied with the value that you can achieve for them over time.

Summary & Recommendations

Analytics is about making better decisions and reducing risk in your business activities. There is no point having good data and sophisticated analysis if the results are not acted upon, either because of you organizational culture or business processes.

Hence, our recommendations can be summarized as follows:

  • Define quantifiable and actionable KPIs that are tied with business goals
  • Focus on value / ROI – that’s what management is requesting
  • Conduct internal benchmarking – compare yourself to past results
  • Monitor your performance continuously – evaluate your success over time

Ask yourself from time to time: Do we achieve the benefits we are looking for? Did we solve business challenges or exploit opportunities? If your answer is “yes” you are on the road to success.

Watch Khattab's Webinar on KPIs and Benchmarking

Topics: Governance

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