Many organizations are struggling with their metrics and ways to measure the progress and success of their business, and from this writer’s point of view, their innovation, it gets caught up in plenty of unintended consequences, to put it mildly.
Firstly, we are still locked in the old paradigm of thinking this is an industrial economy where we set about measuring inputs to innovation (R&D expenditure, capital investment) and then focused on the intermediate step of throughput and then outputs (publications, patents, end products). We also perceive innovation as an activity within just one company - viewed as linear, with considerations for services more of an after thought (like ‘bolt-ons’). Production systems remain the driving force.
Today, the world of innovation is completely different. We need a far more open set of resources (many outside our own company) to enable innovation. The process has clearly been recognized as non-linear and the chase for more ‘real time’ metrics is reflecting the shift to a knowledge-based network economy to accommodate growing uncertainties, the multiple choices and varying outcomes that innovation offers.
Recognizing the need to change our measurement culture
This shift means we have to push a whole lot more on challenging established measurements and metrics - question if they are still valuable or just ‘simply’ established and have never been questioned in a way to overhaul the whole process. Everywhere we look within innovation systems, there are significant legacies in place.
We need to do a better job at measuring knowledge flows - it is the increasing emphasis and use of technology that is allowing us to challenge the old measurement paradigms. We still love to count machinery use, transactions, production of widgets, with an engrained efficiency mindset. Sadly it is not as effective, nor relevant, to the world today. It is not accounting for the knowledge that underlies creation and valuing the way this is developed and diffused. This brings to the surface the need to understand our intellectual capital. If you understand that, you have a better chance to be more innovative, inventive and creative.
The value of networks is still not accounted for as well as they should be within our measurements. We collect the number of connections yet we fail to capture the knowledge generated by these interactions, they stay resident in the receiver, not the organizations brain. Technology is rapidly changing this, and the collective knowledge and networking is being leveraged more, but is it really being measured as a vital metric that provides value?
The conditions to generate innovation remain often ‘hidden in plain sight’:
- Are we matching context, aligning innovation activities closely to strategic company needs?
- Are we actively seeking to match expectations and capabilities to deliver on the innovation that will lead to new forms of company value?
- Are we searching for ‘intelligent’ indicators, where those initiatives shift the ground and advance on previously intractable issues?
- Do we know what are the true dynamics within innovation, what is either static or just simply repetitive and needs more constant monitoring, more likely through technology than human involvement?
Today we are working through the impacts of the Industrial Internet (IoT)
This promises to be transformative, it will change the basis of competition and through this the basis of how we measure ourselves. Not only will the industries have their boundaries withdrawn, there will be a new wave of disruptive companies challenging the incumbent, since they don’t suffer the legacies of the past. Technology is driving the change:
- The world will improve its operational efficiency in dramatically different ways (time, asset-utilization) though more predictive maintenance and increasingly remote management.
- We will become far more comfortable with connected ecosystems, forming around software platforms that will break down and blur traditional industry and working boundaries.
- We will see increased collaboration between humans and machines, and even machines to machines, which will shift productivity into a new realm - which we need to understand, so as to capitalise on the potential this offers.
- Lastly we are rapidly moving to the outcomes economy, fuelled by software-driven services, innovation built into hardware, and the increasing visibility into products, processes, location, customers and partners.
It is in this last shift, of outcomes, we need to build our measurements and metrics around.
We are moving towards the era of outcome-based services.
Businesses will be forced to shift from measuring the inputs and outputs of products, to outcome-based results, where a business competes on their ability to deliver measurable results to customers.
This delivering on outcomes will radically shift how we measure and reward our progress. It will call for significant levels of increased collaborations across a growing, ever changing, ecosystem of business partners, bringing together those involved to combine products and services to meet customers’ needs
Software platforms will become a far more common placd to facilitate and capture the data, translate the pockets of knowledge so these are shared, aggregated and exchanged across these ecosystems.
These shifts in collaboration, broader connected knowledge will create new business models, new offerings reliant on the partners within the ecosystem to distribute and monetize these in new products and services, at unprecedented scale and speed to capitalize on opportunities and create a new competitive lock in. These are providing products and services that specifically meet customer needs.
How we embrace the changes occurring daily means we must challenge much of the way we presently measure and manage innovation. Innovation can’t stay hidden behind closed doors, it can’t work with outdated measuring systems that focus on inputs, throughput and outputs, they all need to become outcome-based solutions to solve the problems and opportunities you find in innovation, that understands the real customer need and then build with speed and scale the solution - and get paid far more on the value of the result.