Corporate innovation should not be left without a well-functioning measuring system. It is more relevant to ask: What does your system for measuring corporate innovation performance look like? Or: Do you need to develop and improve your present system?
Setting the stage
The “parenting company role” of developing a good corporate platform for performance assessments, is thus certainly also relevant and important to corporate innovation. It is however rather strange in times when most corporate activities are measured and carefully evaluated both in a short-term and long-term perspective, that corporate innovation often totally lacks a good performance measuring system. Is innovation, then, an exception to the old saying that “what gets measured gets done”?
This is probably not the case, since there seems to be a somewhat remarkable total consensus about the strong relationship between a company’s future competitiveness and its innovation capability. In larger corporations in the Process Industries, resource allocation to R&D is nowadays often decentralized and investment in R&D, depending on the nature and scope of innovation activities, is often left to the discretion of business units, divisions, companies or even smaller production units. The advantage of this is that it ensures that innovation activities are in line with individual business strategies and that product development is close to the customers. The disadvantage, which sometimes can be considerable, is that group management, or top management in smaller organizations, totally loses control of all innovation activities, and that possible synergies between business or production units in innovation are lost. It is not, however, the obligation of the Corporate top management to demand better presentations of corporate innovation or to improve their capability to understand innovation matters better. It is the sole responsibility of the R&D management team to present strategic R&D issues in a comprehensive and understandable way to all company stakeholders.
Well-designed corporate measuring systems for innovation are the remedy for this disadvantage, and well selected and aggregable performance measures will also give an opportunity for internal or external benchmarking of corporate innovation. A good performance measuring system and good corporate Key Performance Indicators (KPIs) for innovation will diminish the risks of decentralized R&D and can be looked upon as an important part of a “company’s early warning system”. From a historic management perspective, the lack of relevant measuring and control systems for innovation is probably related to an old-fashioned view that this activity is too complex to be measured. But the knowledge base in this area has greatly improved over the past fifteen years, and we now know vastly more about how to measure the performance of R&D. There is a spectrum of alternative financial and non-financial performance measures that can be selected depending on the nature of company R&D and on desirable areas to improve. The question today is not so much whether it is possible to measure R&D, but how to design a proper corporate measuring system for R&D (Lager, 2010).
As we all know, it is difficult to improve a product from a production process if the properties you want to improve are not measurable. One of the objectives of measurement systems is thus not the measurements themselves, but the desired improvements. The measurements are then only the results that are generated in an improvement process. The measurements themselves unfortunately give us no guidance on how to go about improving a product property, and you have a similar situation for the improvement of R&D.
Since output measures do not help in your improvement efforts you must look for successful behavior – Success Factors – that can produce these desired improvements Part 1, (Lager & Hörte, 2005) and Part 2, (Lager & Hörte, 2005). You must in other words try to identify “success factors” and “drivers” for good R&D performance – success factors that also are linked to the company’s R&D innovation strategy. There is thus a clear analogue to the old Balanced Scorecard approach. After success factors for innovation have been developed, it is time to design a measuring system for corporate innovation. The participation of company R&D staff in this process is essential. People in the process industries, being often experts on other kinds of measurements, are not likely to accept measures that are not understandable, relevant and reliable.
When a good measuring system for corporate innovation has been introduced, it is time to consider the overall presentation of corporate innovation and how performance in that area should be presented to the R&D stakeholders. Corporate internal and external stakeholders expect to find out how the company is performing and what direction it is taking through the company annual report. Internal stakeholders for R&D deserve a similar presentation from R&D.
We have a long track record in the area of developing success factors and performance measuring systems for innovation in the process industries. We adapt the system to each company’s individual characteristics and the nature of its corporate innovation activities. Development of success factors and measures is carried out within the R&D organization “bottom-up” in a stepwise work process that assures organizational acceptance in a long-term improvement perspective. Our experience is that each company must develop a “customized” system of success factors and key performance indicators for innovation, and that there is no off-the-shelf solution to be found. It is vitally important to measure important and relevant innovation outputs and success factors, but it is equally harmful to measure the wrong ones!
Corporate success factors and performance measures must also in future be well presented and communicated to all corporate stakeholders. The responsibility for such reporting rests solely on the R&D Director. We find that well-structured and presented annual reporting of corporate innovation is the proper instrument. Why not let us help you to develop relevant success factors and a good performance measuring system? We can also assist you to develop your Corporate Internal Annual Report for Innovation™ that will enhance communication with your company stakeholders for R&D, and make an annual presentation of R&D of excellence.