Matt Calman Apr 20, 2015

Measuring innovation to improve it

One of the most nebulous challenges in leading a bank innovation program is developing a measurement system that satisfies the institutional need for measurable results without stifling the creative spirit. Having spent years fine-tuning a measurement approach to capture and improve the performance of my former employer’s innovation platform, I can tell you that it can be done. The key is to focus on three elements: inputs, outputs and processes.

Many new innovation programs focus on inputs: how many new ideas can I pump into the program? How many innovation workshops are we running and how many employees are participating? How many lines of business are engaged? How many customer comments and reviews have been posted and mined for new ideas?

Input metrics are valuable and are a required component of any successful measurement plan. They help to gauge the health and coverage of an innovation program in terms of breadth and depth of engagement. Ideas and client engagements are the lifeblood of any innovation program. They also are the first measures available in a new program, long before process metrics and output metrics can be gathered.

But input metrics alone don’t provide any insight into the quality or suitability of new concepts that may result. One obvious lesson learned from my team’s history: don’t tie an incentive to an input metric. Our first employee idea campaign rewarded a free water bottle to each submitter. Ten years later, we still lament that decision for awarding the idea, “We should plant a flag on the moon with the bank’s logo.”

Innovation Causality

At some point, every innovation program must provide output metrics that enumerate its value-add, with Return on Investment (ROI) as the favorite. Others include new revenue streams, Shareholder Value Added (SVA), new product launches, top-box customer scores, customer deepening, patent applications, even media recognition and innovation awards.

The great challenge with innovation output metrics is proving the causality of the innovation program in the outcome. Could that successful new product launch have happened without the innovation program? In many cases, an innovation team serves as an enabler to a larger development. And while the team may make valuable contributions and provide new insights, the new product “graduates” are not solely thanks to them. Today’s matrixed organizations and collaborative work-style result in successes with many sponsors. Measuring the ROI of a small innovation team based on a carve-out of a “win” may satisfy the needs of a scorecard, but fails as a precise measure of team performance.

On the other hand, there are some output metrics with direct ties, such as patent applications, media mentions and innovation awards, which succeed as a precise performance measurement. Depending upon your bank’s positioning and strategic direction, these can be important differentiators. But again, they are not sufficient by themselves to measure the success of a program. Whether directly or indirectly attributable, output metrics have a time horizon measured in years, not months or quarters. New innovation programs need a long runway to prove their value and call for leaders with short-term expectations of activity and cultural behavior with long-range expectations of hard dollar value.

In my Six Sigma Blackbelt training, we learned the motto, “You can’t manage what you can’t measure.”  Many believe that Six Sigma and innovation are natural enemies, with Six Sigma focusing on rigid statistical process control and incremental improvement while “real” innovation focuses on new thinking, breakthrough change and a purposeful breaking of the rules. What I found was that Six Sigma design and measurement approaches could be applied to the innovation process without placing constraints on the what and how of creativity. My team built a repeatable innovation process with reliable outputs. We couldn’t precisely predict what the innovative outcome would be or how it might function, but we could predict with reasonable certainty that if we followed our innovation process steps with our clients, we would produce an innovative output.

Our early experiences with innovation had taught us that the quantity of ideas was not a reliable predictor of good outcomes, whereas the yield of high quality concepts from creativity sessions was. (We defined a concept as a combination of multiple ideas with participation from multiple people with different perspectives.) This focused us on creativity techniques that drove small-group collaborations intent on new combinations.

Another powerful effectiveness measure was how quickly we killed bad concepts. In contrast to the notion that “every idea is a good idea,” we toughened up our approach and stopped faltering concepts before they could drag on. The best innovation teams celebrate the killing of concepts, because that frees up time and provides fuel for the next round of iteration. Each year, we raised the bar and expected our innovation process to kill more ideas more quickly, raising the efficiency of the innovation process and providing more shots at success. At the same time, our inventory of “shelved” ideas helped us fast forward concepts when working with new challenges and new clients.

Combining both yield and speed was our time-to-market measure that looked at the end-to-end cycle time from initial concept to market launch. Over time, we reduced our actual time-to-market from multiple years (as long as seven) down to 18 months. Achieving this speed took many efforts, including organizational alignment, executive sponsorship and end-to-end process work. By focusing on this process metric, however, we drove the kinds of outputs expected of the program at its outset.

Recommended action plan: 

  • Gather your current innovation measures across input, output and process dimensions;
  • Focus in on process yield and cycle-time measures to drive higher innovation efficiency;
  • Kill bad ideas faster and faster – this being the hallmark of high-performance innovation teams;
  • Consider the value of additional metrics that your innovation program can drive, including employee satisfaction and engagement, customer satisfaction, and media mentions.

Mr. Calman is managing director with Charlotte, N.C.-based Calman & Co. LLC and a judge for the BAI-Infosys Finacle Global Banking Innovation Awards 2015. He can be reached at matt.calman@outlook.com

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