Abstract from http://innovationexcellence.com/blog/2017/03/03/innovation-metrics-in-outcome-based-culture/
How do you measure success of corporate innovation? Innovation Metrics Outcome-Based Culture
One of the key objectives of the corporate innovation function is to build and manage the innovation funnel of ideas that will eventually become Horizon 2 & Horizon 3 products.
McKinsey’s “3 Horizons of Growth” model states that each horizon calls for different success metrics.
- Mature products (Horizon 1) are measured with profit, margins, and costs.
- Growth products (Horizon 2) are measured with market share growth.
- Incubation products (Horizon 3) are measured by reaching certain milestones.
For any corporate innovation initiative to succeed at scale, there needs to be a group of people who is actively managing innovation. It doesn’t have to be their primary job description, but they must be held accountable for successfully managing innovation initiatives.
No disciplined innovation happens if the employees are not trained and not engaged, so it is critical to invest in both training and engagement by offering a variety of classes on topics like Design Thinking, Lean Startup, Business Model Canvas, Pitching to Investors and run coordinated innovation programs.
Innovation Funnel Management Metrics
Let’s apply the “3 Horizons of Growth” model of incremental metric maturity, as raw ideas evolve to business concepts and to Beta products in customer’s hands. For every stage of the idea lifecycle (Ideation, Validation, Launch) there will be different metrics to track and indicate success or failure. These metrics will be activity based and output based in the beginning, evolving into output and outcome-based metrics as ideas turn into validated business concepts, and eventually into Beta products in customer’s hands.
Ideation is a multi-stage process with filtering of high-quality ideas for further validation. The top of the funnel needs to be as massive as possible with focus on quantity over quality. Eventually, we want to select top X ideas to be approved for the validation phase. Therefore the key metrics at this stage are:
- Number of ideas submitted – top of the funnel quality metric
- Number of ideas selected – bottom of the funnel quality metric
Now that the ideas have been selected and teams formed, the success will be measured by team’s ability to cultivate a business concept of a desirable, feasible and viable product or service. Metrics at this stage are number of:
- Interviews conducted
- Experiments run
- Demos performed
- Pre-product sign-ups.
Now the product is in customer’s hands and early traction metrics become key. What’s crucial to track is how quickly the product is being adopted and whether it’s being used. That’s exactly what VCs and Angel Investors will be looking for with early stage startups. Here are key traction metrics to follow:
- Number of customers acquired per day (or week)
- Number of users at each customer
- Daily Active Users growth
- Repeat use
In conclusion, The key is to recognize that different problems call for different means and different metrics, and accept that metrics mature as products mature, eventually becoming outcome based as products move from ideation to incubation to becoming core revenue generating products in company’s portfolio.