An innovation refers to doing something in a manner that was never done before, or ‘changing for better’. The level of innovation that is required in a given industry varies significantly. Innovations are means to adapt to the changing internal and external environments in order to gain competitive advantage.
Research, development and innovation can be viewed as steps along a continuum that leads from the creation of knowledge, through the adaptation to the final exploitation of knowledge. They also relate to the creation and production of artefacts or technological systems. Innovation encompasses both radical innovation activity usually associated or triggered from ‘blue skies’ research and disruptive new products, services, organisation or thinking, and the more common incremental improvement activities that are carried out by most organisations on a daily basis. The goal of innovation is positive change, to make someone or something better.
The meaning of innovation is multiple-fold, from evolutionary to revolutionary, incremental to radical, major to minor, etc. Innovations are generally applications of inventions and represent change that has successful commercial use. There is a thin line between continuous improvement and incremental innovation which depends of the nature of the change and its affect to the input, output or transformation process.
Incremental innovation is the constant improvement of existing products and services and is, for example, organized in continuous improvement processes. The consequences of incremental innovation are small for the standpoint of time, with relatively low complexity and risk. Incremental innovation is an important tool to maintain an existing share of the market. Raising further differentiation from competitors will not usually be possible in this way. From a semantic point of view, ‘improvement’ means to make thing better, while ‘innovation’ means a new way of doing something.
Continuous improvement, invention and innovation involve certain levels of creativity that need to be encouraged, supported and managed based on specific delivery critical success factors.
New technologies are getting more advanced and complex; companies seek competitive advantage by integrating the management of operational performance, improvement and innovations into their strategy. Innovation in product and processes might contribute to reducing cost, increasing quality and increasing efficiency, which in turn might translate into market leadership by delivering superior product and services. The need for change is obvious to be able to get or sustain competitive advantage.
The evolutionary approach probably emphasizes a trial-and-error learning process, thus the need for continuous improvement. Innovation results are affected by the wide range of conditions, constraints and resources. Innovations can be triggered internally in different way and at different levels of the organisation. Some models suggest that innovations are mostly the primary duties of the senior management which create a favourable context for creativity, e.g. by setting the right objectives. This is certainly the case for creative organisations such as Apple, Microsoft, or Tata (etc.) which results were driven by their visionary leaders.
The success of an organization’s innovation system will depend on the market context, the competition level in the industry, the maturity of the internal processes, its ability to learn, to manage creative people, etc.
Key Performance Indicators (KPIs) reflect the organization’s goals and serve the purpose of assigning metrics to aspects that matter across multiple perspectives.
Once strategic objectives are identified, strategic performance metrics can be used to track performance. These metrics can then be presented to the senior management using a performance management tool, e.g. using the Balanced Scorecard (Kaplan and Norton, 1992). Cascading KPIs can also derive from cascading organization objectives.
The following are 3 proposed KPIs to assess success of innovations:
Some might want to focus on effectiveness: ‘doing the right thing’ or the capacity of producing an effect. It means conducting the right activities and applying the best strategies for competitive advantage. From a process viewpoint, it is producing the required outputs and outcomes, and meeting objectives. For example, it could be interesting to know how many innovations or patents are granted to a team versus effort spent, and versus added value or generated sales – to manage internal performance based on effectiveness and commercial returns. For an OEM in the automotive industry, this could translate into the number of hours spent to develop a new patent, the number of patents granted versus not granted, the number of new patents per new model of car.
Others might want to focus on efficiency: ‘doing the thing right’ – it defines whether processes are completed using the least resources and in the shortest time possible.
Indicators related to product innovation might focus on putting products onto market and return on investment, while indicators related to purely process innovation might focus on measuring the efficiency of the new or improved process.
These metrics are typically part of the Product Life-cycle Management (PLM) business casewith a view to enable innovations and improve Engineering efficiency and effectiveness.
What are your thoughts?
- Kaplan R.S. and Norton D.P. (1992), The balanced scorecard – Measures that drive performance. Harvard Business Review (January-February), pp71-79.
This post was originally published on LinkedIn on 20 March 2015.