Companies track the relationship between spending on innovation and shareholder value (and nearly a quarter don’t know whether or not they do so). However, innovation is generally seen as a strong contributor to organic growth, probably indicating that companies find their innovations worthwhile overall. When asked about a single major innovation at their companies, said that the innovation had been very or extremely successful.
One group of respondents both reported higher organic growth rates than their competitors did and said that at least 31 per cent of their organic growth comes from innovation. These respondents have a somewhat different approach to using innovation metrics. In general, they have a greater interest in pursuing and measuring their innovations as a portfolio: they are more likely than other respondents to pursue and measure all types of innovation, and nearly a quarter (far more than other executives) say that creating a balanced portfolio of innovations is one reason they use metrics.
These high-performing organisations use, on average, only one more metric than all respondents do. But they are likelier to use metrics across the whole innovation process, such as assessing the number of people actively devoted to innovation, the number of new ideas sourced from outside the organisation, and the percentage of innovations that meet their development schedules. Like the companies of most other respondents, the high-performing ones also track the financial returns from innovation in general and customer satisfaction with specific innovations.
Companies that use innovation metrics are, on the whole, satisfied with their use. The many companies that don’t track their innovations can probably gain a better understanding of their innovation performance just by introducing some of these metrics.
Although executives are on the whole satisfied with the way their companies use innovation metrics, the findings indicate significant room for improvement in many individual applications—most notably, aligning metrics with individual performance incentives and using them to communicate effectively with investors.
At the same time, Indian companies must look at their innovation pipeline and be absolutely sure that they are funding enough projects that will ensure future growth. The global economy as well as the Indian economy will rebound in 2010. Only companies that invest in the downturn stand to reap the benefits when the economy improves. During downturns, assets are cheaper and talent is available at attractive prices. Indian companies should actively look for strategic targets for acquisitions.
More importantly, Indian companies should make three changes to their organization to support innovation. First, they should change the scorecard and metrics for innovative projects from short-term financial measures to leading indicators. Second, they should encourage collaboration and cooperation across functions, products, and businesses. After all, innovation can thrive only by combining capabilities across businesses. Third, companies should not punish managers for taking risks and possibly even failing – a critical requirement for innovation. During these turbulent times, innovation is more, not less, important.
Companies registered impressive growth primarily due to becoming more efficient, cutting unnecessary costs, reverse engineering business models invented in the West, and benefiting from cost arbitrage. This “efficiency” based game is over. Going forward, innovation will be the key to unlocking growth in India. Solving India’s many problems – energy, health, water, and education would require fundamental business model innovation.
Many companies would gain a deeper understanding of their innovation performance if they paid more attention to input metrics as well as output metrics, benchmarked themselves against their competitors, and dug into the relationship between innovation spending and shareholder value.–