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July 3, 2018

The right way to measure innovation

Summary:

Peter Drucker famously said that we can’t manage what we can’t measure. Now that so many of us are trying to innovate in a predictable and sustainable (in other words, manageable) way, what should we measure? What metrics will let us know whether we’re on the right path, while there’s still time to pick a different one?

Some smart people weighed in on the topic recently, and I’ll summarize them here.

Michael Schrage and David Kiron published a study in MIT’s Sloan Management Review that found that only 27% of executives felt that their key performance indicators (KPIs) drove their businesses toward their strategic goals—leaving a lot of room for improvement. The two said many KPIs, having been used for decades, are out of date in today’s environment. The authors also said too many are like profitability and market share, which tell you if you met targets in the past but don’t help you understand the future.

They suggested a heavy dose of machine learning, sifting through big data, to identify new KPIs that will really move the needle for a business. They speculated that Netflix had no idea that binge watching would become such a phenomenon but quickly spotted the trend and came up with ways to measure bingeing, which led to KPIs that drove efforts to continually make Netflix more addictive.  

Here is an interview with my old friend Michael, with a link to the full report.

Amy Radin also weighed in, in this article at ITL, based on her long experience leading innovation efforts at major corporations and on the work she did for her book, “The Change Maker’s Playbook,” coming out in September. (I’m such a fan, I wrote the Foreword.)

She notes that traditional financial planning can smother innovation efforts. How can an innovator be expected to produce the precise forecasts that you can insist on from someone running an existing business in a well-understood market? Why would you even ask for such a forecast, given that it provides the corporate antibodies—those that like the world just the way it is—a chance to discredit an innovative effort?

Instead, Amy suggests five questions, including:

  • How big is the addressable market? And does it pass the 1% test? In other words, would we be happy if we got 1% of that market? (In my experience, nobody thinks about just getting 1% of a market. 10%, 25%, sure. I’ve even seen 60%. But not 1%.)
  • What would have to be true for this idea to pan out for us?
  • What are the main drivers (conceptually) for revenue and expenses? 

In a cynical moment, my frequent co-author Chunka Mui and I once wrote in a book that “marketing is how you lie to your customers; market research is how you lie to yourself.” Market research—whatever the reason for its failings—simply can’t be as far off as it is now if our innovation efforts are to succeed. Spending a bit of time with Michael’s and Amy’s work will, I’m confident, help you zero in better on the right questions and the right indicators. You’ll measure your innovation work better, and you’ll manage it better.

Have a great week.

Paul Carroll
Editor-in-Chief

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About the Author

Paul Carroll is the editor-in-chief of Insurance Thought Leadership. He is also co-author of Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993. Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

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