International Association for Management of Technology

IAMOT 2014 Proceedings

MEASURES THAT MATTER: STRATEGICALLY TRACKING INNOVATION

INITIATIVES

ANA PAULA PENA ALMEIDA

FIAT Strategic Planning and Innovation Management
Avenida do Contorno,º 3455
Betim, MG 32669-185, Brazil
ana.almeida@fiat.com.br

LUÍS FERNANDO A. GUEDES

FIA - Administration Institute Foundation
R. José Alves Cunha Lima, 172
São Paulo, SP 05360-050, Brazil
lguedes@usp.br

PAULO MÁRCIO BRAGANÇA DE MATOS

FIAT Strategic Planning and Innovation Management
Avenida do Contorno,º 3455
Betim, MG 32669-185, Brazil
paulo.matos@fiat.com.br

Abstract
Both current and prospective economic environment are marked by relentless
competitiveness and high product quality is rapidly becoming commodity. This is the
scenario where innovation emerges as a matter of survival for many companies and essential
for optimizing business results. Executives affirm they know and practice innovation, but
evidences suggest that most of them are dissatisfied with the innovation management efforts
and its measurement architecture. Since innovation is an initiative whose results are not
always immediate, establishing a set of indicators to monitor it, focusing on today and also on
the future it is a key step to maintain stakeholders support. Traditionally innovation has been
measured in quantitative or financial terms. This approach has failed to demonstrate the real
value of innovation and the new opportunities created for the business. Therefore, one of the
most critical issues in innovation management has been finding an effective measurement
architecture that encompasses results and efforts, among other variables. This paper main
objective is to propose an evaluation system for technological innovation to be used as a
management tool to monitor performance, communicate results and motivate employees. It is
believed that technological innovation, used to create and capture value and strategically
address customer's needs, is vital to foster competitive advantage. This paper methodology
was based on literature review related to innovation measurement systems, business
performance and innovation management. There are not many articles in the literature
aligning organizational structure, corporate culture and business strategy when dealing with
an innovation measurement system, and this paper fills that gap. A case study was developed
at Brazilian FIAT subsidiary, the biggest player in local automotive sector for more than a
decade, with more than 700,000 cars sold in 2013. Besides several other practical application
for the model that was developed, two authors of this paper that work for FIAT's Strategic
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Planning and Innovation Management department, plan to effectively implement it shortly.

Suggestions of possible future studies are also presented.

Keywords: Innovation management; innovation metrics; innovation effectiveness;

technological innovation

Introduction
In the current economic scenario, marked by high competitiveness and high product quality,
innovation has become a matter of survival for many companies and essential for optimizing
business results. Notwithstanding it’s a consensus amongst business executives that
innovation is the prime driver for top line growth, most executives are less than satisfied with
the level of innovation in their companies, as recent Korn/Ferry Institute global research
displayed (Korn/Ferry, 2011).
In recent years, competitive advantage use to be based on factors such as product quality,
productivity, access to low-cost inputs, financial assets management, and customer service.
Today, these factors no longer define leaders, although unarguably important, cannot by
themselves provide sustainable leverage. Nevertheless many traditional organizations still
track their overall performance through a combination of metrics based on these dimensions.
One may wonder if this scenario is based not on a lack of effectiveness of innovation efforts,
but on how companies are measuring it. Indeed, there are evidence that among those
companies that do measure their innovativeness, most use Research and Development (R&D)
and product-development metrics only (such as R&D investment as a percentage of annual
sales, number of patents filed in the past year, percentage of sales from products introduced
in the past year, and number of ideas submitted by employees (Muller et al, 2005). A number
of academic articles address the issue of developing metrics for this kind of innovation
(Chiesa et al, 1996; Hugges et al, 1996).
Since innovation is a subject whose results are not always immediate, establishing a set of
indicators to monitor it, focusing on today and also on the future, is crucial to ensure
stakeholders support. Initial efforts to track innovation were based almost entirely on output
view of financial performance, using traditional economic analysis tools (MULLER et al,
2005; Tidd et. al., 2008; Vantrappen and Metz, 1995). Soon executives and academia realize
that these metrics do not allow measuring innovation value on a broader sense (Gupta, 2012).
Traditional evaluation system fails to capture all dimensions of innovation, mainly those
related to innovation capability and the extent of new opportunities exploitation. Therefore,
one of the most critical issues in innovation management in recent years has been how to
effectively measure innovation efforts and how to use this set of data as a motivation and
alignment tools.
When used as a strategic tool, the evaluation system facilitates end-to-end innovation process
improvement, producing meaningful results for the company. A solid evaluation system will
help to communicate broadly company's strategy, to track innovation projects execution and
to identify new business opportunities. On the other hand, if it is poorly designed and
implemented, it can cause more damage than benefits to companies.
The present work proposes an evaluation system for technological innovation at the Brazilian
branch of FIAT, the larger Brazilian car manufacturer for the last 12 years. This system is
intended to be used as a management tool to monitor innovation performance, communicate
its results and motivate high value employees.
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Innovation: Main Concepts

The innovation concept appeared in the XVIII century with Adam Smith, who studied the
relationship between the capital accumulation and manufacturing technology, involving
concepts of technology, labor division and competition. Only after the Joseph Schumpeter´s
work in 1934, the relationship between innovation and economic development has been
established and known as The Theory of Economic Development. Schumpeter argues that
capitalist system progresses by constantly revolutionizing its economic structure through
"creative destruction": new firms, new technologies and new products constantly replace the
old ones (Moricochi and Gonçalves, 1994).
Innovative companies develop a competitive advantage based on cost reduction, offering
higher value products to consumers or creating new markets. This means that companies can
have, for a limited period, the equivalent of market monopoly profits. This is a temporary
condition because on general case, high value innovation will spread and rapidly absorbed
among competitors, returning to the situation of price competition.
The term “innovation”, sometimes used in a very elaborate manner and sometimes just as a
buzzword, has many meanings in literature. In contrast to the invention concept, which is
related to creating something brand new, innovation has the character to assign value to a
given invention, making it revolutionary, leaving it in people's memory. According to
consultancy company Strategos (2012), "Innovation is the ability of organizations to
continuously renew and differentiate," and "it is the path that allows companies to achieve
their growth objectives".
Innovation can take place by the introduction of a new product or service still unknown by
the costumers, by the introduction a new process not experimented in a given segment, by the
opening a new market and, finally, by the industry reorganization (Tidd et. al., 2008).
However, not all innovations are created the same way. They do not present the same risks or
provide similar rewards. Innovation can be classified as incremental, semi-radical and radical
as presented in Figure 1. Incremental innovation is associated with problem solving and
continuous improvement of products and processes on current business. On the other
extreme, radical innovation, involves the creation of products/services completely new and
usually occurs with shift in paradigms (Davila et. al., 2007).

Figure 1: Innovation Matrix

Source: Adapted from Davila et. al. (2007)

Innovation is driven by the ability to establish relationships, identify and take advantage of
the opportunities (TIDD et. al., 2008). As important as to manage innovation is to measure
the results of innovative projects. Particularly where results are expected to occur in the
medium to long term, to establish a set of indicators is the first step to gain stakeholders
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support. Right and specific metrics can leverage innovation process in the company,
producing outstanding results (Williams, 2009).

Innovation measurement
Despite its importance, the use of metrics to track innovation efforts is not yet disseminated
within the business world. A worldwide research conducted by consultancy company
McKinsey & Co. (McKinsey, 2008) with 722 companies revealed that only 22% use metrics
to measure the innovation performance, while 45% do not even measure the relationship
between investment in innovation and the value it captures.
Other research conducted by Boston Consulting Group (BCG, 2008) interviewed hundreds of
executives from world's largest companies about Innovation Management practices. It was
observed that there was actually a reduction on the number of satisfied executives with the
return on innovation investment. In 2006 the percentage of satisfied executives reached 52%,
but in 2007 that number decreased to 46% and in 2008 to 43%. In other words, from 2006 to
2008, there was a decrease of nine percent points in the executive satisfaction with the return
on innovation investment, despite the increase on innovation efforts. In the same study, 65%
of executives said they were not satisfied with the metrics used to evaluate innovation results
in their companies.
Metrics can be used strategically to define and disseminate the strategy (communication), to
monitor the innovation initiatives implementation (control) and to identify new opportunities
(learning) (Davila, 2007). They can also be used to compare the innovation ability among
companies at the same sector or between two or more business units of the same company
and also to measure the growth of the innovation capacity of a company or business unit over
the time.
There are a several kinds of metrics but most of them can be clustered into four categories:
those that measure the innovation economic performance; those that measure the innovation
intensity (at a departmental, a business unit or organization level); those that measure the
innovation activities effectiveness; and those that measure the organization’s creative culture
(Trías de Bes and Kotler, 2011). Therefore, the metrics selection should reflect the goals and
the company's innovation strategy, as well as the critical success factors of the sector.

Exhibit 1: Innovation metrics by category

Economics Intensity
1. The company's sales from the launch of new 7. Number of patents;
products; 8. Number of innovations in products, services,
2. Profits from the launch of new products; customer experiences, processes or business
3. Sales from innovations that do not involve new models;
products; 9. Number of brands;
4. Profits from innovations that do not involve new 10. Quantity of ideas generated per year;
products; 11. Number of innovation projects in the flow;
5. Reduced costs from innovations; 12. Number of innovation projects in progress;
6. Return on total investment in innovation; 13. Investments in R&D;
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Exhibit 1: Innovation metrics by category (cont.)

Effectiveness Culture
14. New products success rate; 20. Percentage of employees who produce ideas;
15. Time to market; 21. Percentage of employees who evaluate ideas;
16. Average investment per project; 22. Annual rate of ideas per employee;
17. Average impact of investment on successful 23. Percentage of time spent on innovation;
project; 24. Number of departments that innovate
18. Average expenses and rejected ideas and projects; continuously;
19. Number of years of industry leadership; 25. Tendency to take risks.
Source: Adapted from Trías de Bes and Kotler, 2011

An innovation evaluation system can be used yet to measure both the efficiency and
effectiveness of innovation projects. From this standpoint, literature suggests (e.g. Tidd et.
al., 2008; Muller et al, 2005; Chiesa et al, 1996, Tang an Le, 2007) that it can be built based
on inputs, process, outputs and outcomes, from idea generation, through the execution,
ending with value capture, as presented in Figure 2 (Davila et. al., 2007).

Figure 2: Innovation evaluating framework

Source: Adapted from Davila et. al., 2007

Inputs to innovation development can be tangible (people, capital, equipment, work space,
time) or intangible (motivation and corporate culture). Processes combine and transform
inputs, being measured in real time to monitor efficiency. Monitoring the process is essential
to identify the need to and implement adjustments during execution. Outputs congregate the
final results of innovative efforts, and metrics can be used to quantify technological
leadership, new product launches and market leadership. Finally, outcome metrics reflect the
product value and they are implemented as a return on investment, profitability and value
captured in the long term (Tidd et. al., 2008; Shapiro, 2006).
On a strategic perspective, the evaluation system takes into account metrics from the
standpoint of design, portfolio management, execution, outcomes, and sustainable value
creation. The innovation design reflects company's potential to generate ideas, and it is
related to the ability to develop human resources, and to ensure a clear strategic direction
based on a competitive knowledge to guide the actions. Portfolio is evaluated according to
maturity time, risk, value, innovation type and deployment stage, to ensure an optimum
balance of initiatives. Portfolio maps show in detail current and future innovation projects,
making explicit inter-relationships and dependencies. This kind of analysis is essential for a
strategic point of view, once innovation projects are not always financially attractive on short
term (Muller, 2005; Tang and Le, 2007).
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A development and results measurement system would facilitate a more efficient

management of product development and allocation of resources for innovation. Moreover, it
would promote a systemic vision of the innovation programs status offering managers a
systemic view of innovation efforts.
The last step to evaluating innovation from the organizational strategic perspective refers to
the sustainable value creation. For companies seeking profit, value creation is measured by
financial performance. For incremental innovations, performance is relatively simple and
easy to be measured through metrics of return on investment or residual income. However,
for radical innovations, measure the value creation can become challenging due to the
implementation of long term and high risk projects. Some examples of metrics developed for
the organizational and innovation business model perspectives are shown in Exhibit 2.

Exhibit 2: Examples of innovation metrics

Products Outcomes
 Long-term corporate profitability: stock price;  Achievement customers: new customers acquired by
growth projected for sales; projected residual for innovation; number of clients of currents
revenue; products/services who buy new products/services;
 Short-term corporate profitability: residual revenue number of new clients of new products/services who
growth; increase in sales; return on stocks; buy currents products/services, market share;
percentage of sales of new products.  Customer loyalty: regular customers frequency;
annual average sales per customer; customer
satisfaction with innovation activities;
 Value capture: margin of products/services offered
to customers; average prices paid by customers;
number of new products/services launched;
innovation operations profitability; revenue
generated from innovation initiatives; profitability
per customer.
Process Inputs
 Portfolio: percentage of innovative efforts dedicated  Innovation commitment: time dedicated to
to radical innovation, semi-radical and incremental; innovation; resources allocated to initiatives; success
balanced portfolio in accordance with time, returns, of the ideas that go through the selection and
risks and technologies; alignment between implementation process; investments in training;
innovation strategy and resource allocation;  Balanced innovation networks: mix of internal and
 Execution: effectiveness of product platforms, external innovation sources; percentage of projects
reducing time/cost in developing new products and outsourced innovation; number of strategic
processes; sales and profits in accordance with the alliances; assessment of the suppliers ability;
goals; R&D productivity; new patents obtained  Innovation strategic alignment: quantity, cost, price
annually; trial quality; cost; develop and delivery and perception of new products and services offered
time; quantity and price of products and services from innovation projects; brand awareness;
offered; quality scores of products and processes. innovation operations profitability; sector
competitive position;
 Appropriate administrative infrastructure: IT
infrastructure and quality information; resources for
market research and technology; financial resources
available for innovation; managerial autonomy;
multifunctional initiatives.
Source: Adapted from Davila et. al., 2007

Oslo Manual (OCDE, 2005), when focusing the technological innovation concept, suggests
innovation inputs measurements on the following domains: R&D, technology licensing,
industrial design, acquisition of machinery and marketing costs. With respect to products, the
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metrics are known as the most difficult to measure. The most common of product metric for
technological innovation is the number of patents. However, it is not a good metric for
international comparisons due to different approval criteria among countries. In a specific
country, however, it can be used for comparisons among same sector companies. Even so it
should be used with caution, because many companies do not request patents for strategic
reasons (industrial confidentiality) or do it indiscriminately to confuse their competitors
(Furtado and Queiroz, 2007).
One of the most important metrics for innovation research refers to innovation rate. It can
measure the relative number of firms that have introduced at least one technological
innovation in a given period, generally three years for a total set of companies (OCDE, 2005).
It is important to note that this metric refers to innovations introduced and not innovations
created by the companies. It also relates innovations for the business and not for the market.
Furthermore, it only makes sense to analyze a set of firms in a country, region or sector, and
it is not valid to study individual behavior of firms. It worth mention that are several other
metrics to describe the technological innovation results from the product viewpoint. One of
them refers to the number of product or process introduced by a company in a given period of
time and another could be the innovation economic impact in total company sales.
An effective evaluating system can leverage the innovation process, producing outstanding
results for the company. On the other hand, if it is poorly designed, it can cause more harm
than benefits to the business. To compose an optimum measurement system, BCG (2006)
recommends using about 8 to 12 innovation metrics. Too many metrics can result in
excessive collection time and low effectiveness management. While using a small number of
metrics does not permit an accurate performance measurement and a reliable innovation
management. To design an effective evaluation system, it is recommended:
 Align the metrics with strategic goals and business model innovation;
 Identify metrics for both innovation management and project portfolio management, due
to projects individual contribution to the final innovation efforts outcomes;
 Adapt the metrics according to strategic changes and projects evolution;
 Check whether the metrics are fulfilling their basic strategic function to communicate,
monitor and learn;
 Simplify, avoiding complex measurement systems and resisting the temptation to monitor
everything and in every detail;
 Include at least two metrics focusing on the client;
 Establish a timeline to evaluate the innovation results according to the company sector to
ensure competitive advantage;
 Be aware of metrics limitations, using them as a tool to support the management process.
The decision should always be made by managers and not by the evaluated systems.

The critical success factors to measure the innovation performance involve five main
competence areas: (i) strategy, (ii) organization, (iii) idea generation and implementation, (iv)
portfolio management and (v) scaling, as shown in Figure 3 (Almquist et.al., 2013).
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Figure 3: Innovation high-performers focus on 12 key success factors

Source: Adapted from Almquist et.al., 2013

To achieve high innovation performance, therefore, it is important to have integrated teams

working from the idea generation, through concepts trial until prototype scale up. Thus, it is
possible to full explore the potential of new ideas and new value propositions generated by
both teams, using creative and rational skills.
It is important to emphasize, therefore, that an effective evaluating system should be designed
based on the understanding of the innovation business model and the relationship between its
inputs and outputs. That way, merely copy the measurement system of others companies is
not enough, because it might reflect different priorities and differences in resources
allocation, leading to actions contrary to the company’s objectives (Vantrappen and Metz,
1995).

Situation/Problem Description
Although many companies still do not have one or do not use an appropriate set of metrics, a
solid evaluation system is one of the key components for innovation management. The use of
metrics enables managers to align their actions to strategic objectives, gain support from high
administration, analyze the economics of innovation efforts, to name a few benefits (Shapiro,
2006; Hauser et al, 1997; Chiesa, 1996)
In 2011, a diagnosis was made to structure the innovation strategy and management model
for FIAT, as discussed in detail in the next section. However, until this moment, the company
does not have a robust evaluating system to monitor the innovation performance, to
communicate results and to recognize employees’ innovative efforts. The innovation
performance is evaluated punctual and isolated manner by departments, not allowing a
systemic analysis of the innovation results.
Aiming to fill this gap, this paper proposes to structure an evaluation system to be used as a
management tool for assessing technological innovation outcomes.
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Case study: FIAT

Installed in Betim (MG, Brazil), since 1976, FIAT has a production capacity of up to 800,000
vehicles per year. The factory in Betim is the largest industrial area of the company outside
Italy, its homeland, with 2,250,000 m² of total area and 613,800 m² of built area. Since 2011,
the company is in the midst of an important investment cycle of US$5 billion, which will
expand the factory capacity to 950,000 units annually. FIAT also invests in the
implementation of its second factory in the country, located in Goiana (PE), which will have
capacity to produce up to 250 thousand units per year.
In 2012, FIAT outperformed its sales milestone in Brazil registering the best performance in
its 36-year presence in the country. From January to December, 838,219 cars and light
commercial vehicles were licensed, representing an increase of 11.1% over the previous year
and an increase of 10.2% compared to the previous sales record of the company, established
in 2010, with 760,495 units. FIAT has led the Brazilian market for eleven years.
In the year of 30th anniversary of FIAT in Brazil, the automaker launched the world's first
vehicle powered by four fuels: hydrous ethanol, Brazilian gasoline, pure gasoline and
Compressed Natural Gas (FIAT Siena Tetrafuel), reinforcing its pioneering by development
of alternative fuel vehicles. For the eighth time, FIAT Automobiles has been awarded the title
of "Best Company" in the automotive industry by the Annual "Biggest and Best" by Exame
magazine (2010 issue), and in 2013, it was considered one of the 20 most innovative
companies in the country, according to Época Negócios magazine and A.T.Kearney
consultancy.
Quadros and Queiroz (2001) found different approaches within the group subsidiaries of auto
industries in Brazil and Argentina. According to this research “the type of product policy
adopted by assemblers, particularly their approach to the globalization of platforms and
models, has important consequences on the tendency for increasing or decreasing local
design activities” (p. 12). Fiat has adopted a strategy that makes it possible to develop
regional derivatives of global platforms, while Ford, Renault and VW have chosen a more
centralized strategy, heavily attracted to their headquarters.

Development of the innovation management conceptual model

As literature suggests, the evaluation system design starts with a comprehensive
understanding of the business model (e.g. Chiesa, 1996). FIAT current model was approved
by company board in 2011, after an extensive diagnosis aim to make a clear cut on what is
considered innovation for the company and how it has been practiced so far.
The proposed blueprint has changed the way to manage the innovation at the company, from
a departmental approach to a process approach, as shown in Figure 4. Since then, the
company has pursued growth with a focus on innovation on its most diverse forms -
incremental, semi-radical or radical.
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Figure 4: Innovation management, from departmental approach to process approach

Source: Arruda et. al., 2012

The innovation business model adopted is supported by eight building blocks, which are the
basis for three macro-processes:
 Exploratory Fabric: responsible for trend design analysis, scenario building, innovation
strategy deployment and opportunities spaces identification, relating directly to the
highest level in the company;
 Disruptive Fabric: aims to generate new business models, whose guideline is not "do
better", but "do something new" in a totally different way;
 Incremental Fabric: involves the ideas generation programs, being essential to the
company to establish the innovation culture and promote the continuous improvement.

The innovation building blocks have the following components:

(i) Strategy and objectives
(ii) Processes and methodologies
(iii) Metrics
(iv) Support platforms
(v) Organization
(vi) Communication
(vii) Corporate education and
(viii) Innovation network

To facilitate innovation institutionalization, the building blocks have been structured

considering the FIAT culture. FIAT innovation business model is aligned with the conceptual
model presented by Almquist et.al. (2013). This same model was used to elaborate the
proposal for a FIAT innovation evaluation system, focusing on technological innovation at
the first moment. Some of the metrics were suggested by Kotler and Trias de Bes (2011) and
Davila et.al. (2007) in their framework for assessing innovation outcomes. The evaluation
system proposed consists of 11 innovation metrics:
1. Portfolio Strategic Alignment: alignment degree between projects innovation with the
company´s strategic drivers;
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2. R&D Equity Investment: reflects the equity investment per year used in R&D;
3. R&D Funding Investment: reflects the funding investment per year, provide by banks
and Government, used in R&D;
4. Innovation commitment: number of people dedicated full time and part-time in
innovation activities and number of ideas per employee;
5. Partnership network: number of strategic alliances to execute innovation projects;
6. Ideas generation: number of ideas generated per year;
7. Value proposition: success rate of the implemented ideas;
8. Execution performance: reflects the cost, development and delivery time for
innovation projects;
9. Innovation pipeline: evaluates the innovation projects portfolio in terms of time
(short, medium and long term), innovation type (radical, semi-radical, incremental),
and risk;
10. Success rate innovation: represents the success rate of new technologies developed
and approve to production;
11. Patents: number of new patents and project design registration annually.

The proposed model for FIAT and the conceptual model to the innovation management are
presented on Figure 5, including the proposed metrics system for measuring technological
innovation outcomes.

Figure 5: FIAT innovation management and the proposed evaluation system

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The evaluation system proposed allows monitoring the technological innovation progress
over time. Using it, it's possible to analyze the innovation performance and make projections
to leverage the innovation results. The evaluation system proposed should be, therefore,
continuously adjusted to company strategy shifts.
Once the evaluation system was defined, the next step is to set challenging and realistic goals
for each metric. The measuring frequency should be adjusted to the technological innovation
process, suggesting quarterly reviews in the FIAT case. It is expected that, when the
performance levels stabilize at the targeted levels, the innovation priorities change, or should
change, and therefore, new metrics could be required. Thus, continuous adjustments may be
needed to promote continuous innovation efforts at the company and preserve the accuracy
and strategic objective of the innovation evaluation system.

Conclusions and Final Remarks

The purpose of this study was to establish an innovation measurement system suitable for
FIAT’s Brazilian subsidiary. A systematic literature review was performed to establish the
state of the art of innovation measurement and a case study was employed to examine the
state of practice at FIAT. The evaluation system proposed could be used as a management
tool to ultimately promote competitive advantage. It aims to measure technological
innovation results through eleven metrics, designed to represent each process step of FIAT’s
innovation business model. It worth mention that this evaluation system was established with
a full alignment with business model drivers and this is regarded as a crucial step towards the
success of this project.
It is clear that companies that innovate slowly than its sector average will eventually lose
ground to their competitors. So measuring innovation performance after the fact is not a
sufficient control strategy. It is desirable to create methods to assess innovation performance
providing live guidance to help organizations dynamically build its innovative capacity.
The chosen set of metrics for FIAT aimed to assess company innovation performance and to
make projections/inductions to leverage the innovation results in a strategic way.
Nevertheless this evaluation system is an initial proposal, with some adjustments it can be
adopted to measure the results for other sort of innovation promoted by the company, such as
managerial or process based.
This study has shown that is dangerous to rely on a single metric to analyze innovation
efforts. Just as with the analysis of a company’s financials objectives, corporate culture, and
strategy the innovation manager can select the best metrics in order to develop a broad view
of the company’s innovation capability and performance.
Comprehensive researches conducted by major international consultancy companies (namely
McKinsey, BCG and Korn/Ferry) pointed that companies reporting the highest contribution
to growth from their innovation projects tend to be more interested in measuring their
innovations as a portfolio and therefore use metrics across the whole innovation process.
Measurement of just inputs, on one hand, might lull the company into believing that trying
harder is a goal itself. Likewise, measurement of just outputs doesn’t give company a true
picture of the cost of the investment that has produced an improvement in innovativeness, nor
the efforts and opportunity costs. It’s clear too that the optimal selection of metrics and
targets will vary from company to company and clearly one size does not fit all.
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Managers need to be mindful as well of unintended consequences that can result from over-
emphasizing the importance of any metric. Metrics are powerful motivators and should by
design create positive changes. Notwithstanding, they can generate unintended consequences
that may actually hinder company’s performance. As pointed by Hauser et al (1997), for
example, a metric that rewards individuals or groups for successfully developing an
innovation an autonomous project can lead to “not-invented-here” attitudes, resulting in
innovation empires whereby individuals become overly invested in the success of their
project at the expense of other sources of innovation. For each metric it employs, an
organization should define very clearly not only the metric itself, the primary objective of the
measurement, but also pay close attention to any foreseeable unintended consequences of its
set up.

Future of innovation metrics

As more firms develop innovation metric systems and consolidate databases with results over
time, managers, analysts, and other stakeholders will eventually be able to assess a
company’s innovation capability with as much facility as they can currently assess
dimensions such as market share, financials, and labor efficiency. By doing so, companies
can benefit from benchmarked themselves against the best in each category, on a broader
sense (beyond direct competitors), and dug into the relationship between innovation spending
and total shareholder return.
Two significant improvements on current innovation metrics systems are related to metrics
alignment with individual and group performance incentives (minimizing already mentioned
collateral effects) and using metrics evolution over time to communicate effectively with
investors.
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International Association for Management of Technology
IAMOT 2014 Proceedings

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