In the words of Oscar Hammerstein from the legendary musical The Sound Of Music he recommends;; “When you read you begin with ABC and when you sing you begin with Doh-Re-Mi” – when it comes to Innovation, Dr Dave Norton suggests “when you measure innovation you begin with Roh-pee-d’ee.”
If innovation ranks as a key strategic objective it will surely be one of your key metrics on your Balanced Scorecard. Some of the measures to consider are as follows:
- A ratio of number of new ideas per 100 employees.
- Percent of new ideas selected for funding.
- A ratio of revenue or net profit from new ideas divided by the average cost of implementation of ideas.
- Aggregate ROI of new ideas implemented.
The most important step is to define your intended results for your innovation. This should be ONE of a number of intentions. An essential Balanced Scorecard principle should be applied here. Your intention or OBEJCTIVE should be concise and defined by a quantitative outcome and time frame.
- Intended financial performance.
- Increased number of new ideas.
- Improved quality of ideas.
- New markets / customers.
- New products / services. etc…
NARROW IT DOWN | BSC ESSENTIAL
These may be good measures, but fall short in terms of a second key Balanced Scorecard principle. Best practice scorecards only have 1 – 2 performance measures per objective which makes it imperative to select the most meaningful measure for your innovation objective. Your selection criteria could consider the following:
- Which of these measures can you influence the most?
- Which of these measures will make a notable difference in respect of behavioural change?
- Can you access the data easily and accurately?
- Can you start from where you are; with what you have?
- Can you establish meaningful targets and thresholds?
- Will your measure work at both an enterprise and business unit level?
- What baseline will you use to determine a known value; your historical performance or industry norm?
- Use this measure during all stages of the innovation process.
Once this thinking is applied you should be in a position to select one and not more than two metrics for your Innovation Scorecard.
[pronounced ROH-PEE-D’EE] RoPDE™ = RETURN ON PRODUCT DEVELOPMENT EXPENSE | ROBUST KPI
Traditional ROI measures, such as discounted cash flow analysis are often owned by the finance team and rarely resonate with the other stakeholders and most often result in weak alignment.
RoPDE™ is a comprehensive KPI for measuring the performance of product/service innovation and development.
How do you calculate RoPDE™?
RoPDE = (GM – PDE)
Where GM = Gross Margin and PDE = Product Development Expense
Here are some RoPDE™ key guidelines;
- Establish your thresholds comparatively using Operating Income, EBIT or EBITDA.
- Chart your enterprise thresholds by fiscal periods.
- Derive your data using standard accounting data.
- Apply this at both enterprise level and as a business unit strategic measure.
- Apply it at any stage gate or product life cycle process.
When you start at the very beginning, be it in ideation, evaluation and selection of innovation you can evaluate the opportunities using RoPDE™. As your innovation progresses you can compare actual revenue and product development expenses relative to your expected financial performance.
SOURCE: www.balancedscorecard.org/whitepapers How do I Measure Innovation by Gail Perry and Mark Malinoski
In 2014, BRG & GIBS will present Dr Dave Norton – Live and in Person: Executing Strategy: Balanced Scorecard Essentials. The 2014 programme includes the latest findings and experiences in strategy, measurement, leadership, human capital and cross functional priorities and solutions.
Dr Dave Norton has most recently been honoured by Thinkers 50 in their Hall of Fame sharing this acclaim with Tom Peters, Warren Bennis, Howard Gardner, Charles Handy, Philip Kotler, Henry Mintzberg, Kenichi Omae, Ikujiro Nonaka and his colleague Professor Kaplan, for their mammoth contribution to business management and leadership. Harvard Business Review recognised the Balanced Scorecard as one of the most influential management ideas in the past 75 years.