The New Frontier

Innovation performance management: Is it a myth... or mandate?



Whether it's financial, workforce, or supply chain, performance management is all the rage. Businesses need to align operational practice with corporate strategy, make more efficient use of resources, and apply technology to objectives more intelligently. Balanced Scorecards, key performance indicators, and the plethora of targets set by regulatory bodies and governments are all part of the current performance management culture. So how come innovation performance management (IPM) has escaped attention?

Innovation is hot (or "cool"), right? Innovation is the new business reengineering; it's focused on top-line revenue growth rather than bottom-line cost cutting. Glossy magazine stories laud current innovators. Governments are throwing money at innovation; states and regions are actively measuring their innovation capacity and capability; businesses are cooperating to create networks, which they hope will foster innovation; and everyone's patenting everything. HP, Microsoft, and Apple are among many vendors that don't want to be technology companies any more. They want people to perceive them as innovation factories. But even given this climate, is IPM a myth or a mandate?

There are certainly plenty of arguments for calling IPM a myth that will never be realized. Here are some that I've heard:

  1. Innovation is not my business. I'm just a CxO, middle manager, regular Joe employee. Leave innovation to the experts: the inventors, the creatives in marketing, the scientists in research and development. You can't measure my innovation performance because innovation isn't my job.

  2. Innovation is a black art; it's all to do with creativity and flashes of inspiration. Trying to manufacture "ah-ha" moments via a business process just ain't gonna happen.
  3. Innovation is emergent. It's a complex process that involves many-layered conversations between constantly evolving communities of people, content, and context. Just let innovation emerge, you can't force it via some mechanical process.
  4. Innovation is an event, not a process. Nobody really sets out to innovate. Let's face it, a good idea appears and you allocate resources to it. The process builds organically, innovation by innovation. You can't bottle it.
  5. Innovation has no metrics. Sure, you can count the number ideas or patents you have, work out the percentage of sales due to innovation, or even the cost of not innovating in terms of market share. However, nobody agrees on the metrics, so how can you measure innovation performance anyway?
  6. Innovative leaders are in short supply. Many organizations will never be able to manage innovation performance well because their leaders come from the "Chainsaw Al" generation that is focused on consolidation and cost cutting.
  7. Innovation management isn't a technology market. There's no ERP (or IRP) system for innovation — just a bunch of rinky-dink applications to help you think visually or manage ideas and intellectual property. None of the industry leaders such as IBM, Microsoft, and SAP play in this space. It's a sideshow.

These are good arguments. However, if you believe that innovation is synonymous with growth — and that it's something every business has to do to "compete for the future" (a term used by a Gary Hamel and C. K. Prahalad, including as the title of their 1996 book published by Harvard Business School Press), then you'll probably agree that it's time to put facile "myth" arguments in the trash. After all, what's the point of business intelligence (BI) if not to look toward the future by measuring and monitoring innovation performance, just as it currently looks primarily at the present and the past?

It's certainly true that innovation metrics and innovation as a value chain and business process are poorly understood and defined. Innovative leaders are conspicuous by their scarcity, and innovation management technology is a fledgling market. All the more reason for engaging in the practice of IPM: IPM is another core competency that organizations need to come to grips with. How else can businesses avoid the specter of commoditization in a global economy increasingly driven by knowledge and the commercialization of knowledge in the form of intellectual capital (IC)?

Let's nail another myth here: that IC has been dogged by its association with "intangible" assets. Generally, experts believe that IC consists of human, structural, and network capital. So, just what exactly is intangible about the way people do things, the business processes we use day to day, and the business relationships in which we participate to make things happen? IC may not be tangible in the traditional sense of easy to measure on a financial report, but it's about as tangible as it comes in terms of how a business functions and prospers (or not).

Those who believe that IPM is a mandate, not a myth are likely to agree with the following points:

  1. Innovation is everyone's business. It's top-down, bottom-up, middle-out, peer-to-peer and partner-to-partner. Competing for the future is a serious business; people's jobs are on the line, not to mention the carefully built-up heritage and brands of many long-standing organizations.

  2. Innovation has a value chain. Innovation is about generating ideas, converting ideas into deliverables, and realizing the value of those deliverables in the marketplace. It's about the commercialization of creativity, which means not just great products.

  3. Innovation has a business process that supports this value chain and that process can leverage a wide range of technology to support and optimize the process. Innovation management technology is practical and available commercially.

  4. Innovation is a CxO imperative. All the C-level executives have a role in establishing, nurturing, and managing an innovation culture. You don't need to invent a new CxO position. Just get with the program with what you have already.

  5. Lack of innovation metrics is an opportunity, not a problem. The question is, what innovation metrics make sense in your business? Only you can know this: and if you cared to find out, you might start by involving as many of your own people as possible in your own debate entitled, "What exactly does innovation mean to us?"



Regarding this final point, it would be good to see some proactive, and yes, innovative work by BI technology vendors to help with the process of defining these metrics and providing ways to monitor and manage performance beyond relegating the metrics to the "innovation and learning perspective" of the Balanced Scorecard. Two examples would the innovation process perspective of Egip, Software AG, and the radar screens of the Danish Patent Office IPScore. You can find useful discussion and examples of intellectual capital metrics in the Frame project of the Nordic Industrial Fund. (Scandinavia leads the way in the world of IC metrics.)

IPM is a big topic. I'll leave the last word in this column to the Washington D.C.-based Council on Competitiveness. The interim report of its national innovation initiative (published July 23, 2004), backed by a bunch of industry and academic luminaries, puts it this way: "Where once we optimized our organizations for efficiency and quality, now we must optimize our entire society for innovation." Now if that isn't a clarion call, I don't know what is.

Editor's Note: Channeling innovation into a process that becomes a manageable asset will be an important topic as organizations seek new levels of customer relationships, business execution excellence, and overall competitive advantage. Will BI, performance management, and enterprise application software be able to support this process? Look for recent and continuing discussion of this topic from Stewart McKie at www.IntelligentEnterprise.com/performance.

Guest columnist Stewart McKie is a technology consultant and writer who recently cowrote the book Innovation Performance Management: Principles | Processes | Practice (to be published in 2004).

Email the editors at [email protected]

Resources

EGIP: www.egip.com
Danish Patent Office: www.ipscore.com
Frame Project: www.icframe.net
Council on Competitiveness: www.compete.org

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