KPI - PERFORMANCE INDICATORS
There are two main factors for establishing a set of KPIs for innovation. The first is to understand the pace of the innovation team and, for this, we need to understand its volume of activities, such as number of ideas, opportunities, products launched among others. We call it Activity KPI.
The second is to understand if the volume of these activities is generating positive impact for the company. The biggest impact is the return on investment realized (ROI), but there are others, such as NPS (Net Promoting Score), which are also important and strategic. We call it Impact KPI.
There is no magic KPI for open innovation, so each company must understand its strategic objectives and formulate its own KPIs according to the criteria and examples presented here.
Having well-designed performance indicators helps the company understand where it is best to channel its resources. This is a long-term effort capable of producing a true investment machine within the company, injecting capital and human resources into structures that bring return.
These investments must be incremental. As we have already seen, in innovation we are always dealing with high risk, so we cannot waste resources before we have established and well-structured processes. Remember the chapter "Why companies fail to innovate" from the beginning of the book, which brings examples of projects that could have been avoided from the beginning if they had been measured correctly.
Now that we understand better how KPIs work, let's understand how to apply them in different strands of the project.
This type of KPI helps managers track and measure the progress of innovation teams.
Below is a table with suggestions for activity and impact metrics:
Tracking Activity KPI:
- Number of Ideas Generated
- Number of Validated Ideas
- Number of Opportunities Created
- Number of Cases Generated
- Volume of Engagement with Functional Areas
- Number of Startups Found
- Number of Connected Startups
- Number of Approved Startups
- Number of Interviews with Clients
- Number of Opportunities Presented to the Board
- Number of Prototypes
- Number of MVPs
- Number of Proofs of Concept
Tracking Impact KPI
- Number of Developed Hypotheticals
- Results of Experiments
- Learning Speed
- Learning Cost
- Failure Criteria
- Risk Analysis
The focus of governance KPIs is to have a criterion to evaluate the success of each phase of innovation, from the generation and collection of ideas, prioritization, case building, case presentation, proof of concept to implementation.
When drawing this type of KPI it is important to put yourself in the place of the project. That is, think it's you on the production treadmill, going through several makes of a Kanban. It will be much easier to draw the metrics this way.
Here are some metrics suggestions:
- Governance Activity KPI
- Number of Products in the Pipeline
- Number of Products in Validation
- Number of Products in Clarification
- Number of products in Sync
- Amount of time in each phase
- Amount of investment in home phase
- Governance Impact KPI
- Collected Ideas Rate/Business Cases
- Business Cases/Marketing Rate
- Case Validation Speed
- Criteria for The Marketing of Ideas
- Criteria for Case Approval
The goal of the Global KPI is to measure how good your investments in innovation are and how they are helping the company's financial health. After all, no one makes innovation just for fun, but to keep the company competitive in the long run.
Global Activity KPI
- Number of Products in Horizon 1 of innovation
- Number of Products in Horizon 2 of Innovation
- Number of Products in Horizon 3 of Innovation
- % of products aligned with the company's strategic objectives
- Number of Patents
- Number of Partnerships with Startups
- Nº of Innovation Communications made for the company
- Number of Board Approvals
- Number of innovation trainings
Global Impact KPI
- Cost Reduction
- Innovation Conversion
- Market Share of New Products
- Market Share of New Segments
- Penetration Increase
- Customer Satisfaction
- New business models that are at scale
With the innovation KPIs framework above, you'll be able to build and implement efficient and relevant KPIs in your company that will help drive open innovation projects successfully.