How do you balance innovation metrics with financial metrics in your decision making?

Before diving into measurement, I ensure a clear vision of the type of innovation I aim for, why, and how. Aligning with overall business strategy, mission, and values, my innovation strategy specifies the scope, focus, and direction of efforts. Whether pursuing incremental improvements or radical breakthroughs, targeting existing or new markets, or focusing on products, services, processes, or business models, clarity is key.

Setting a clear and actionable strategy involves a few key steps that are fixed and adaptable to occurrences simultaneously! We ought to start with setting clear objectives: what do you want to achieve? Also, I am particularly fond of the Balanced Scorecard (BSC). This allows us to track performance across dimensions, ensuring our initiative aligns with financial goals! Innovation metrics like the number of patents, distinct products, and frequency of new product releases always come to our help. Let's also set clear and simple financial metrics like ROI and ROIC on our initiatives, and bear in mind that whatever solution we come up with; if pursuing them is profitable, we need to iterate and adapt until successful market entry!

Your innovation strategy is about what you will focus your efforts on, but also about what you will not focus on. It provides the boundaries for intrapreneurs to have a clearer direction and can serve as a guide to say no to opportunities that are not aligned early on.

A proper innovation management will have financial metrics. The key lies in starting small, putting it on the menu instead of working out the whole menu. Fall in love with the problem, not the solution and start experimenting. While maintaining proper financial metrics is essential, managing and limiting financial risk during the initial phases of innovation becomes crucial. If the financial risk is too big, one is probably making the initial stage too big.

For CEOs who urgently need to build an Innovation Engine for their organization, a general corporate strategy does not suffice. At Google, we've seen that a highly-effective Innovation Strategy addresses 10 key themes: 1. Secure Leadership buy-in (urgency & alignment) 2. Assessment of the status-quo (situation analysis) 3: Craft an Innovation Perspective (select hunting grounds) 4: Develop Innovation Portfolio (track your bets) 5: Choose Innovation Model (innovation initiatives) 6: Establish Innovation Framework (build-measure-learn loop) 7: Involve key Stakeholders (e.g. legal) 8: Establish Innovation KPIs (measuring success) 9: Enablement Of Teams (innovation trainings) 10: Introduce tools & Systems (software to manage bets)

To craft an innovation strategy aligned with corporate strategy, it's crucial to deeply understand the organization's goals and vision. This involves identifying key areas where innovation can drive progress toward corporate objectives, ensuring specific and measurable goals. Establishing open and ongoing communication with leadership and the board is fundamental, ensuring their involvement and commitment to the innovation strategy. Innovation should be seen as a strategic agenda, with clear goals demonstrating tangible results for the business.

As with all metrics across different functions in an organization, innovation metrics should be aligned to corporate ones (both financial and non-financial). Establishing clear governance for innovation from the outset can help define the metrics needed at each stage and decide on when financial alignment is needed.

La única forma de que funcione la innovación, es que esté alineada con los objetivos estratégicos. La estrategia de innovación debe estar siempre enfocada en un sistema de innovación basada en recursos, exploración y personas, apalancado en un modelo de gobierno que me permita identificar los retos que evolucionen en diferentes horizontes.

La estrategia de innovación no debe ser contrapuesta al resto de estrategias corporativas. Debemos pensar como estrategia de innovación en cómo construir el futuro (el puente entre la misión y la visión empresarial) con un enfoque de riesgos claro y de relación beneficio/costo. Eso implica conocer mucho de las brechas que impiden a la compañía ser lo que debe ser y que - a priori - suele ser ya un dolor para muchas compañías, sus ejecutivos y trabajadores. La estrategia de innovación debe amar las imperfecciones, para reconocerlas y entender su transformación como servicio a cada elemento funcional y transversal en la corporación.

Além disso, ao definir sua estratégia de inovação, é importante considerar a cultura organizacional e o ambiente interno da empresa. Uma cultura que valoriza a criatividade, a experimentação e a aprendizagem contínua é fundamental para promover a inovação. Isso requer liderança comprometida, incentivos adequados e processos que permitam a colaboração e o compartilhamento de ideias em todos os níveis da organização. Investir na construção de uma cultura de inovação pode ampliar as chances de sucesso e sustentabilidade das iniciativas inovadoras ao longo do tempo.

What is the return on investment? All leaders want to know this. If I spend $X, what will I get in return. Everyone understands this is a projection. But it provides an indication tat the team has put thought into its proposed way forward.

Las métricas financieras deben estar alineadas con las métricas de las iniciativas de innovación. Es crucial ser muy disciplinado al identificar cómo y cuándo medir, para evitar caer en "métricas vanidosas" que aparentan éxito pero no aportan valor real. Quizás el mayor desafío es gestionar la incertidumbre y tener la capacidad de ajustar las métricas cuando sea necesario

Throughout my career, I have consistently seen truth in a single line from the 1985 book by Michael LeBoeuf called "The Greatest Management Principle In The World". In that book, the greatest principle is simply that "the things that get rewarded get done". I started my career as a software developer at a time when certain companies were using Lines of Code Per Day as an efficiency metric; a metric that actually encouraged developers to write more verbose and less efficient code. Within innovation management, I've seen similar troubles with metrics such as "number of ideas generated" that encourage quantity over quality. Therefore, when choosing metrics, carefully consider the behavior that it will encourage.

Drawing from lessons learned in the past at Apple & Google, innovation is best evaluated with non-financial metrics in the short term. (Toma & Gons, 2021) beautifully illustrated this with the concept of innovation accounting. Reporting KPIs: experiments run on the front lines with customers (e.g. number of ideas generated, vs how many hypotheses were developed from those). Governance KPIs: what can be tracked on a managerial level (e.g. number of products moved to the next stage, v.s. how many of those are actually aligned with the firms innovation portfolio and strategy). Global KPIs: metrics that we're able to track on a firm-wide scale (e.g. number of products developed in each Horizon, like Core, Adjacent or Transformational).

Las métricas de innovación deben obedecer en función de tu sistema de innovación y estrategia, los mínimos desde mi experiencia: People: Curiosidad, exploración, ideación. Resultados: Ecosistema, Retos, Horizontes. Experimentación: Portafolio de innovación, experimentos.

With the innovation strategy in place, I carefully select metrics to track progress and outcomes. Innovation metrics gauge inputs, outputs, and results of innovation activities, such as idea generation, project completion rates, revenue from new products, or impact on customer loyalty. However, not all metrics are equally useful or meaningful. I choose those relevant, reliable, and actionable for my specific context and purpose.

In my experience innovation metrics should never drift too far from business metrics. Otherwise serious problems start to spring up. Especially during changes in the economy. You’re innovating to achieve at least one of the following goals: 1. Increase sales 2. Reduce costs, or 3. Reduce risk. How you measure this when you’re pre-revenue is different than if you’re already generating revenue (options vs. Cashflow). If you’re pre revenue give yourself a finite amount of time to generate results before you exit or pivot. But I would seriously caution against drifting away from revenue, cost and risk.

The maturity of your innovation practice should determine the innovation metrics you focus on. Organizations working on a handful of innovation projects might not yet need mature innovation metrics. Instead their efforts might be best employed in improving their practices and a clear governance mechanism to progress ideas through the funnel and to fund innovation.

Depending on the maturity of a project, the kpis will not be the same. For the ideation phase, it is essentially a question of monitoring the number of initiatives generated to highlight the funnel effect of the innovation process. Collecting more detailed indicators could prove tedious and irrelevant. On the other hand, for the exploration phase, which aims to validate the technical feasibility and economic viability of the project, the indicators can be more detailed and begin to give performance projections. At this stage, the aim is to select those projects where success is most likely and the investment most profitable.

Decidir que es realmente relevante, enfocarse y medir las cosas que hagan que llevemos la innovación a otro nivel. No obsesionarse con medir todo para mi desde mi experiencia esto es lo mas efectivo.

Strategic alignment ensures that innovation goals are not pursued in isolation but are directly linked to the broader corporate objectives. This alignment means that innovation initiatives support the company's long-term vision and mission, contributing to key areas such as revenue growth, market expansion, and competitive differentiation.

It is critical for leadership to be clear on the definition of innovation for your organization, and on your innovation strategy. Traditional organizations will easily disrupt innovation teams exploring radical or breakthrough ideas by asking for or expecting short-term returns. As with all metrics across different functions in an organization, innovation metrics should be aligned to corporate ones (both financial and non-financial). Establishing clear governance for innovation from the outset can help define the metrics needed at each stage and decide on when financial alignment is needed.

Prioritizing metrics for each horizon (H1, H2, H3) is essential to align innovation efforts with specific goals: H1 (Incremental): Emphasize ROI and cost savings to enhance existing processes efficiently, as incremental innovation aims for steady, low-risk improvements. H2 (Breakthrough): Balance ROI with market impact metrics like market share gain and customer acquisition cost. This ensures a focus on delivering new products or features with substantial appeal in existing markets. H3 (Radical/Disruptive): Prioritize long-term value metrics such as customer lifetime value and market disruption potential. Radical innovation explores entirely new markets or industries, demanding a focus on transformative, sustainable outcomes.

Isso envolve integrar indicadores de inovação, como taxa de sucesso de novos produtos e tempo de desenvolvimento, com métricas financeiras tradicionais, como retorno sobre investimento e crescimento da receita. Ao garantir que ambas as métricas se complementem e reflitam os objetivos estratégicos da empresa, é possível tomar decisões mais informadas e equilibradas. Esse alinhamento assegura que as iniciativas inovadoras contribuem diretamente para a saúde financeira e o crescimento sustentável da empresa. Nem tudo é sobre ROI, mas existem ganhos de imagem, eficiência do investimento, bem como quantidade de iniciativas em product-market fit, por exemplo.

You shouldn't have to balance innovation metrics with financial metrics—they should be the same. Your financial metrics should directly reflect your innovation efforts, like measuring return on investment. Involve your finance team to ensure alignment. Additionally, include cultural metrics to assess the impact on your organization's innovation culture, ensuring both financial and cultural goals are met simultaneously.

I believe these are the "fairest" key points to consider: As suggested by the prompt, aligning the two sets of objectives is paramount. For example, if your innovation goal is to develop new products, ensure that this aligns with financial goals like increasing revenue or reducing costs. Also, you should measure your firm's impact. To this extent, some useful metrics are the number of new products launched or patents filed, and correlate these with financial outcomes like revenue growth or cost savings; these are nothing but critical to measuring the ROI of your innovation initiatives. Keep up regularly monitoring both innovation and financial metrics to assess performance and adjust your strategy!

Innovation metrics alone don't suffice to assess the success and value of innovation efforts. Considering how innovation activities impact financial performance and sustainability is crucial. Financial metrics gauge financial health and profitability, such as return on investment, cash flow, gross margin, or breakeven point. Balancing innovation metrics with financial metrics involves aligning them with innovation strategy and goals and using them to inform decision-making.

One key lesson I’ve learned is that innovation metrics should always be tied to financial metrics to paint a full picture of success. For instance, measuring your return on investment or tracking cash flow helps ensure that your innovation activities are sustainable and profitable. In one project, we aimed for breakthrough innovations in new markets, which meant accepting lower short-term financial returns but reaping long-term innovation gains. Balancing financial outcomes with innovation goals is critical for making well-informed decisions. This alignment can help you weigh risks, costs, and the true value of your innovations.

La función de innovación es la de construir el futuro de la compañía. Por tanto, es una fábrica de construcción de activos - usualmente intangibles - que tiene "avances de obra". Lo diferente es que muchos de estos proyectos se perderán en procesos sucesivos de evaluación, lo cual es bueno si es oportuno. Cada compañía debe decidir su estrategia de innovación. Google quizás perdió un año de progreso en inteligencia artificial por seguir repensando cómo no alterar su core de negocio. Buena o mala, es una estrategia que a varios les ha costado mucho (Blackberry, Nokia). Cada etapa de esa construcción de futuro debe ir "graduando" proyectos en forma de esclusa para que formen parte de las actividades principales.

Aligning innovation and financial metrics meant looking at how developmental successes translated into financial terms. I evaluated the patch's innovation milestones against cost reduction, market penetration, and revenue projections. This dual-lens approach allowed me to assess not just the innovative impact but also how it might lead to financial sustainability and growth, ensuring a balanced view of the project's overall health and viability.

If innovation metrics are new to the organization, it's beneficial to establish a baseline for these metrics in the first 6-12 months before any further alignment with overall corporate (ahem financial) goals. Just like learning a new sport, it takes time to instil the correct practices, measure and observe where the company may have gaps in capabilities, and so on. This phased approach not only enhances clarity but also sets the stage for integrating innovation metrics effectively into broader strategic objectives.

Balancing innovation metrics with financial metrics is an ongoing process requiring constant monitoring and adjustments. As innovation projects evolve, I collect and analyze data from both types of metrics to evaluate performance, identify gaps and opportunities, and make informed decisions. Regular review and updating of metrics ensure they reflect changing conditions and expectations in the innovation environment.

É fundamental monitorar continuamente essas métricas por meio de uma governança robusta. Estabeleça comitês dedicados para acompanhar e revisar regularmente os indicadores que formam o innovation accounting da empresa. Esses comitês devem analisar dados, identificar tendências e ajustar estratégias conforme necessário, apoiados pelos relatórios do time de inovação, garantindo que as iniciativas de inovação permaneçam alinhadas com os objetivos financeiros e estratégicos da empresa. Essa supervisão contínua permite uma tomada de decisão mais informada e equilibrada, promovendo um crescimento sustentável e inovador.

El seguimiento no puede ser únicamente financiero. La formación de intangibles está muy relacionado a las personas y su acceso a conocimiento - dentro y fuera de la compañía. En un inicio, todas las métricas serán "blandas" y las iniciativas tendrán como límite un presupuesto común. Conforme los proyectos de innovación aterricen, las métricas deberán contener información sobre los resultados esperados (mayor volumen, mayor propuesta de valor, menores costos, menores riesgos o una combinación de los anteriores) que permitan elegir a los proyectos correctos en su desarrollo.

Monitoring both sets of metrics and being willing to adjust them based on project evolution and market feedback was crucial. As the biopolymer patch progressed, some initial assumptions needed reevaluation. Regularly reviewing both innovation and financial metrics in tandem allowed for timely adjustments to our strategy, ensuring the investment remained aligned with both market realities and our innovation goals.

Innovation is a dynamic process, and I’ve found it essential to continuously monitor and adjust metrics to stay relevant. One time, we realized that our initial metrics no longer reflected the rapidly changing market conditions and had to revise them to keep our innovation on track. Regularly reviewing your metrics ensures they align with new customer insights, emerging trends, or even technological shifts. This flexibility is vital in keeping your innovation strategy adaptive and responsive. You should never view metrics as static; instead, use them as a living tool to drive continuous improvement and growth in your innovation efforts.

Monitorar ambas as métricas de inovação e financeiras regularmente é crucial para garantir que a empresa permaneça no caminho certo em relação aos seus objetivos estratégicos e financeiros. Use dashboards e relatórios para acompanhar o progresso e identificar rapidamente áreas que necessitam de ajustes. Este acompanhamento contínuo permite ajustar táticas e estratégias em tempo real, assegurando que as atividades de inovação não só sejam eficazes, mas também se mantenham economicamente viáveis e alinhadas com as metas financeiras da organização.

Drawing from lessons learned in the past at Apple & Google, when presenting innovation related metrics, it's best to provide a coherent overview of the spectrum so that leadership can make informed decisions. 1: Non-financial metrics (Innovation Accounting - number of experiments run, or ideas generated) 2: Customer Feedback (anecdotals, perception) 3: Financial metrics (resources spent, and e.g. the net present value of your experiments or size of the Total Addressable Market (TAM) A key pitfall is to get lost in the non-financial metrics and failing to translate these into tangible, real-world business cases and profitable outcomes.

Share your innovation metrics with innovation agnostic investors who are only in it for the money. Seriously. Too many innovators only talk to ‘friendlies’ and are shocked to learn that the Wall Street investors who own your company are dismayed by what your doing with their money. Speak to them early and often.

Balancing innovation and financial metrics isn't just about numbers; it's also about communication and collaboration. Sharing metrics with stakeholders—team members, managers, investors, customers, or partners—increases transparency and accountability in the innovation process, garnering support and feedback. Using metrics to tell a compelling story about the innovation journey showcases achievements and challenges.

Si bien muchos proyectos de innovación son secretos por cuestiones de seguridad industrial, eso no significa que debamos ocultar sus métricas. En estos casos, es muy importante informar de manera agregada cómo avanzan y evaluar constantemente cómo mejorar la relación entre el proceso de generación de expectativas versus el proceso de generación de resultados.

Communicating and sharing your metrics effectively is key to ensuring transparency and alignment across the team. I focus on presenting data clearly and concisely, using visuals like charts and graphs to highlight key insights. Regular updates and open discussions help everyone understand the metrics' implications and how they impact our goals. Encouraging feedback and addressing concerns promptly ensures that metrics drive actionable insights and foster a collaborative environment.

Importante das métricas é todos estarem a par pra justamente todos remarem no mesmo barco, com um tema tão abrangente muitas vezes o que é inovação para um é diferente do que é para outro.

Always understand that you have to defend your performance against obstructionism. There are 5 innovation obstructionists: the skeptic, the cops, the traditionalist, the territorialist, and the capitalist. You need relationships and data to navigate their resistance and earn their support.

At some point, all metrics in innovation have to link back to how you're contributing to the overall value and profitability of the company. Just like how OKRs all need to be linked together throughout the organisation, you need to ensure that your innovation metrics feed back in to one (or both) of the following financial objectives: - Increased profitability (thanks to more revenue and/or decreased costs) - Increased net asset value (thanks to new forms of optionality or diminished exposure to negative risks)

Innovation accounting é essencial para o sucesso da inovação, pois fornece uma estrutura para medir e gerenciar o progresso de novas iniciativas de forma objetiva e transparente. Ao utilizar métricas específicas, como o tempo até o mercado, o retorno sobre a inovação e a taxa de sucesso de experimentos, as empresas podem avaliar o impacto real de suas atividades inovadoras. Essa abordagem permite uma tomada de decisão mais informada, identificando rapidamente o que funciona e o que precisa ser ajustado. Além disso, o innovation accounting ajuda a alinhar os esforços de inovação com os objetivos estratégicos e financeiros da empresa, promovendo uma cultura de aprendizado contínuo e adaptabilidade.

Innovation should be a lever for the company, not just a department that boasts about having bean bags and ping pong tables. Disconnected metrics cease to be a significant issue when both the corporation and the innovation department recognize that this area exists to propel the company further. So, before adjusting or readjusting metrics, we can try to understand what innovation should actually achieve within a company.

The ugly truth is that in almost all innovation projects, especially early on, the average cost of capital is higher than the average rate of return. How much risk you tradeoff for potential higher returns, will determine the type of projects you invest in. This also determines the metrics you will use to manage and monitor the projects.

Beyond balancing innovation and financial metrics, it's crucial to consider the broader impact of your investment. For the biopolymer patch, assessing its potential to significantly improve treatment for leishmaniasis patients added a qualitative measure of success. It's about looking beyond the numbers to understand how your investment can drive change, reflecting on both the tangible and intangible returns that validate the worthiness of the venture.

Balancing innovation and financial metrics requires clear goals and continuous review. 🌟 Define key metrics, align innovation with financial objectives, and use data analytics for informed decisions. Embrace these methods to drive success and sustainable growth. 🚀💼✨ For more insights, explore "Measure What Matters" by John Doerr. 📚 #TakeInitiative #BalancedMetrics #BusinessSuccess