“How do I best measure Open Innovation?”

Posted by Cheryl Perkins on December 19, 2014

I’ve been sharing some practical insights on Open Innovation that I’ve learned over the years. Many forward-thinking innovation executives are bringing their knowledge to the table as well, and from time to time I am sharing these as part of what we’re teaching at our upcoming CoDev 2015 Conference in Scottsdale, Ariz.  If you like today’s Quick Tip, be sure to follow the links at the end to check out the other helpful OI tips.

Enjoy!

Quick Tips #3

This is a question I am often asked. The reason is simple — if you want to get somewhere, you have to know where you are. And if you want to know how you are progressing, you need measurements. Metrics not only help you stay on track, what gets measured gets done!

Unfortunately, the answer is less simple. There is no one set of metrics that works for every company. This is especially true for open innovation where the main purpose is to create business value – value which can take many forms. Further, the stakes and risks are generally higher and progress is often qualitative versus quantitative. You need to make sure partnerships as well as innovation efforts are on the right path. The earlier you can make course corrections in all these dimensions, the better.

Despite this challenge, or perhaps because of it, open innovation is widely under-measured. The majority of companies that do use metrics usually use only a handful. Examples of commonly used metrics include:

  • portion of the pipeline being enabled by outside partners
  • annual budget invested in projects with external partners
  • number and quality of patents or trade secrets assessed from outside partners, filed or issued
  • number of external ideas selected and then commercialized

In general, companies seek to measure open innovation progress and impact in areas that demonstrate pipeline health, revenue growth, and gains in shareholder value. Often these measures are seen in the context of broader innovation strategy goals and are reflective of an organization’s reporting structure.

So how do you choose the right metrics for your organization?

First, metrics must fit your company’s unique strategy, structure and culture. Take into account your open innovation goals, current capabilities and the capabilities you need to access from external partners. Your metrics should be relevant, purposeful, clear, achievable, and specific. The focus should be on some combination of input and output metrics, but generally the latter is more important to give you an idea of the return on development costs (both time and money).

OI maturity also makes a difference. In a recent webinar conversation with metrics leaders Craig Slavtcheff, VP of Science and Technology, Campbell Soup Company, Daniel Koester, Director, New Technology – Scouting & Partnerships, Johnson Controls Automotive, and Andrew Douglass, Director, Open Innovation Networks, The Clorox Company, we discussed how metrics evolve from the beginning to later stages of your journey.

DoDontThey offered the following Do’s and Don’ts:

  1. Getting buy-in for metrics is not easy – do the hard work and choose carefully. The higher the level of leadership alignment, the better.
  2. At the beginning you will mostly be establishing a baseline. Some metrics may not yield true results for a few years. Do set smaller interval measurements that show movement in the right direction. These will likely be throughput based. They may also include measures of collaboration, such as # of CDAs.
  3. Do use metrics to motivate; don’t ever use to ‘name and blame.’ Sprinkle in some OI cheerleading.
  4. Know your audience. Do make sure OI metrics aren’t in conflict with other metrics. For example, # of new projects in the pipeline could cause concern for a stage gate group that is already feeling resource constrained. Seek the higher business result, such as # of ideas that are commercialized, and figure out which interim metrics will get you there together.
  5. As you get further along with your OI efforts, do migrate from increased volume/throughput metrics to outcome — results that matter. Additionally ‘soft’ indicators can help reinforce long-term behavior/attitude change. An example from Clorox: measuring the percent of product development folks that were talking to suppliers – a 20% increase was a meaningful shift for them.
  6. Do evolve your metrics as your efforts advance. Motion or activity-based metrics do not demonstrate creation of business value. Go from motion to movement metrics as quickly as you can. You will see which metrics make a difference as you go along. Adjust as needed.

Bottom Line

Overall, most companies today measure process adoption and results. Relationship and behavioral metrics should enter the picture as level of maturity advances. Not many companies currently tie metrics to financial incentives. Most leaders focus on metrics that encourage external and internal collaboration, idea commercialization, and growth into new or adjacent areas.

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