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Innovation experts love making lists – and we love reading them.
I’ll be the first to admit that Fast Company’s “World’s Most Innovative Companies” is one of my favorite annual reports. I’m also a big fan of Forbes’ list which takes into account investor confidence and ranks companies by their innovation premium; the difference between their market capitalization and their net present value of cash flows from existing business.
As great as these lists are, they come with one big caveat. For the most part, they do a lot more looking back than they do forward. Companies are often ranked for innovation on their results with the idea that they will provide a good indication of future performance. Because performance is always easier to measure by assessing data that is readily available, rankings often focus on lagging indicators such as total sales, sales growth, and R&D spending (the worst of the bunch). But the truth is, lagging indicators often do not provide enough information to guide future predictions on their own. Don’t get caught making the same mistake with your own business.
Leading indicators signal future events and can provide a more accurate depiction of future success. They show you where you are going and what is coming next. Bear in mind, leading indicators shouldn’t be used simply as metrics for current conditions. Instead, use them to develop an organizational initiative toward continual improvement of product development, and operating procedures. Examples of leading indicators include: The number of new products ideas that your company has in the hopper and/or is working on, total patents filed, and the number of team members involved in NPD (New Product Development).
Success in product development is seen as one of the top indicators of the future performance of a company. To sustain Innovation, companies need to continuously improve their new product development capabilities. Quantitative and qualitative measurements of new product development will lend insights into a company’s strengths and weaknesses.
For any leading indicator to be effective, it must have certain characteristics.
It should be:
- Unique to your business environment
- Objective and easy to measure
- Able to provide reliable indications of the level of performance
- Understood by both management and the team whose performance is being monitored – As Richard Lannon for Project Times points out, it is important that your team not only identify KPI’s, but can also recognize the potential business impact indicated by them.
The most successful innovative companies observe and measure both indicators for successful development and execution of their quarterly and annual plans. By observing both, you gain a holistic and well-rounded view of your company’s performance.
Recently, Kalypso and the University of Utah’s David Eccles School of Business launched the Innovation Index™. “A first of its kind, forward-looking, comprehensive measure to benchmark innovation potential against aggregate data.” In other words, an index to predict future innovation success.
According to the site, “The Innovation Index is different because it focuses on leading instead of lagging indicators. This is especially important for companies that want to improve the results of their innovation initiatives.” Interested in participating in the project? Learn more here!
Aside from fueling the right leading indicators, it is absolutely essential to make sure people and departmental objectives are aligned. Aside from your objectives, aligning rewards/incentives is equally, if not more imperative to ensure you achieve your common goals and desired results. Remember, what gets measured gets done. Innovate and thrive!