ROI2 – Return on Innovation Investment – Is Just as Important as That Other ROI

Lord Kelvin said, “When you can measure what you are speaking about, and express it in numbers, you know something about it”[i] If that’s true, what measures can we use with innovation, to know more about it?

Standard metrics don’t seem to apply. With many ideas you have to review, filter and select ideas based solely on judgment. For true innovation, there are no concrete metrics, frames of reference, or direct precedents upon which to base your evaluation.

But just because it’s hard doesn’t mean we should stop trying. Return on innovation investment can be measured in a variety of ways:

Scott Anthony, writing in The Harvard Business Review[ii] sub-divided ROI2 into three separate metrics:

  • Innovation Magnitude – financial contribution divided by successful ideas,
  • Innovation Success Rate – successful ideas divided by total ideas explored, and
  • Investment Efficiency – ideas explored divided by total capital and operational investment.

Other possible metrics include:

  • Innovation Performance – percentage of funded ideas that produce revenue,
  • Innovation Sales Rate – ratio of sales from new products & services compared to sales from existing products & services,
  • Innovation Conversion Rate – new customers from new products or services compared to current customers, and
  • Idea Generation Rate – how many ideas you receive per month, per employee.

ROI2 measurement offers compelling benefits, but there’s no one-size-fits all. Choose which measures offer you the ability to unlock potential and create new value, while simultaneously minimizing the risk of change and the cost of innovation.

You can also measure the monetary gain or savings resulting from your innovation efforts. You might also calculate initial cost applied against internal savings, plus the increased sales in the implications of customer loyalty and brand image.

[i] Lord Kelvin (William Thomson) from his May 3, 1883, lecture on “Electrical Units of Measurement” (Popular Lectures, Vol. 1, page 73)

[ii] Scott Anthony (Innosight), “How to Really Measure a Company’s Innovation Prowess,” Harvard Business Review, March 21, 2013

Bob Roitblat
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Bob Roitblat

Bob Roitblat is a Leadership Capabilities Expert and TEDx speaker. He helps organizations ignite creativity, overcome challenges and capitalize on opportunities. Bob is also the president of Mainsail Consulting Group, a business-advisory firm. Also connect with Bob on LinkedIn, Twitter or Facebook.

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