Corporate innovation projects are all the rage. But when does an innovation project actually count as success and which KPIs can be measured? We have asked our expert Sarah Lorenz, Director Business Development at German Entrepreneurship, for advice.
Sarah Lorenz leads the business development for corporate innovation projects at German Entrepreneurship GmbH. She is an expert in the conception, building, and management of corporate innovation units and the implementation of entrepreneurial coaching programs. She also brings experience in academia, having lectured accelerator management and entrepreneurship before.
“Innovation projects create spaces in which innovation becomes possible and are becoming increasingly popular with German companies. Around 90 percent of DAX 30 companies have implemented programs for innovation activities. Whenever people ask me how the added value of these spaces can be measured apart from the pleasant feeling, I answer: Innovation projects are not about counting post-its. We want to measure what makes sense.
The most common success criteria requested by companies are hard KPIs such as transfer rate, successful spin-offs, or generated revenue. These values allow a clear classification of how many successes an innovation project generates.”
If an idea gets selected to be accelerated within an innovation program, the goal is to get this idea business ready and implemented into the core business in some way. By measuring a transfer rate, we count the number of these “hand-overs” to business units within the organization after the innovation program.
For strongly disruptive business ideas that are far away from a company’s core business, it can make sense to build a spin-off and continue developing the idea outside the organization. In order to measure these spin-offs, we count the number of achieved market entries resulting from an innovation program.
In order to be successful, an innovative idea, solution, or product needs to have a market and bring or save money. By measuring the revenue, we can classify how attractive an idea is and whether it is worth investing further resources or not.
An innovation unit should not fixate on direct revenue only. The saving of time or internal resources can also be translated into money savings.
“Nevertheless, let’s not forget that innovation is also always about freedom. Therefore, I would recommend breaking away from the typical categorization into success and failure. One example: If we test an idea in an innovation project and fail, it might look like a flop. But we create something that is difficult to achieve in large companies: we decide within a few weeks whether a project has a future or not. This insight ensures that “hopeless” ideas are discarded before they consume resources for months or years.
The same applies to pivots: If an idea is changed based on customer feedback, this should count as success. Unfortunately, a pivot is still often classified as a failure. But it’s a great benefit if we test an idea, interview potential customers, and then realize that a different business model would make more sense. Actually, a pivot is quite a challenge as you have to put your ego aside, acknowledge the defeat, and bury your idea. You really have to “kill your darling” and clear space for a new idea.
The number of fails encloses all ideas that have been tested and identified as flops within an innovation project. As such quick unmasking of potential fails saves resources, it can be counted as a success in innovation management.
Counting pivots means counting the number of business model changes an idea undergoes in response to customer or market feedback. In innovation projects, working closely with the needs of the potential customers is key, therefore pivots should be seen as a success.
An innovation unit should also consider measuring behavioral change among participants. When measuring entrepreneurial thinking, the integration of innovative methods, the work approach, or the speed are potential factors to be measured.
“The right evaluation method for an innovation project differs as much as innovation projects do. Especially for big corporations, a sustainable change towards an innovation culture is difficult to measure. If you want to find the right KPI for you, asking yourself these questions might help:
1) Does my program follow the logic of an inside-in or outside-in approach?
2) Are we open to outsourcing certain businesses?
3) Where is my main resource to fill the innovation funnel?”