Managing Innovation

Begin by Defining Outcomes, Outputs and Inputs

Innovation is the buzz word du jour. Each year, vast piles of PowerPoint handouts are distributed to cultivate and fertilize innovation -- many containing concepts (figuratively speaking) with the aroma of manure. Innovation is difficult, but presenting it as an obscure unmeasurable esoteric art does not make it easier. Definition and measurement matter, as Peter Drucker observed: "If you can't measure it, you can't manage it."

An Internet search for "innovation" yields over 200 million results, including listings for Chief Innovation Officers of companies (such as AMD, Citigroup, Coca Cola, DuPont, and Humana) and cities. Venture capitalists speak at conferences on innovation, and all startup presentations boast of the founder's innovative strategy. BCG, McKinsey and other management consultants have entire practice groups dedicated to innovation.

On the political front, innovation (as a goal) receives bipartisan political support, a rarity in these partisan times. The White House website has an entire section on innovation, where President Barack Obama tells us:

"The first step in winning the future is encouraging American innovation."

So what do we mean by innovation, and how should we measure it? At the NYC Economic Development Corporation, we used the following definition of innovation:

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"The design, invention, development, and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm." (Source: NYCEDC Innovation Index and U.S. Department of Commerce)

Innovation is about creating value, and doesn't necessarily require a new invention, technology or product. No particular part of the original iPhone was a radically new invention. But in the context of the ecosystem created around the product - it was truly revolutionary. Apple and its success with the iPhone/iPad ecosystem have been as much (or even more) about innovating the customer experience (e.g., visiting an Apple store Genius Bar vs. calling Dell customer support) as about technology. Innovation can also be a new business model/approach (e.g., Walmart's leadership in supply chain management).

Given a working definition of innovation, three categories of metrics have proven useful:

Outcomes - This metric is about defining a vision for the future - the end state you're seeking: such as a radically new approach to the customer's user experience. As Steve Jobs said: "Innovation distinguishes between a leader and a follower." Leaders know where they want to go.

Outputs - Outcomes are the end-state sought, but they can (sometimes) take years to materialize, and are often dependent on many factors - not just the quality of the innovation. Consequently, it's important to have measurable output goals, related to the outcomes you're seeking. For a company, outputs might be pilot projects, prototypes, experiments, or patents issued. One of Swedish social entrepreneur Billy Olsson's output metrics was that he wanted everyone in his organization to break one rule each day. He wanted people to experiment, and passionately believed that rules, if followed too religiously, would stifle innovation and creativity.

Inputs - Innovation isn't simply about throwing resources at a problem:
"When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it." -- Steve Jobs

Resources do matter -- but more for their quality than their quantity. Extraordinary people such as: Alan Turing, John Von Neumann, and Claude Shannon were priceless resources.

For a fashion business, key inputs might be the number and quality of fashion designers employed or hired. For a technology firm, it might be the number and quality of computer science Ph.D.s hired. Keep in mind that inputs aren't just tangible things. Culture, for example, is an intangible, but very significant input. An organization's culture should align with its innovation goals.

Innovation is an iterative process -- each of these metrics must be updated and re-evaluated as new information and results become available. And innovation requires focus - you need to be willing to say "no":

"People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to 1,000 things." -- Steve Jobs

In summary, successful innovation means: Having a vision of the future (e.g., for Mayor Bloomberg, an economic development vision of NYC as the preeminent global center for entrepreneurship and venture capital); Establishing measurable output goals closely connected to outcomes (for NYC, this was more startups, venture funding, employment in the targeted sector, and local engineering talent); and Having measurable input milestones (e.g., construction and expansion of NYC's engineering schools as part of Mayor Bloomberg's Applied Sciences NYC initiative). It also means knowing when to say "no," and re-evaluating and updating goals on a regular basis to reflect changed circumstances.

As a final bit of advice from one of America's greatest innovators, Thomas Edison, invention and genius are: "one percent inspiration, ninety-nine percent perspiration."

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