Perhaps we are failing to recognise the importance of our Innovation capital, stopping to ask how really valuable knowing this is to us?
Should we care, does it matter? I would argue it does, increasingly so. Within our innovation capital lies the future of the organisation and holds one of the really important ‘golden keys’ to the sustaining performance of the company and its future growth potential.
We need to find a way to unlock this as we are constantly being pushed for new business models that create, deliver and capture value. It is in the entire makeup, the value structure around the offering, and this is made up of distinct capitals that drive the new business towards success.
I’m a little tired of the lack of original thinking that goes into measuring innovation. Most trot out the same old chestnuts, including ‘return on investment’ as always, as near or at the top.
Leaders want to hear this, the sad truth is getting a ‘decent ROI’ for innovation constructed (note constructed) is really hard. If the innovation is new to the world, how can it have a clear financial return on investment until much later, much becomes an ‘educated’ guess?
We need to appreciate new innovation balance sheet thinking
Why a balance sheet thinking? There are hard and soft measures to measuring or judging our innovation. It goes way outside financial numbers. Would we have seen the emergence of Facebook, Apple Watches, Uber etc etc if those that were determining success from their investments had actually insisted on guaranteeing the ROI before launch or within short time frames, that many of our established organizations insist upon? No it was the belief and ‘seeing’ the potential that encouraged those investing to make the initial investment and then continue on ‘future’ returns.
The typical linear and often siloed mindset that we have for much of our innovation thinking within our business organizations, has to rapidly fall away. We are in the ‘cusp’ of a fundamental change that technology, platforms and connected ecosystems will bring into the mix for connecting and collaborating in dramatically different ways than the past.
One of the implications will be our need in measuring and the metrics within companies. The measurement of inputs, throughout and outputs need to become far more focused on delivering speed and scale potential as the critical points. We are far more needing to focus on the outcomes as our primary point of measurement.
This is a further post on discussing outcomes as the focal point of our innovation measurements, following my recent one of “Shifting to Ultimate Outcomes”
Recognizing the emergence of the outcome economy
The outcome economy which is emerging has many implications within it and how we measure and value these will become increasingly important. Companies will need better data to calculate costs, evaluate its potential value and will be modelling far more the risks and tracking the factors required to deliver within any outcome-based value promised.
Many organizations are struggling with their metrics and ways to measure the progress and success of their business. From this writer’s point of view their innovation activity gets caught up in plenty of unintended consequences, to put it mildly, in wasted debate, discussion & bad decisions through wrong measurement criteria.
Firstly, we are still locked in the old paradigm of thinking this is an industrial economy where we set about measuring inputs to innovation (R&D expenditure, capital investment) and then focused on the intermediate step of throughput and then outputs (publications, production units, patent filing, end products).
We also perceive innovation far too much still as an activity within just one company – viewed as linear, with considerations for services more of an after thought (like ‘bolt-ons’). Production systems still remain far too often the driving force of performance judgement.
If someone came to you and asked the question: “tell me what makes up your financial capital?” I expect you could answer this fairly comfortably. It might need a little added help from your finance department but you could produce and show significant details that we are all ‘schooled’ to understand and generally have accepted, as under common definitions and standard practice.
Our businesses are measured constantly on their financials, we produce a constant flow of reporting documents that provide useful insight and allow for a more informed judgement by present and future investors on the health of the company. We are ‘wedded’ to our financials and ignore the real value within our organizations of all the other critical capitals that generate and strengthen the business.
What if that same person came to you and asked instead: “what makes up the innovation capital of the company?’” could you answer this as clearly as the financial one – I would suggest most probably not. (By the way, if you feel you can then please let me know I would be more than interested). We are focusing more on past performance and not future generating potential by staying fixated on just the financials within all that makes up our organizational capital
So what makes up our innovation capital and why is it important to know?
Should we care, does it matter? I would argue it does, increasingly so. Within the innovation capital lies the future of the organization and holds one of the real golden keys to the sustaining performance of the company, or not.
Following on from my last post of “Place your future bets- invest in Innovation Capital” which outlined the significant contribution innovation capital plays in our economic growth, let me offer some further thoughts on its value to really capture and understand, so we can measure it within our organizations.
We have the three components; of physical capital, knowledge capital and human capital that are the innovation-related assets, these make-up Innovation Capital.
I have been arguing that innovation capital draws from the core of intellectual capital and its suggested (and broadly recognized) components of human, structural and relational capitals or social capital. I have previously discussed this converging up, as the ‘nesting effect’
Innovation capital needs assessing and measuring so we can understand the relationship between this innovation capitals (and its present and future potential) and organization performance. We need to know the innovation capital ‘stock’.
Why, well ‘stock’ can be ‘static’ and we need to make this more ‘dynamic’ so innovation can ‘flow’ from this constant renewing of our capitals and be transformed into new value.
Recognizing the value of our innovation-related assets is where the ‘smart money’ should go. To gain growth and to improve productivity is through innovation. We need to translate knowledge into new values.
When you pause and consider the make-up of Innovation Capital you realize it makes such an economic contribution and in a report from McKinsey & Co, they have set about identifying this to produce the above summary, covering 16 countries, to understand the real value of this Innovation Capital.
These numbers are big and still don’t fully capture everything associated with innovation as much remains ‘hidden’ or ‘attached’ to other activities as well.
We need to shift our thinking on what makes up Innovation Capital