Rethinking the measuring of innovation

Measuring Innovation 1I’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.

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Living in a globally connected world of Innovation

Innovation is a globally connected worldAs we think through innovation, do we every consider the broader global effects and what is helping us to accelerate or seemingly holding us back in our innovating impact?

For policy makers around the global all working to design the most optimum innovation conditions, they might not be considering enough about the true effects their individual policy-decisions mean, they might actually be undermining the very thing they are attempting to achieve for themselves

One report I have attempted to absorb is the one released in January 2016 by the Information Technology & Innovation Foundation (ITIF).  “Contributors and Detractors: Ranking Countries’ Impact on Global Innovation”.

This report offers a number of alternatives to give fresh perspective, a new slant to thinking through innovation and sometimes the “knock-on effect” of isolated thinking can have about innovation in a globally connected world. The search for an “altruistic effect” in our global world offers some interesting fresh perspective for appreciating innovation policy design.

This report assesses 56 countries on how their economic and trade policies contribute to and detract from innovation globally. It can alter thinking in my opinion in a globally connected world where innovation can have such impact if coordinated well.

The report is found here: Continue reading

Opening Ourselves Up to the Innovation Mashup

Mash Up VisualSometimes some things come slower than others, and then they suddenly rear up and hit you. We don’t make all the connections we should; we are too caught up in our little world, beating our existing drum, drowned out by its own noise, to step back and appreciate something new is really happening.

Recently I was investigating one strand of thought and then bingo! Something else, leads to something else and the rest, so to speak, becomes history.

I’ve been reflecting on the new era of innovation and opening myself up to exploring alternatives, different thoughts, discussions and viewpoints. Underlying this is a growing sense of my convictions, still partly forming, malleable but trying to drive certain ‘stakes’ into the ground to keep testing and improving on a hypothesis or two; that innovation and its management definitely has to change, and fast!

Of course the cloud figures in this as a whole new different way to orchestrate innovation. More on that at another time as I need to get into some more robust discussions with one or two others on this and expand on my own position a lot more.

My recent ‘bingo’ moment was as I was listening to a round-table discussion within GE and its lighting division with a panel of outside thinkers. Beth Comstock, Senior Vice-President and Chief Marketing Officer was chairing the discussion, so it will always stay lively and stimulating and it did not disappoint on that. Her throwaway line at the end of the panel session was “Perhaps the headline here is the Big Data Mash Up”.

Mash-up?  So am I missing a certain beat here? Or does it fit into my thinking

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Measuring and motivating the innovation elephant

Elephant and the blind men 1I often think of the parable of “The Elephant and the Blind Men” when I get into discussions about measuring innovation. What are truths, what are the fallacies?  The parable implies that one’s often subjective experience can be true on your need, but not necessarily the other persons view of their understanding of value.

You get, as the end result, a failure to account for other ‘beliefs’ or capture the real value and miss providing broader motivations to encourage the innovation elephant along.

Establishing the right metrics that motivate and yield the result you are looking for is sometimes a tough challenge. You should always start with the bigger picture, organizational needs and then design the metrics and cascade these throughout the organization.

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Visualizing the innovating future through narrative reporting

The push for narrative reporting

How do we capture all the activities that have the potential to generate wealth within organizations?  Most remain hidden as they lie within out knowledge-based capital. This the second part of two posts (part one here) discussing our need to capture and report on ALL our assets, both the tangible and intangibles.

Knowledge-based capital today is more important to understand in its make up than often the reported financial numbers. One generates the other and investors need to see what goes into an organizations knowledge capital to provide them with continued confidence or not.

Recently the OECD provided an extensive report on “Supporting Investment in Knowledge Capital, Growth and Innovation

I spent a fair amount of my time this last Saturday working through this document from the OECD. No, it was not because I had nothing better to do, it was simply because it ‘points’ towards one area I totally believe needs resolving, capturing knowledge and where it resides and how it works. Then we can begin to place increased focus upon improving the capabilities and capacities we all need for innovation to do its necessary work, that of regaining our growth and vitality in many markets. The problem is we often do not know which are the most valuable or critical to focus upon.

Also if we can capture this understanding well, the recognition, once and for all, that people and what they do is vital and often completely undervalued. The recognition of the importance of our intellectual capital we might begin to create more of the environments necessary to nourish it. To allow this ‘creating’ to take place more effectively than today and value it for what it truly provides.

The present impasse in grappling with this knowledge generating side within our business organizations has been a lack of regulatory requirement to disclose that much around any knowledge generating activity for fear of ‘revealing’ the competitive advantages. What is discussed is only what management chose to provide for giving a ‘certain gloss’ to their reporting or unyielding probing by interested parties.

Certain countries, especially in Northern Europe have been able to make far more headway on getting intellectual capital statements recognized and part of a annual reporting but these are still not easy to align and compare. Knowledge-based capital is far too important not to understand today. Yet we avoid embracing the idea, we prefer to reject this type of asset and capital reporting with cries of “too difficult”

The movement today is towards narrative formats

How can we move forward? The suggestion is narrative reporting. Generally speaking, narrative disclosure can take several forms: companies can publish an Intellectual Capital Statement or include a description of their intangible assets in the Management Discussion and Analysis (MD&A) section or the report on environmental, social and corporate governance (ESG) and sustainability.

What is recognized is that narrative reporting need not be purely qualitative. It can include some form of valuation. There is on-going argument this might be based on KPI’s tailored to an industry but realistically very few report on recognized KPI’s, comparable with others in their industry or field. Also how would you tackle differences in national approaches. Standardising our reporting has never been easy and when you contemplate ‘capturing’ more intangible aspects, it gets significantly harder. Yet we must try.

There is a movement towards sustainability reporting as the basis for these narrative reports. For instance the Global Reporting Initiative. (GRI). This is seeking a broader acceptance of what can make up a more integrated reporting framework. Discussions have a long way to go to bring in the harder, less tangible aspects though.

Narrative formats have both risk and benefit to report upon.

Investors chase for a better understanding of what is actually going on within organizations. Organizations push back, yet attracting fresh and on-going investment is the life blood, so some form of ‘uneasy dance’ takes place while you have no regulatory guidelines or enforcement.

Information gaps are increasing, sometimes for both the investor and the manager fail to be identified and recognized, as serious warning signals. Many get caught in this inability to identify ‘what makes up’ the organizational capital and lose their investments or jobs from this lack of appropriate understanding.

Strategic and operational weaknesses need to be ‘jumped upon’ very quickly, if spotted, yet the more intangible ones often remain hidden to investors and even management and what effect this might have. High profile people, when they leave create these tensions and performance concerns. Can you imagine if you have a real drift of your talent walking out of the door, what that does to future performance?

Achieving a greater transparency

We need to have a more transparent understanding of the value of people, of the systems, dependencies, relationships and these make up intellectual capital. The push for achieving better board governance and effectiveness does push the board to question more and more, in the depth and breadth of information they receive and act upon.

The arguments for putting in place more effective narratives of performance that connect across the business in more coherent and effective ways, surely reputations are enhanced? By thinking about ways to align reporting and communication strategy, the ‘being forced’ to collate a coherent set of narratives and contextual information has market attractiveness advantage. It gives growing confidence. So where should the unit of assessment take place?

Stating value creation and business models has the narrative potential

One view I particularly favour has been outlined by Vivien Beattie and Sarah Jane Smith in their academic paper “Value Creation and Business Models: Refocusing the Intellectual Debate” We should focus on the business model, even for our intangibles or by extension our knowledge-based capital. I think this is absolutely right.

The business model and how we can describe it has become more ‘top of mind’ and significantly improved in its place through visual tools like the Business model canvas by Alexander Osterwalder and Yves Pigneur- Equally a number of other visualizing techniques, caught up in this canvas modelling movement, such as the culture mapping canvas, business opportunity canvas or the different value proposition discovery methods, have the incredible potential for the most powerful way for narrative reporting to make a business come alive.

Today the people side, or the articulating of the value of the intangibles, is not adequately addressed in these canvases we have. We need to bring them into telling the business model value story far more.

We need to tell the value creation story

The business model should be articulating how the company will convert resources and capabilities into economic value. It is the ‘transformation’ of resources into future potential value that tells us the “why and how,” in their potential, to decide to  invest or not, to believe in or not.Venture capital always looks extremely hard at the team within any start up or needing new capital. They seek to go under the bonnet and know what is making this ‘opportunity’ tick or not.

Financial statements are totally inadequate to evaluate today’s business

By not capturing the intellectual assets or all the knowledge-based capitals we are left with a totally out of date, inadequate set of financial statements. These today  totally fail to inform those on the outside as well as often those inside at the top of organizations, where the real wealth creation aspects lie.

We live far more in a knowledge based world that is generating more today than our physical assets yet we lack the ability to clarify this. We need measures, frameworks and clarity on where the knowledge lies and its make up in ways that capture these and can describe them effectively focusing upon the vale creation points that will exploit future opportunities.

The Business Model can be the crucial focal point, even more than today

We need to push for at least obtaining a narrative description of the knowledge-based assets and there is nowhere better than how organization’s management perceive their business models, what and where are the drivers and value propositions and how they are communicating on their strategies and value creation and the essential enablers of this.

Incidentally with effect from 1 October 2013 in the United Kingdom, organizations will also have to prepare a strategic report as a result of changes to the narrative reporting framework in the UK, intended to increase the quality of narrative reporting and introduce a clearer reporting structure. Can this go further?

We do need to refocus many of the fragmented debates around knowledge, our intangibles and intellectual assets and for me there is no better place than lifting this up to where the business model tells the compelling story or not.

 If not, then don’t expect future investments, you will not deserve them.

Part one – the background. Pushing towards a new frontier- visualizing the future

Pushing towards a new frontier – visualizing the future.

We all know that innovation is hard to measure. Assessing innovation capabilities can be particularly hard as they are made up of so many intangibles. We need to frame these capabilities in much better ways, as they mostly remain shrouded in mysteries to render it difficult to know what each business actually needs to  invest in, to achieve their goals. Knowing what and where they need to improve their innovation capabilities becomes a critical need to know point for gaining unique competitive advantages.

So much of innovation activity is left to chance and it leaves all involved as vulnerable, open to being beaten to the next ‘big’ innovation breakthrough. I would strongly argue that organizations should build their innovation capabilities in systematic ways, yet few do, let alone understand what this truly means. We simply need too.

Understanding the ‘beating heart’ of organizations

One of the biggest gaps is trying to put a finger on the pulse of what makes up innovation. So much of the capabilities are intangible, locked up in those intellectual capitals of the organizations. Those that center on  people, their networks and relationships, the make-up of the structures that support their activities or restrict them, the ability of applying good or bad practices, the every day routines of each of the individuals that work within the organization.

These touch the very nerve center of organizations; you are striking at the very core of organizations, those intellectual combinations they make up so much that determines organizational performance. They expose or they enhance organization performance.

To some degree management wants to be able to measure these intangibles but it also can provide some ‘chilling and damning’ evidence of inefficiencies and managements lack of ability to really improve internal performance, let alone market performance. It is usually the external factor, of poor market performance, kicking in that galvanize the need for internal change. This then becomes reactionary, often too late and market advantages can quickly dissolve.

Knowledge-based capital needs fully capturing.

The critical need today is to capture the rise in the importance of all the knowledge-based capital aspects. Business organizations are recognizing knowledge-based capital.

Knowledged based capital

Knowledge-based capital is critical. As shown above it is becoming more important than the product. Organizations are recognizing the value of knowledge.

Were you aware that the value of many of the world’s most successful companies resides almost entirely in their KBC. In 2011, for example, physical assets accounted for only about 13% of the value of Nestlé, the world’s largest food company. (source OECD)

What is knowledge-based capital?

OECD describes it as such: Knowledge-based capital comprises a variety of assets. These assets create future benefits for firms but, unlike machines, equipment, vehicles and structures, they are not physical. This non-tangible form of capital is, increasingly, the largest form of business investment and a key contributor to growth in advanced economies.

One widely accepted classification groups KBC into three types: computerised information (software and databases); innovative property (patents, copyrights, designs, trademarks); and economic competencies (including brand equity, firm-specific human capital, networks of people and institutions, and organisational know-how that increases enterprise efficiency) (Corrado, Hulten and Sichel, 2005).

Knowledge-intensive is the new wealth creator

As products are becoming more knowledge-intensive, educations have produced knowledge aware and savvy employees. We are pushing outside our one organization into growing networks to collaborate where this is this consistent acceleration of new information and use of communication technologies all intensifying the need to manage knowledge. Knowledge is today’s valuable commodity, yet we poorly measure it.

Equally, knowledge-based capital is essential to investment decisions and where the potential for growth can lie. The use of data analytics, external networks, outsourced R&D and our changing management practices are reinforcing that organization change is needed, yet we are not sure on where to invest or how to structure these. We are poking around a little bit too much. More like searching for the needle in the haystack, rather than controlled experimentation and exploration.

Ben Bernanke, the chairman of the United States Federal Reserve, suggested within his speech at a conference on the New Sources of Growth project in 2012 : “As someone who spends a lot of time monitoring the economy, let me put in a plug for more work on finding better ways to measure innovation, R&D activity, and intangible capital. We will be more likely to promote innovative activity if we are able to measure it more effectively and document its role in economic growth”

Are we advancing our understanding of knowledge-based capital?

The good news today, is we are seeing some advances on capturing and measuring knowledge-based capital. Recently the OECD produced one of its usual 300 page plus reports – so few read them – on “Supporting Investment in Knowledge Capital, Growth and Innovation

This report summarizes OECD’s attempt to provide the evidence of the economic value of knowledge-based capital and to help meet the policy challenges it raises. These are across the areas of innovation, taxation, entrepreneurship, competition, corporate reporting and intellectual property. Something that is not easy to summarize at all, as all have simmered away under different ‘doctrines’ and ‘churches’ of denomination, pursuit and faiths.

Learning to communicate our understanding of our real internal value

We do need to find better ways to unite and describe the value creation that knowledge-based capital brings. In particular our intellectual and organization capital and the importance this has to have sustaining investment put into it for future wealth creation

Part two discusses the suggested way forward, through narrative reporting. I believe this should also be through the broader narrative of the business model as the medium for this as we slowly open up in our (long await) acceptance about the importance of our intangibles and the contributions made through these knowledge-based contributions.

Part two– a way forward. Visualizing the innovating future through narrative reporting concludes.

 

Making the appropriate impact

How do we set about and measure the impact of something or somebody? Impressions do matter, snap judgements can shape and influence so much that you can actually spend your precious time at simply defending and justifying something or someone.

This applies to a new product as much as it applies to ourselves and how we engage across society, organizations or in our teams. We actually have a set of daily impact points and we need to think about these, it can be positive and impressive, or it can be inappropriate and judged as weak. They can be proactive or just ‘set’ constantly in reactive mode.

Having a clear understanding of the different impact points can help you and those around you have a better meaning in helping to shape events and the future contributions that can make a positive difference and give you a greater sense of satisfaction.

How do we shift from that often subjective view to a more balanced one?

I’m a great believer in trying to shape events before they happen. This often requires a lot of pre-work and often some ‘spent energy’   but if I’m not prepared enough I often feel uncomfortable and not in command of myself, and my ability to explore and influence through my thoughts. This gives me that sense of insecurity and then I feel I have less of an impact on the discussions and caught up in other people’s agenda’s, often for the wrong reasons and not for the best outcomes

So what are the points of impact for innovation?

I think we need to break these down into different levels of impact. Arguably there are different boundaries of impact. For example we might have global, organizational, social, competitive and personal impact points. We can surprisingly have an influence in all of these in a highly connected world and through our organizing and influencing will partly determine your innovating future.

So I look at impact points in different ways but I tend to start at two points of impact.

1.       What are the triggers to growth?

Answering this question leads us out on the appropriate impact path. Are we, for example, in survival or in crisis mode? What is our needs for future growth (personal and organizational for instance), do we need to find an innovative response to a burning need, are we facing competitive pressures, are we seeking new market space? Do we want regeneration in what we do? We need to discover, to explore new ideas, new learning opportunities and concepts. We need also to make some evaluation to any seen or even unseen threats to any growth approach.

2.       The second question relates to our legacy issues.

These are often ignored. We tend to layer onto what we have instead of taking a more radical approach to overhaul where we are. We often build up our innovation activity in set, established ways and don’t want to face the issue of re-engineering the innovation systems or process. I would argue we should. There are always natural tension points in any innovation process, we get caught up in inertia, the copying of other people’s best practices, the commodity trap, the extraction of ‘raw’ energy in the name of efficiency and the constant ‘quest’  to become more effective. We really do need to press the ‘reset’ button. We should look at alignment to strategy, to challenging what we are doing in the name of our customers not just ourselves. We need to reconfigure and we need to simply challenge and let go of much of what we have built up. It is never easy but legacy resolutions release much for improving the impact.

Then we need to set about two further questions.

3.       Improving performance

The potential surrounding absorptive capacity is critical for creating the appropriate impact on innovation performance. Absorptive capacity (AC) is a critical dynamic capability in knowledge-based competition. It is the ability to recognize the value of external knowledge, assimilate it and apply it to new commercial ends. To learn how to target, absorb and deploy this external knowledge becomes critical to ‘feed’ the internal innovation process. Learning to do this and do this well, this can become a powerful source of competitive advantage, not easy for anyone else to copy. This can become unique practice applicable to you, not best practice found across your industry. The work of Cohen & Levinthal is a great starting point, besides some of my own comments you can find on my site. It is this ‘outside in’ potential that feeds the process and raises the engagement.

4.       Tacit Knowledge

The more knowledge you require- not information or data- the more you have the potential for strategic advantage. Just look at places that knowledge is not moving as fast as its potential, collecting more knowledge or insights than others and focusing on the customer experience all the time raises knowledge, implied and explicit. Tie that back to absorptive capacity and you have powerful sources of potential impact.

My third set of impact points relate around building platforms, road-maps and in execution.

5.       Building platforms and road-maps

As we become more open within organizations and in ourselves we begin to develop a more connected sense. Separate ideas or points of knowledge need combining; they need greater collaborative efforts than before. We need to reach out to others; we need to recognize others have a greater specialised knowledge than we do so we need to learn to build more platforms that allow multiple parties to work together, each on their own parts. It is this ability to leverage through a platform approach that yields the potential for greater impact, for more radical or breakthrough innovation through diversity yet working towards a common cause.

Innovation is complex, it needs sketching out, and it needs always a roadmap. Innovation needs clarity; it needs a greater awareness of all the points of innovation fitness for you to navigate along as you traverse the terrain to your end point. I have a dedicated site on this area at www.innovationfitnessdynamics.com which is outlining the different aspects of dynamics needed for innovation impact understanding. The aim is looking to improve the innovation performance engine within organizations and build fitter, more responsive and dynamic ones, around their needed innovation capacities.

6.       Execution is the last 5% of real effort.

The argument goes; ideas are ten a penny and simply it is through our execution we make impact. Execution is the tougher end of innovation not that fuzzy front end stuff. This execution end is the real point of innovation performance where you actually feel the impact of all your personal efforts. Do you meet the needs and wants of your customers? Did you arrive with a clear winning proposition or felt you have compromised far too much within the organization that the final result was incremental at best and not what you are truly capable of. Execution is far more than ‘just’ 5%, because if you can’t execute then where is the lasting impact?

Then my last set of impact points are the ones that impact on you personally.

7.     Adapting to change.

We often struggle to adjust our thinking, to recognize that change is needed and invariably we leave it too late. It can become ‘disruptive’. We do need to combine the three e’s of evaluate, explore and exploit, we need to adapt them to changing circumstances. The value of combining these in different ways gives numerous, surprising diverse levels of impact points.

8.       Empowering and Trusting

We need greater engagement, we need powerful stories to motivate us more, and we need to seek out more meaning in what we do. The more we do this the more impact we can contribute back. This needs dedicated time in resourcing, supporting and investigating from others to support us. The more we trust each other, the more we form stronger relationships, to build better networks of understanding and place our growing trust into more effective collaborations, which have growing impact for all to see.

9.       Measuring our success

There are many ways to measure success. There are the ones ‘handed down’ to us, there are ones we can measure ourselves against. I believe our own measures usually far exceed the ones handed down to us. If we can learn to adapt more and quicker, if we can utilise the technology around us more effectively, if we actively seek new learning and experiences, to respond to any threats in better ways, then we are really learning and making a constant improving impact within ourselves. If we can apply what we learn constantly with the aim of improving on the existing, we are then moving well beyond’ appropriate’ impact, we are building our competencies and capabilities that become visible for all to see the positive impact.

There is a self always in relationship to others.

How others see you and what sort of person are you matters. If you care for making an impact there are many ways. How do you want others to see you? It is all in alignment, how you absorb and translate knowledge and where you wish to take it. Improving your circle of influence comes from knowing, from seeking out new knowledge, staying throughout life in that endless curiosity. As Harold Jarche (http://www.jarche.com) does put it so really nicely: “Life in perpetual Beta”

We all need a virtuous cycle, something that reinforces the good. We can make deliberate steps to change our behaviour, to make increasing contributions. How you are viewed, in turn, changes the way you are treated. This reinforces change. The more you can contribute in positive effect, the more impact you can have. You choose the impact you want to make and you will be surprised that in today’s world you can influence far  more than you often can image, and then perhaps bring a brighter colour into your and others lives through your positive impact.

You can choose the appropriate impact points you wish, what you do need is a strategy, knowing where you can shape and what you can influence. It is the path to improving your recognition and value and that is not such a bad point in these difficult times.