It should not come as a surprise since there is no single definition of the term “innovation” to start with:
There is no established measurement framework in the software industry to measure innovation yet – according to this 2013 study*:
Edison, H., Ali, N.B., & Torkar, R. (2013). Towards innovation measurement in the software industry. Journal of Systems and Software 86(5), 1390-1407. Available at: http://www.torkar.se/resources/jss-edisonNT13.pdf
The article lists some metrics, though, that one could consider in this context (see Table 5 on pg. 1397) if one finds a simple and reliable way to track them – highlighting is mine:
Determinants The existence of a project champion, knowledge sharing, government regulation effect
Inputs R&D expenditure, R&D intensity (ratio of R&D expenditure to total assets),
percentage of workforce time that is currently dedicated to innovation projects
Outputs Patent density, new organisational programs, number of new processes and significant enhancement per year
Performance Percentage of sales that is generated by new products, citation ratio, impact of brand
Activities Percentage of ideas funded, quality of adaptation, managers survey
*Excerpt from 8. Conclusions on pg. 1405
The purpose of this study was to establish the current practices, mechanisms and challenges of innovation measurement in the software industry. […] The study found that among major challenges is a lack of a consistent perspective of innovation. This difference in views affects how innovation measurement initiatives are conceived (what is considered key aspect of innovation) and executed (which metrics are required to capture a particular aspect). […]
[…] there are several shortcomings in the state of practice. In the software industry, there is a lack of defined innovation process and measurement programs. Similarly, none of the well-known measurement frameworks are used to measure innovation. […]
The outcome of this review contributed to the existing body of knowledge in the form of an innovation measurement model, enumeration of metrics and their classification based on what aspect of innovation they are used to measure. […]
The metrics listed above are in line with the traditional innovation metrics documented in “The Complete Guide to Innovation Metrics – How to Measure Innovation for Business Growth” by Soren Kaplan, but he goes on to define more modern metrics that better reflect today’s “Open Innovation” methods.
How do you measure innovation? One of the reasons that only about 1/3 of all Fortune 1000 companies have formal innovation metrics is because this simple question does not have a simple answer. […]
The heart of the problem is that today’s competitive environment is radically different from the industrial environment in which traditional innovation metrics were born. Because most metrics programs begin with benchmarks of established companies that have been successful with new products (like 3M or Google), metrics tend to revert back to traditional measures of R&D or technology investment and effectiveness. Across the Fortune 1000 that do possess innovation metrics, for example, the most prevalent metrics include:
- Annual R&D budget as a percentage of annual sales
- Number of patents filed in the past year
- Total R&D headcount or budget as a percentage of sales
- Number of active projects
- Number of ideas submitted by employees
- Percentage of sales from products introduced in the past X year(s)
While some of these metrics are valuable for driving investment in innovation and evaluating results, they provide a limited view. In today’s environment in which “open innovation” (sourcing ideas and technology from outside the company) can create differentiation and competitive advantage, for example, some of these metrics actually inhibit strategic innovation. And in an environment in which disruptive innovation and cannibalization must be wholeheartedly embraced as a core strategy, fundamentally new types of behaviors are required, and subsequently new structures and related metrics to drive these behaviors. […]
A Framework for Innovation Metrics
The best solutions create simplicity from complexity. Assuming that successful innovation results from the synergies between complementary success factors, it is important to address these by:
Creating a “family of metrics” for ensuring a well-rounded portfolio of measures
Including both “input metrics” and “output metrics” to ensure measures that drive resource allocation and capability building, as well as return on investment
A “family of metrics” ensures a portfolio of measures that cover the most important innovation drivers. The following are the three categories to consider for any metrics portfolio:
Return on Investment Metrics
ROI metrics address two measures: resource investments and financial returns.
ROI metrics give innovation management fiscal discipline and help justify and recognize the value of strategic initiatives, programs and the overall investment in innovation.
Organizational Capability Metrics
Organizational capability metrics focus on the infrastructure and process of innovation.
Capability measures provide focus for initiatives geared toward building repeatable and sustainable approaches to invention and re-invention.
Leadership metrics address the behaviors that senior managers and leaders must exhibit to support a culture of innovation within the organization, including the support of specific growth initiatives.
Please consult “Soren Kaplan’s article” for the details of the proposed metrics.