How to Measure a Firm’s Innovativeness

We all know that a firm must innovate to remain competitive, especially in this day and age. But how do we know that a firm is innovative? Specifically, what tools can we use to measure a firm’s level of innovativeness?

Much work has been done among practitioners and academics alike to come up with an innovation audit tool. In fact, searching for ‘Innovation Audit’ brings up a few websites that offer such a tool, but for a price. In this post (and in a couple of follow ups), I will attempt to describe one of those tools (free of charge, of course). I’ll start by describing the key dimensions that the tool will measure. Afterwards, I will show how findings on each dimension can be collated to form an ‘innovativeness profile’ of the organisation.

The innovation audit framework that I’m about to describe is the one found in the book by Tidd, Bessant, and Pavitt (TBP) titled ‘Managing Innovation’. I will not directly copy the contents from that book. Instead, I will share with you how I understand the tool that they described. If you want more details, I suggest that you buy that book.

Key Dimensions
The following are the dimensions measured by the TBP innovation audit tool:

Strategy – In this the dimension, the audit takes a look at three major areas. First is whether the company has a well-managed strategic planning process in place. Second is whether innovation is appreciated by the entire organisation and thus incorporated within the corporate strategy. Third is whether the company has put in place mechanisms that will effectively implement the corporate strategy. Questions to ask in this dimension include (but are not limited to):

  • Does the entire organisation understand the benefits of innovation?
  • Does the organisation have a well-managed strategic planning process?
  • Is there an effective market feedback mechanism in place?

Process – This dimension examines the robustness and flexibility of the organisation’s new product development (NPD) process and whether it brings the attention of everyone involved to the customer’s need (as opposed to just marketing focusing on the customer’s need). In this dimension, we also take a look at the organisation’s ability to manage its internal processes. Specifically, we examine the health of the process that manages all other processes (the meta- or mother-process). Some questions asked might include:

  • Is the NPD process well designed and managed?
  • Are project management capabilities well developed?
  • Does everyone (not just marketing) understand customer needs?

Organisation – In this dimension, we examine two major areas. The first would be whether the organisational structure encourages, rather than stifles, innovation through effective top-down, bottom-up, and lateral communication and coordination within the firm. Second, and just as important, is whether management has put in place a system that encourages employees to bring forth new ideas. Some questions might be:

  • Does the organisational structure help in speeding-up the decision-making process?
  • Do people work together across departmental boundaries?
  • Is there a reward and recognition system that supports innovation?

Linkages – In this dimension we focus on the firm’s ability to create healthy relationships with external entities such as suppliers, customers, the academe, firms from other industries, specialist individuals, as well as competitors. Specifically, we take a look at the potential of these links to provide knowledge/information to the firm. Likewise, we also investigate the firm’s ability to provide feedback to these entities. For example, we might investigate the firm’s ability to work closely with the education system to communicate its needs for skills. Some questions might include:

  • Does the firm maintain win-win relationships with its suppliers?
  • Does the firm have a reliable source of new knowledge? (through universities and research centres)
  • Does the firm try to develop external networks of people who can help it?

Learning – The audit takes a look at four major areas in this dimension. First, it tries to gauge the organisation’s commitment to the training and development of its employees. Second, the audit examines the organisation’s ability to gather knowledge/information from its linkages. Third, the audit takes a look at the firm’s ability to learn from its successes and failures. Finally, the audit examines the firm’s ability to share these learnings to the entire organisation. Some questions that we might ask are:

  • Does the firm benchmark with other firms?
  • Does the firm allocate time to learn about past mistakes and successes?
  • Does the firm have metrics that help in diagnosing its innovation management activities?

Forming the Firm’s Innovativeness Profile
Once all five dimensions have been measured, we then use the numbers to plot the firm’s innovativeness profile. Below are some example profiles.

In this first example, we might say that the organisation is highly innovative and only needs minor improvements in four of the dimensions to achieve an excellent innovation performance.

highly_innovative.gif

In this second example, however, we might say that the organisation needs a major overhaul to improve its innovativeness. Particularly, we might suggest that it revisit its strategic planning process to ensure that it is well developed and that it incorporates innovation. What other recommendations might we give to this organisation?

not_innovative.gif

Further readingTidd, J., J. Bessant and K. Pavitt. Managing Innovation: Integrating technological, market and organizational change. Profile in Amazon.com

www.managing-innovation.com. A supplementary website to the book.

Innovation as a result vs innovation as a practice

My own definition of innovation

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4 Comments

Filed under Innovation, Strategic Planning, Tools

4 responses to “How to Measure a Firm’s Innovativeness

  1. Hi there,
    Our company, CREAX, also has a tool for measuring the innovativeness of companies. It even uses the same style visualisation as you display here. Take a look at http://www.creax.com/cis/. We also have a personal creativity test at http://www.creax.com/csa/ which was featured on BBCWorld, NYTimes and Business2.0.

    Keep up the good work!

  2. Hello Vincent, thanks for the comments and the links!

  3. markdd2

    Hello Mark

    Thanks for referencing my entry on innovation in your blog. I recently converted to wordpress, so you have to relink the entry. Its at http://www.ethnography.com/2006/10/innovation-as-a-result-vs-innovation-as-a-practice/

    Cheers and thanks for the link,
    Mark

  4. Hey, cool tips. Perhaps I’ll buy a bottle of beer to that person from that chat who told me to visit your site 🙂

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