Innovation prototypes must be continuously measured to demonstrate quantifiable progress. However, measuring progress in a vacuum and without aim to a calculated commercialization is a fool's errand.
The four types of innovation measurement needed to deliver a holistic view and progress toward market success include market measurement, customer insights, prototype advancement and innovation portfolio management.
Market analysis is a precursor to assessing innovation viability. Key market measurements that I routinely calculate to validate commercialization potential include the following:
- Market sizing, including the Total Addressable Market (TAM) and individual target or niche markets
- Annual market growth, generally broken down by industry, persona, geography and other factors
- Existing market penetration (saturation)
- Forecast models with assumptions for new product adoption rates (by segment and persona)
- Value propositions with price elasticity models
- Competitive analysis, including under-appraised competitor products
Each of the above factors is needed to accurately forecast market share adoption and revenue potential. The below market analysis dashboard is from a client project and shows how I sometimes categorize this data.
Once the revenue potential is quantified, the team can then calculate the cost of sale, including production and Go-To-Market costs, to show financial viability and support continued investment in the innovation concept.
Many innovation teams give short rift to market analysis. Common mistakes include overly broad or inflated market sizing, homogenous or inaccurate customer segmentation analysis, missing price elasticity models, unrealistic supplier quality or speed, incomplete manufacturing costs, insufficient Go-To-Market investments (i.e. marketing investment, sales staff education, customer service training, product launch, etc.) and under-estimated time to deliver progressive upgrades, improvements and iterative releases.
Innovation without customer insights is innovation in the dark. Customer insights are the headlights to see what customers will require to embrace and adopt new innovations. Customer insights vary by industry. The below consumer insights dashboard reveals the buyer insights for a retail client.
Retail purchases are low consideration purchases. They are fast, frequent, impulse purchases generally made without a conscience decision-making process. In contrast, business to business purchases are medium or high consideration purchases. They incur a very conscience decision-making process over an extended period and involve multiple people or buying committees. A customer insights dashboard I created for an industrial client is shown below.
The most important prototype metrics are not related to iteration cycle time, innovation speed or other internal measures. The most important measures are customer measures, and primarily how customers measure value when making purchase decisions.
While the top decision-making criteria in the above retail industry dashboard was Customer Experience, the top two decision factors for the above referenced industrial client are payback (aka return on investment) and risk reduction. A critical prototype measurement to satisfy these objectives is customer mean time-to-value. Accelerating time to value reduces risk, minimizes operating cash flow, and demonstrates measurable success by showing impact in the Profit & Loss statement. For this industrial client, payback and time-to-value were measured and improved with each prototype iteration, and that ultimately led to an enthusiastic customer adoption. However, we wouldn’t have known these top success factors if we hadn't first acquired our customer insights.
Innovation Performance Measurement
Objective measurements are needed to advance a prototype's value from subjective excitement to objective visibility, and then from visibility to predictability. Below is a prototype dashboard I created for a Media and Entertainment client.
In addition to objective performance measures for prototype value and advancement with each iteration, you can see how the customer insights for purchase propensity, replacement propensity and price elasticity impact the prototype success factors.
From my experience in leading or working with innovation teams, I've found price elasticity to be a critical metric that is often missed. Understanding the customers willingness to pay is needed to produce accurate adoption rates, cost models and financial models. Waiting until the prototype is complete before determining accurate revenue achievement and cost to mass produce the item creates risks that could have been avoided.
Innovation Portfolio Measurement
A holistic view is needed to measure progress and manage risk of your innovation program. Focusing on the Essential Innovation Metrics™ will simplify and accelerate your analysis. The Essential Innovation Metrics™ is term I created when running Vantive. It was born from the need to isolate leading and lagging indicators and separate the signals from the noise. There's no shortage of things that can be measured, but there is a subset of measures that most drive action to improve innovation programs. Below is one of the Essential Innovation dashboards.
Too many measures dilute what's most important and hijack focus. The Essential Innovation Metrics include a balanced portfolio of the most impactful leading and lagging indicators and emphasize the measures that most drive improvement and innovation success.