About Innovation Metrics
Too often, people like me enjoy looking down at Industry Executives as they misuse “professional” innovation terminology. For example, when they overestimate their innovation as radical/disruptive/game-changing/breakthrough, or when they talk about disrupting themselves, without realizing that disruption is a bad thing. Dang! here I go again.
The truth is that if I take a hard look at my own superiority, I must admit that it is misplaced.
Terminologies, taxonomies, 2x2 Johari windows, and other organizing innovation schemes are analytical. They are based on an organizing pattern that a theoretician/practitioner identifies. As such they are philosophically interesting, but not always helpful for those in the “trenches”.
Industry Executives should not (and do not) care about an absolute/universal innovation metric. They use these classification systems to compare different innovation opportunities, determine the allocation of resources and establish a predictable innovation pipeline. The same goes for investment agents (e.g., VCs) trying to select a worthy project to invest in, or innovators considering a pivot.
It’s only natural they adjust the language to fit the specific projects and opportunities they have and meet their needs. If rating project X as radical and project Y as incremental is helpful for their decision-making process, who cares if it’s objectively accurate? Purists like me should get over it.
I could stop here. But, I want to offer something to, perhaps, redeem myself. A conceptual, flexible index, that industry innovation professionals can use to evaluate potential opportunities without worrying or caring about theoretical purity.
Innovation Value-Scale Index (IVSI) — for choosing between options
There are many types of innovation and many meanings attributed to that word. Here’s the definition I will use here:
When someone(s) create(s) something new that adds value to someone(s), we call that Innovation.
In order to bypass the inextricable innovation taxonomies mentioned above, I propose the IVSI — Innovation Value-Scale Index (IVSI). It’s a conceptual index in the sense that it’s useful as a tool for thinking about innovation, or for comparing real innovation opportunities and not as an “objective” metric.
The IVSI is a score on a scale between 0 and 10, obtained by multiplying the average potential value (benefit) an innovation provides (V) and the percentage of the global population it could potentially affect (S):
Let’s look at a couple of simple examples. Say a therapist provides good advice to a specific patient. We can say that it is an innovation because she created something new, and it added value to that specific person. Let’s say that it was really good advice with a V score of 7.7/10. Since this advice is only relevant to one person out of 7.7 billion people, the value of S=1/7,700,000,000. The overall Innovation rate would be 0.000000001 (7.7/7.7bn) — or zero for most intents and purposes. This is not to belittle the impact it may have on that person. Moreover, this advice will probably affect other people as well, and so S could be 1000 times bigger (which would also mean that the average value of V would be lower). Nevertheless, even in such a case, the IVSI would still be tiny. On the other hand, if a team of scientists finds a way to make nuclear fusion a viable source of endless clean energy, say with a V score of 9.9, and S being 1 (7.7bn/7.7bn, since it will affect everyone), the resulting IVSI score would be 9.9.
As mentioned, the IVSI is a conceptual tool. Accurately determining both V and S, is all but impossible. If the patient mentioned above was a key historical figure, that advice could have had a massive impact and S would have been much higher. Moreover, determining the impact an innovation has or will have, on the population is also very difficult because, beyond the direct benefit it has, there are always indirect benefits. Nevertheless, it does allow us to sketch a rough hierarchy of innovation, and as mentioned above, that’s what corporations need.
Do we really need another index?
This may seem trivial. So, what’s the news? I mean, aren’t corporations already using their KPIs and profit metrics to do exactly that? Here’s my response. The IVSI helps clarify the innovation hierarchy question. Corporations will still use traditional tools, such as market research, to gauge the Size of the Prize. They trust these tools for short term incremental innovation (despite their abysmal track record). Nevertheless, they can now also use IVSI because it is simpler and easier to discuss and can be used to validate or challenge their existing metrics. In the case of “farther out”, more radical innovations (or at earlier stages of the innovation pipeline), estimating the Size of the Prize using traditional tools is impractical and the IVSI offers a discussion tool that helps structure the decision-making conversation.
In addition, the IVSI, as mentioned, bypasses the cacophony of “objective” terminologies and offers an easy-to-use, internally coherent and consistent metric. In fact, it’s so simple, my guess is that organizations that will decide to use it, or that are already using something similar, will create variations and adjustments to it, to better fit their specific contexts.
There’s another confession I have to make. I would rather corporations evaluate their innovation opportunities according to the potential positive impact they have on humanity. That’s just my personal cup of tea. However, being a realist, I understand that most corporations still use their share-price or an equivalent as a replacement for V (value) in the IVSI. I admit that in using the IVSI, and the language that it offers, i.e., the value an innovation would have on what percentage of the global population it affects, I am nudging my readership to add to their existing value metrics and adopt a more holistic perception of value.
Call me an idealist. I’ve been called worse.
Some notes for advanced arguers
- IVSI can never be zero because we defined innovation as something that adds value to someone. However, if it provides very little value, or if it affects very few people or both, its IVSI value will be close to zero. If the IVSI is 10 it means that innovation provides all the needs of everyone in the world.
- IVSI could theoretically be negative. A given innovation that adds value to some people can also destroy value for others. The implication is that both “innovation” and the IVSI index are relative and subjective. Especially when S is small.
- IVSI does not take into account the resources (cost) required to generate the innovation. That’s no accident. There’s an advantage to postponing the viability-test of the innovation until after we assess its IVSI score. If the score is low, the viability question may be moot. If it is high, we will have sufficient incentive to find a way to make it viable.
- We are talking about potential value and potential scope of impact, but in reality the proliferation of an innovation with a high IVSI score could take a long time and its cumulative impact could be very low at first, while a lower IVSI scoring innovation could have a bigger impact in the short/mid-term because it’s easier to adopt. Actually, I don’t think we can accurately determine either. If we have two innovation opportunities and we can’t tell which has, either the biggest potential or biggest realistic IVSI score, the truth is, it probably doesn’t matter.