CAP GEMINI ON MEASURING INNOVATION

A few years ago, the Centre for Business Innovation at Cap Gemini published a study called Measures that Matter, which indicated that, more than any other factor (and they looked at management skill, brand recognition, product quality and customer satisfaction), a high degree of innovativeness creates value for a company, value that is reflected directly in a higher P/E ratio for the company’s stock.

The problem with this finding is that there is no objective way to assess how innovative a company is. We tend to rely on anecdotes (3M’s post-it notes, Wal-Mart’s reinvention of the retailing model) because although we can’t really define innovativeness, we recognize it when we see it. A newer report from Eric Chen and Kathryn Ho of Cap Gemini has now produced a model, shown in the chart above, that makes the process of recognizing and measuring innovativeness a bit easier and less subjective.

The study starts by defining innovation as a robust creative process that turns out a very distinct output with significant impact on the market. Because it is market-focused, rather than internally-focused, I think this is an excellent definition, even better than the one in my own paper on the subject. Then the chart above provides a scale for assessing the degree of innovativeness of a particular idea, or of the whole stream of innovations that emanate from a company, by gauging where they sit on this three-dimensional grid. The further ‘out’ on the grid in each dimension, the greater the innovativeness.

The authors indicate that the Segway vehicle, for example, would be far along in both the creativity and distinctiveness dimensions, but until and unless it really finds its market, it would barely register on the third, impact, dimension. Another example given in the article, which is ‘out there’ in all three dimensions of innovativeness, is the invention in the 1950s of the butterfly variation of the breaststroke in swimming, which so changed the dynamic of the breaststroke that it had to be categorized as a separate swimming style from then on. Very inventive, very distinctive in the ‘competitive market’, and market-transforming.

The article also reminds readers that innovativeness is more than just invention of new products — it extends to:

innovation of all types of tangible and intangible market offerings,
innovation of business processes (e.g. mass customization manufacturing process innovation and eCommerce-based business-to-customer sales and logistics innovation),
innovation of business technologies (e.g. satellite tracking),
innovation of business structures (e.g. autonomous business units and new types of business alliances), and
reinvention of business models and business strategy (e.g. eBay’s creation of completely new markets)

Not all companies want or need to be highly innovative in all these ways, and along all three dimensions of innovativeness. But any company that is so fixated on efficiency improvements that it has stopped being innovative at all is a business at the end of its life cycle. Time to bail out.

In addition to looking at how far out in each of the three dimensions of innovativeness a company’s recent innovations have been, the authors suggest that companies ask three questions to assess the state of their innovation culture:

how much opportunity and resources does the company give to innovative people and ideas?
what is the corporate attitude toward risks, mistakes and failures?
is the company proactively seeking innovation opportunities through its people and customers, or does it merely react to competitive, regulatory and market forces?