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Time to shine (light on performance), corporate innovation units!

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Corporate innovation units such as innovation or digital labs, incubators, accelerators, and other archetypes with a focus on creating new ventures are nowadays employed more and more frequently by corporations and partly also SMEs. Through in-house venture development or start-up engagement, new products, services, or business models are planned and executed. Depending on the units’ objectives, these can also be directed at a cultural transformation (mindset & working methods) of the core corporation. However, the latter is seldom the primary goal and frequently considered a by-product at the most.

The initiatives are oftentimes designed as separate entities which aim to create non-incremental innovation in order to enlarge and diversify the corporate’s portfolio by overcoming structural inhibitions of the parent company - inhibitions which keep corporate staff from developing disruptive innovation and potentially cannibalizing the corporate’s business. This structural separation provides corporate innovation units with enough freedom to focus on innovations, however, such liberty often comes at the price of relevance and recognition, as the units are being smiled at for their playground status. Therefore, we conducted a study on the units’ performance measurement to investigate the initiatives’ output for which we carried out eight in-depth interviews with some of the world’s best innovation labs. As our study showed that none of the interviewees pursued transformational goals with regards to the core corporation as the main objective, the focus lies on venture development. For this, a measurement framework was derived.

Further questioning of an already tarnished reputation

Corporate innovation units had already been under pressure even before a pandemic hit global economies, industries, and initiatives. Although innovation nonetheless remains on top of leaderships’ agendas, only 6% are satisfied with the results responsible managers and their teams achieve. Nearly all corporate innovation archetypes (read more on the archetypes in our study) are criticized for a lack of contribution to the parent company’s bottom line and therefore positioned as management toys which hold up the digital transformation façade. The reasons for this can be multifaceted, however, whether impactful results are failed to be made visible adequately or simply not achieved does not matter at first sight.

The main reasons for inadequate performance assessment can be attributed to either non-existent measurement systems or comparison with established business. While the former is inexcusable, it is more widespread than you would probably assume: Our study shows that 75% of the interviewees had no performance measurement system in place at the time (April 2020). Albeit innovation performance measurement is commonly known to be rather difficult, simply refraining from doing it at all cannot be the solution. The latter is questionable, as applying the same metrics to non-incremental innovations renders project selection in an uncertain environment difficult and possibly suffocates promising ventures. Resulting from our study, this is especially viable if financial metrics are applied too early in the process.

Measure what matters

If your innovation unit delivers the results you wish for can only be judged once an adequate measurement system is in place. This furthers accountability of responsible managers and for essential stages and phases of your innovation processes. In addition, comparability with other business units can be established to justify further investment. Most importantly: An innovation performance measurement framework obligates leadership to define clear objectives for the unit, which is the number one reason for missing/inadequate performance assessment according to the interviewees.

The performance measurement framework together with the premises we derived from our analysis provide the basis for such an assessment system. Taking into consideration the multiple levels dedicated to the overall unit and the produced innovations (ventures) enables management to judge output on different altitudes. Of course, the success of the innovation unit is not only based on the suitable application and adaptation of this framework but also on factors such as e.g. top management buy-in, leveraging of the parent companies’ core competencies (unfair advantage), etc. However, it lays the groundwork for making success visible and reducing prejudice against innovation units both internally and externally.

Leveraging innovation units’ assets for crisis management and opportunity creation

In times of crisis, leadership’s focus lies on reducing cost to a minimum in order to accumulate resources for functions and positions relevant for the firm’s short-term survival. As the output of innovation is per se directed at future revenue and cost reduction, this almost automatically leads to a reduction of innovation spending. Since the production and especially scaling of disruptive innovation oftentimes requires (substantial) financial investment, the situation additionally complicates corporate innovation units’ standing.

Although COVID-19 almost automatically means cutting back on big bets, the pandemic offers an opportunity to the units because of their structures and working methods. Resulting from the work with start-ups and early-stage products or business models, the staff is more than used to operating under circumstances of high uncertainty. Consequently, delivering countable results (e.g. through prototypes) for promising ideas quickly should play right into the units’ hands. These methodological competencies enable corporate innovation units to build bridges to other business units and reduce scepticism within the own corporation towards the innovation units’ impact.

As companies which focus on innovation also during emergency situations significantly outperform their peers post-crisis[3], the topic is possibly more important than ever. If there is no measurement system in place, however, it is difficult to attribute results to the relevant parties and conditions. Although most corporate innovation initiatives are still quite young, their contribution to the firm’s performance needs to be made visible from the beginning. The results presented in this study offer a framework and process to track investment and measures on all relevant levels. As crises always accelerate societal transitions and change (disruption) as well as the acceptance of nonconformist ideas, now is exactly the time to showcase their talent under terms of competition.

If you are interested in more details on corporate innovation performance measurement, feel free to download our study and/or get in touch directly.