Measuring innovation

Whether innovation is a core business process or an anarchic, fuzzy, risk-oriented creative process depends on who you ask. But regardless of perspective, one question matters to everyone: how do you prove that innovation activities actually make a company more competitive? How do you demonstrate that innovation contributes to an economy's growth and productivity gains, beyond the broad consensus that it should?

If we want to proceed in an orderly way, a first step should concern defining what innovation is and what types of innovation exist. Once that is established, we would still need to decide which type of innovation provides the guiding perspective for building a performance measurement framework. And even then, the locus of innovation remains unresolved: do we factor in open innovation? What do we do with less quantifiable measures such as creativity?

These considerations go beyond the purpose of this article, which provides an overview of the possible measures an organisation can implement to track innovation. A systematic review filtering more than 3,000 papers to distil insights from 172 relevant ones offers a useful foundation.

Here is a summary of the metrics identified, organised by type of innovation.

Product innovation, defined as new or significantly improved good

• Direct: introduced one or more new or significantly improved products in the last 3 years; count of new product introductions meeting defined novelty thresholds.
• Output: number of new or improved products launched; product-related patents filed or granted (use only when clearly product-linked).
• Internal: share of turnover from innovative products (e.g., three years old or less); time-to-market and concept-to-launch cycle time.
• External: market adoption, market share, demand, and new markets; required regulatory approvals attained.

Process innovation, defined as new or significantly improved production or delivery methods

• Direct: validated introduction of a new or significantly improved process in the last 3 years.
• Internal: cycle time, throughput, first-pass yield, scrap, rework, and defect density; cost per unit; operator training completion.
• External: delivery reliability and lead-time variance perceived by customers; compliance and audit findings trending to zero.

Service innovation, defined as new or significantly improved services and service models

• Direct: introduced one or more new or significantly improved services in the last 3 years.
• Output: new service introductions pushed to production; service-level outcomes such as SLA attainment, resolution time, self-service completion rate, and attach rate.
• Internal: service design cadence (research cycles, prototypes tested); staff certification in new service skills.
• External: retention and expansion in service contracts; NPS and relationship health for service cohorts; churn reasons resolved.

Technological innovation, defined as novel technologies or technological combinations

• Direct: recorded movement between technology readiness stages, where used as a direct indicator.
• Output: patents filed or granted; citations; formal standards contributions.
• Internal: R&D intensity and investment; research portfolio balance, documented know-how, component and code reuse; R&D headcount and skills.
• External: adoption by internal business units or external partners; achieved interoperability with ecosystem standards.

Management or organisational innovation, defined as new managerial practices and organisational forms

• Direct: formal adoption of a management method (e.g., OKRs, agile at scale) with governance changes enacted.
• Output: establishment and maintenance of management systems and audits as documented outcomes where applicable.
• Internal: decision-latency reduction; span-of-control and layer count adjustments; meeting load reduced without loss of coordination; leadership capability uplift and psychological safety scores; process ownership clarified and used.

Business model innovation, defined as new ways of creating or capturing value

• Direct: recorded deployment of component-level changes to the value creation, proposition, or capture logic (e.g., new revenue model, customer segments, channels, partnerships).
• Output: revenue-mix shift to the new model; recurring revenue share; unit economics (e.g., CAC, payback, LTV/CAC).
• Internal: cost structure rewired (from CapEx to OpEx or vice versa); partner enablement and billing capabilities stood up.
• External: cohort-level survival and expansion; marketplace liquidity (if platform); pricing power and willingness-to-pay movement.

Supply chain innovation, encompassing innovations across sourcing, logistics, and fulfilment

• Direct: new supplier collaboration mechanisms (VMI, CPFR) or co-development agreements signed and active.
• Output: perfect order rate; delivery reliability as perceived by customers.
• Internal: end-to-end lead time, forecast accuracy, fill rate, lead-time variability; dual-sourcing coverage and joint tooling investment; digital traceability coverage across tiers.
• External: supplier and customer satisfaction on collaboration; resilience performance during disruptions (time-to-recover).

Green or eco-innovation, defined as innovations that reduce environmental impact

• Direct: deployment of cleaner processes or materials; eco-design guidelines embedded in gates.
• Output: emissions intensity (Scopes 1 to 3 where material); energy and water use per unit; waste and circularity (re-use, recycled content).
• Internal: procurement share of certified sustainable inputs; capital expenditure allocated to abatement; eco-competence training and certification coverage.
• External: green patents (when they clearly map to environmental outcomes); compliance beyond minimums; ecolabels and certifications earned; customer uptake of low-carbon offerings.

Open innovation, including purposive inflows and outflows of knowledge beyond the firm's boundaries

• Direct: number and depth of external collaborations (e.g., with universities, start-ups, consortia) with stage-gated objectives.
• Output: co-authored publications and disclosures; inbound licences integrated; outbound IP and licensing revenue where strategic.
• Internal: absorptive capacity (time from external discovery to internal pilot); legal and process readiness (templates, IP rules of engagement); spend on collaborative development and in-licensing.
• External: ecosystem breadth (distinct partners across domains); partner satisfaction and renewal; venture participation outcomes.

Implementing a cohesive performance measurement framework to track innovation requires careful analysis of an organisation's strategy, architecture, and culture. What gets measured shapes what gets done. A measurement framework does not only monitor the effectiveness of past decisions. It actively guides future ones.

Source: Stundziene, A. et al. (2024), "The Challenge of Measuring Innovation Types: A Systematic Literature Review," Journal of Innovation & Knowledge 9: 100620, https://doi.org/10.1016/j.jik.2024.100620

Links: R&D, innovation and firm productivity, Growth through destruction