I discussed with the author and his constituents about how the balanced scorecard framework can and should be applied to business innovation. Especially important is to strive to create tight causal linkages between the strategic objectives on a strategy map and associated metrics on the Balanced Scorecard. I explained why we prefer not to weight the metrics in our scorecards, except when absolutely essential, such as when linking performance to compensation. I’m pleased to see much of this counsel implemented in this book and in the associated Innovation Value Score® (IVS) measurement platform. The goal is not to use the scorecard to calculate a single measure of success for a complex strategy, but to have managers use multiple indicators to guide their company’s success in executing its business strategy, much as how a skilled pilot uses the multiple indicators in the cockpit to guide the plane for a successful journey.
I certainly support using the Balanced Scorecard framework to measure, and more importantly manage, how innovation is accomplished in your company. I hope you find the framework articulated in this book helpful, and good luck in your innovation journey.
Robert S. Kaplan
Note
1 1 Robert S. Kaplan and David P. Norton, “How to Implement a New Strategy Without Disrupting Your Organization,” Harvard Business Review, March 2006, pp. 100–109.
Introduction
The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.
—Michelangelo
Everyone talks about “it”—Innovation. We all talk about its significance, how we have it, and how we are striving for more of it. It has become a rather maligned term that means many different things to people. One similarity, though, is that everyone wants innovation in their company and wants to be seen in their market space and by their customers as innovative leaders. Yet the nature of innovation, its substance, is very vague—or at least, very different depending on the context, industry, or landscape.
Even when we can agree on what innovation is, we have no standard way to measure its results. How can you say you are innovative or a leader in innovation if you can’t measure innovation? If you can’t measure innovation in a comparable way against others, it’s hard to know who is innovative and who is just talking platitudes. Being “innovative” is akin to the term “strategic.” We all want people to see us and our businesses as strategic, we know we need to be strategic to be successful, and constituents ask us about how our strategic efforts are playing out. And similar to innovation, there are a ton of different yardsticks on how to measure—and even define—being strategic.
By picking up this book and beginning to read, I hope you agree that the topic of innovation is worthy of your time and critical thinking. Let’s start with a basic hypothesis of what innovation is and have a meaningful discussion around innovation that is relevant, consistent, value-based, meaningful, important, and that creates real value for customers and stakeholders! In its simplest form, I believe innovation is about this last factor—creating real value for customers and stakeholders.
INNOVATION THAT CREATES REAL VALUE FOR CUSTOMERS AND STAKEHOLDERS
Often, when people think of innovation, they think of technology, patents, and new products. All are innovative, but they are just a part of innovation. If you only look at new technologies introduced, the number of patents filed, or the number of new products introduced to market, you haven’t measured any realized “value.” Yes, all of those things are important—and I’d suggest they are a part of innovation and part of the measuring of innovation value—but if all those new technologies, patents, and new products generate zero dollars of revenue or value, do we really care?
Therefore, I suggest that innovation can be defined and measured by the value we create along the way for our customers and stakeholders. Additionally, there is not one singular initiative or program you can put in place to be “innovative.” It is an amalgamation of initiatives and measures around value creation, and they can vary from organization to organization.
Innovation is required in our organizations at a faster pace than ever. But being innovative and driving innovation value in your organization is not an overnight transformation, nor does it have to take years to develop. Innovation must be implemented, monitored, and measured very thoughtfully and from a viewpoint of driving customer value. Anytime you are innovating, simply ask, “Is this going to drive value to our customers, and would they pay for it?” This serves as a good acid test—it doesn’t cover everything that needs to be asked or considered, but it’s a good gut check. You could be innovating business processes that the customer may have no knowledge about, but if it ultimately improves the end product—the quality, the speed of delivery, the cost, the longevity, or another important factor—then the customer should see value in it. That is worth innovating around. As you consider innovation initiatives, decisions, and measures, always keep the customer and your go-to-market value proposition front of mind.
NEW RESEARCH CONDUCTED BY IMA®
The field of management accounting and the job of the CFO (chief financial officer) continues to evolve. CFOs are being asked to take on more and more responsibilities in their execution and oversight roles. It wasn’t that long ago that CFOs were getting tapped by the CEO (chief executive officer) to do more of the strategy planning in organizations. Now, similarly, CFOs and their staffs are being asked to get involved with innovation. But to what degree is that involvement, and do you think this is an anomaly only in one industry, geography, or size of company? IMA and I had the same question, so we conducted market research to get specific facts and findings on how the role of finance is evolving in regards to innovation management and leadership. In June and July 2015, IMA sent a survey to its professional members who are CFOs, corporate officers, controllers, directors, and accounting managers in the United States, Canada, Europe, Middle East, Africa, and Asia/Pacific. The results confirmed many of our assumptions and produced even stronger, more pronounced feedback than anticipated. The following tables provide some demographic characteristics of the respondents—you will find a very encompassing diversity in the participants that leads to global, all-inclusive findings.
Industry. Which of the following best describes your organization?
| No. | % | |
| Manufacturing: Aerospace, Automotive, all other Manufacturing | 80 | 29.5% |
| Business Services: Advertising, Banking, Consulting, Financial Services, Legal, Publishing | 46 | 17.0% |
| Institutions: Government, Education, Not-for-Profit | 32 | 11.8% |
| Retail: Apparel, Consumer Packaged Goods (CPG), Wholesale/ Retail | 26 | 9.6% |
| Technology: Biotech, Computer, Software, Technology, Telecom | 18 | 6.6% |
| Healthcare: Facilities, Payers, Providers, Supporting Products and Services | 12 |