What is Product Innovation? How to Measure Innovation?

🚀  D1: #ProductSimplified Product Management Made Easy

🚀  T1: What is Product Innovation? How to Measure Innovation? 💪

We engage with innovative products on a day-to-day basis without actually realizing that we are making use of them in some or the other. While there are so many products that are being built - only a few products actually succeed in the long run. This shows that for a company to stay relevant in an increasingly competitive market - they need to innovate and be competitive with its products or solutions.

What is Product Innovation?

Product Innovation involves developing products or solutions aimed at solving customer problems and giving value to customers like no other. This is done in the form of developing new products, or in the form of improving features of an existing product or service. A company that is focused on innovation will be more productive and it will be able to sustain adverse market conditions.

The more productive a company is - the better it is for its long-term business success. Higher productivity is a direct result of innovation and it will give a competitive advantage to the business.

Dedicating resources to unproven opportunities can lay the foundation for long-term business success.

When it comes to innovation, in a Strategy& study on “What the top innovators get right” - The Top 88 of High Leverage Innovators out of the Global Innovation 1000 index. These companies achieved much greater success than their peers irrespective of the market or economic conditions. Their performance was far superior to other companies during the Great Recession, and they could recover quickly and achieve better results.

High Leverage Innovator Performance, 2007-17 - Source: Strategy&

Some of the key advantages of Product Innovation include the following:

  • Improved Productivity: A product innovation done right will lead to improved productivity for the business. This will in turn result in better ROI.
  • Competitive Advantage: Businesses that innovate will have a competitive advantage over other businesses in terms of better price or product differentiation or catering to a targeted group of customers.
  • New Market Opportunities & Partnerships: Through product innovation, businesses will be able to expand into new markets - which were previously left untapped. This will further enhance the possibilities for the business to forge new partnerships.
  • Robust Business Growth & Profitability: Another great advantage of product innovation is that it will help the business to achieve robust growth by enabling profitability through its products.
  • Market Domination: Through product innovation, businesses will be able to dominate the market and capture untapped opportunities.

While doing something very new - which was never tried before might seem risky - but failure to adapt to market signals and not innovating might turn out to be the most significant risk of all. I covered the topic of building better products through innovation. You can read more about it at the following link: Building Better Products Through Innovation

With the growing influence of new technological innovations and an increasingly digitally driven experience economy, it is important that we take the human-centred approach to tackle the problems faced by customers.

Design Thinking is a methodology that helps us look at the innovation challenges from the customer’s point of view. You can read more on the topic at the following link: Design Thinking In The Era of an Experience Economy

How to Measure Innovation?

While it is important for businesses to innovate, it is equally important that we measure what products or processes are actually helping the business to move forward. This is important to ensure that the business is going in the right direction. By measuring innovation, businesses will be able to allocate the right resources, analyze team performance and measure the effectiveness of a product or strategy.

Following are some KPI metrics - which we can consider for measuring innovation in a business:

Innovation rate: This rate at which a business is able to generate new ideas and how effective those product ideas were in the marketplace. A better innovation rate translates into better product innovation in a business.

Innovation rate: Gross Revenue Earned of New Products or Services/Gross Revenue Earned

The pace of Innovation:  Another important aspect of innovation is to measure the speed at which a business is able to generate new ideas and was able to bring those ideas into the market.

On that note, it is important to track the number of improvements we can implement in a given time and secondly to measure the average time it takes to go from generating an idea to launching it in the market (Avg time from idea to market (cycle time)).

Innovation portfolio NPV: As Amazon’s Jeff Bezos quoted it is not just important to create groundbreaking products and services - it is more important to note how many of those ideas are actually successful and finding adoption. In that context, it would be useful to calculate the Net Present Value of the new innovations and measure their effectiveness.

One important point to note is that the level of the unknown is big in the case of innovation and NPV may not be the right metric to measure innovation.

NPV (Net Present Value) - Source: Harvard Business Review* 

Innovation Ratio: This metric indicates the importance of innovations for an organization. As we discussed above, a business that fails to innovate will lose out on potential business growth opportunities in the long run. Innovation is the way to go for a business to succeed. Using this metric, we will be able to measure how innovative a business is.

Innovation ratio = number of innovations / number of all products * 100

Apart from the above, there are other metrics that we can use to measure innovation such as revenue from new products, gross Margins of existing products and the number of implemented ideas/improvements.

What do you think of Product Innovation? What metric do you recommend for measuring Innovation? Please share your thoughts in the comments below. Thank you.

I am a product management professional based in Halifax, Canada and I write about technology, innovation, entrepreneurship and business strategy. You can learn more about me at the following link: https://iamgrt.com