Vital Signs: BCG's Measuring Innovation 2007 Survey

Boston Consulting Group's Innovation practice has some interesting insights to measuring innovativeness in their "Measuring Innovation 2007: A BCG Senior Management Survey":

The paper's summary is a companion to the 2007 BCG-BusinessWeek innovation survey and BCG's Innovation 2007 Report:

For most companies, innovation is the key to driving growth, shareholder value, and competitive advantage in today's global economy. But even at the best companies, up to a third of all innovation initiatives are draining valuable resources.

According to the most recent BCG-BusinessWeek innovation survey only 46 percent of senior management are satisfied with their return on innovation spending while 63 percent of chief financial officers are still unhappy with their innovation results. Innovation remains a top priority for 66 percent of respondents, and 67 percent are planning to increase their investment in innovation.

The problem these companies face isn't a lack of ideas—most of them have more than enough. It's that companies don't have a disciplined process for turning those ideas into cash. An effective innovation-to-cash process (ITC) is the foundation of successful innovation, which we define as profitable innovation.

For those seeking measures for their innovations, BCG learned that the most common measures used by organization to assess their innovativeness were:

• Total funds invest in growth projects
• Projected versus actual performance
• Average development time per project
• Revenue realized from offerings launched in the past three years
• Allocation of investments across projects
• Number of projects that meet planned targets
• Cannibalization of existing product sales by new offerings
• Percentage of ideas funded
• Number of ideas killed or table at each milestone

In future posts, I plan to dissect the report and its recommendations in more detail.

Vital Sign: Workforce Engagement. 38% of Worksforce are partly to fully disengaged!

In his recent book about management innovation, the Future of Management (p.57), Gary Hamel identified a 2005 Towers Perrin report with a particular performance measure about employee engagement and concluded that the challenge is to reinvent our management systems so they inspire human beings to bring all of their capabilities to work every day.

In the 2007 version of the Towers Perrin Global Workforce Study, this report identified a significant 'Engagement Gap' among the Global Workforce. According to the October 2007 Towers Perrin news release:

Just 21% of the employees surveyed around the world are engaged in their work, meaning they're willing to go the extra mile to help their companies succeed. Fully 38% are partly to fully disengaged. The result is a gap - which Towers Perrin has dubbed the "engagement gap" - between the discretionary effort companies need and people actually want to invest and companies' effectiveness in channeling this effort to enhance performance.

The study found that companies with the highest levels of employee engagement achieve better financial results and are more successful in retaining their most valued employees than companies with lower levels of engagement.

"It's impossible to overstate the importance of an engaged workforce on a company's bottom line," said Julie Gebauer, managing director and leader of Towers Perrin's Workforce Effectiveness consulting practice. "The Global Workforce Study establishes a definitive link between levels of engagement and financial performance and, for the first time, begins to quantify that link. It demonstrates that, at a time when companies are looking for every source of competitive advantage, the workforce itself represents the largest reservoir of untapped potential."

The most striking data about the linkage between employee engagement and financial performance come from a study of 40 global companies which involved a regression analysis of company financial results against engagement data. It found that firms with the highest percentage of engaged employees collectively increased operating income 19% and earnings per share 28% year to year. Those companies with the lowest percentage of engaged employees showed year-to-year declines of 33% in operating income and 11% in earnings per share.

The last line above is particularily interesting and helps make the link between the Finance and HR functions of today's leading organizations. Assuming that this is a non-financial vital sign, Finance should ensure that Workforce engagement is included in the exceutive team's business performance management scorecards.

Download the summary here.