Measuring Innovation

One of the most frequent questions that comes up in conversations I have with corporate leaders is on whether innovation can be measured. This question is often followed by a second question: “Should it be measured?” and a third one: “If so, how?”


Most professionally-managed companies have a strong belief in data-driven management. Yesterday, I was at a meeting where several current and ex-Infosys employees were present, and they all said that one of the distinguishing features of a successful company like Infosys is the fact that collection and analysis of appropriate data precedes all decision-making. There is also a strong belief, reinforced by successful global initiatives like the quality movement, that what gets measured gets acted upon. So, clearly, for an activity that is as critical to the organization as innovation, measurement is important.

Arguments for and against measurement

The reason that some people are skeptical about measuring innovation is that they believe that an activity that is dependent on creative output is inherently difficult to measure. Such people believe that measurement could be counter-productive as it could result in mechanical goal-setting and playing the number games that people within organizations understand so well! And such game-playing could be inimical to the very practice of innovation.

On the other hand, I recently had a very interesting conversation with Kishore Ramisetty who heads several of Intel’s innovation initiatives in India, and who focuses on building an innovation culture within Intel’s 3,500 workforce in India. He has a simple reason for seeking relevant metrics (in his mind, preferably a single metric) to measure innovation – how else would he know if he is making progress?

My own thinking about “measuring innovation” has changed over time. I was ambivalent about measurement earlier, but have become more convinced about the importance of measurement after seeing examples of how it can work, and thanks to the influence of my collaborator, Vinay Dabholkar. However, I am equally sure that it is critical to measure innovation the right way.

The Right Way

What is the right way? In thinking about this, I am influenced by Kaplan and Norton, the originators of the Balanced Scorecard. This popular management tool was proposed by them to prevent excessive focus on financial metrics that could only be acted upon after the event. Instead, Kaplan and Norton suggested using a wider set of metrics that covered processes as they take place, thus providing leading indicators of how the organization is progressing. Ideally, Kaplan and Norton believe that a good balanced scorecard represents and reflects an organization’s theory of business: the key input-process-outcome transformations that result in value addition and appropriation by the firm.

Effective measurement of innovation needs to incorporate similar thinking. It should be based on a model of how innovation happens in the organization. Such a way of thinking has the added advantage of being aligned with the touch points in the innovation process where managerial intervention can help.

Single Metric or Multi-dimensional?

Excessive focus on a single metric can result in distortions in innovation activity that show up after some time. I am aware of one multinational R&D centre in India that underlined the importance of patents as a predominant measure of innovation happening in the centre. Employee incentives were tied to patent filing and patent grants so as to boost patent output. Not surprisingly, filing of invention disclosures grew at a rapid pace, and so did patent filings and grants. All this looked very impressive till the post-Lehman economic downturn when the corporate headquarters started looking at where costs could be cut. The large outflow on patent renewal fees attracted attention, leading to a review of the business benefit of the patents granted and the discovery that very few of the patents were critical to business. Not surprisingly, the company decided to cut back strongly on patent renewals as well as step back from support for more such patenting activity, and this led to a decline in morale within the company and setbacks to the innovation programme.

Similarly, when Procter & Gamble embraced open innovation (Connect & Develop) about ten years ago, the company set a target of half their innovations originating in ideas from outside the company. While the company was very effective in meeting this goal, this hasn’t re-vitalized the innovation engine to the extent that P&G desired (see my earlier blogpost on Open Innovation at P&G for more details).

When companies use a dominant metric effectively, it is often a market-related one (like 3M’s New Product Vitality Index or Cognizant’s measure of value added for the customer). While such a metric can work because the ultimate objective of innovation is growth, revenue and profitability, I tend to be skeptical of a single composite innovation index that mixes input, process and outcome measures together. Such indices are sensitive to the weightage given to each of these components and often end up trying to mix apples, oranges and bananas together.

Measurement of Innovation should take a Process View

In our new book, 8 Steps to Innovation: Going from Jugaad to Excellence, Vinay Dabholkar and I take a process view of innovation. We see innovation as centered around building a pipeline, increasing idea velocity and enhancing batting average. Though building a pipeline of good and relevant ideas is important, that is far from enough; ideas need to move forward, be tested and refined (or rejected), integrated and developed further, so that they move towards achieving business results. Idea velocity represents this movement of ideas through the organization, while batting average indicates how ideas and innovation projects are resulting in business impact. We believe that measurement needs to be aligned to such a process view.

Our thinking in this regard was influenced by companies like Toyota. Between 1951 and 1986, the number of suggestions (ideas) logged with the company went up from 789 to 2.6 million, i.e. from 0.1 suggestions per person per year to 48 suggestions per year. While in 1951, only 8% of employees were participating in the suggestion scheme, by 1986 this number had gone up to 95%. Most impressively, the adoption rate of ideas had gone up from 23 to 96%. The high adoption rate reflects both the ability of the company to execute ideas as the fact that the employees had learnt what kind of ideas are valuable to the company!

Care needs to be taken to measure innovation separately for different kinds of innovation processes. The ideas in a kaizen (continuous improvement) context may be quite different in size, investment and impact from the ideas in a new product development process. Mixing up the data from both these processes may confuse the issue.

How to Use Innovation Measures

Benchmarking is useful for certain measures. When your company is generating only 1 or 2 ideas per person per year, it is safe to conclude that you are not tapping into the innovation potential of your employees compared to Toyota’s 48 ideas per person per year. But, particularly for companies at an early stage of innovation, it’s more important to do better than last year, and to move the innovation process along from the pipeline phase to the validation phase, and finally to business impact. Measuring your own progress vis-à-vis the past may be more helpful than benchmarking at this stage.

Some typical measures that help chart how you are making progress on your innovation journey are shown in the chart below.

8 Steps to Innovation has an extensive discussion of measurement and metrics across the book.

The Power of Focus: Praj Industries, India's Leading Bioindustrial Company

The next time you have a drink of your favourite Indian beer or Indian Made Foreign Liquor, pause for a moment to think of the company that most likely designed and implemented the core process for the production of your beverage – Praj Industries. Praj is India’s leading bioindustrial company with a FY2012 sales of Rs. 910 crores. Even more impressive is the fact that Praj’s technology is used in 50 countries across 5 continents including the United States.

Pramod Chaudhari, the founder of Praj, is an alumnus of IIT Bombay. He started his working life at Bajaj Tempo, and then went on to work in Sales at Widia with the objective of getting some commercial experience. But he had a gnawing urge to do something on his own. His father had worked closely with sugar mills, and Pramod was himself committed to involvement in Maharashtra, the state he comes from. In 1983, he founded Praj in Pune.

Much of the potable alcohol in India comes from processing cane molasses, a waste product from sugar production. Traditionally, fermentation happened through a batch process. Praj introduced a continuous process based on a technology originally sourced from Europe. But the process didn’t deliver the same results in India because of the messy state of the sugarcane molasses that constituted India’s inputs to the fermentation process, and the significant climatic differences between Europe and India. Adapting the process to Indian raw materials and weather conditions was the problem that initiated R&D at Praj Industries.

Adapting processes to Indian inputs/conditions was a common trigger for R&D efforts in India prior to liberalization. Prominent examples are the modifications in steel making processes at companies like Tata Steel to adapt to the higher ash content of Indian coal, and the additional desulphurization steps introduced at Indian refineries. But it is to Praj’s credit that it didn’t stop with this. The composition of molasses can vary from region to region, from sugar factory to sugar factory. Today, Praj is the company with the ability to handle perhaps the broadest array of molasses and agricultural waste in the world. They have characterized (“fingerprinting” as Pramod Chaudhari calls it) samples of thousands of different inputs from across the world and can therefore make processes suited to the particular input of a given geography. This is in sharp contrast to some of their competitors in the west who can handle a narrow range of clean inputs. This knowledge advantage combined with a flexible engineering design capability allows Praj to customize processes quickly and at reasonable costs.

Praj not only designs processes to meet these myriad requirements, but also manufactures much of the process equipment in-house. They are therefore able to provide effective turnkey solutions to customers. Praj’s expertise is appreciated as far away as Brazil, Colombia and the United States. Half of Praj’s revenues come from outside India.

Pramod Chaudhari’s Dream

But Praj’s capabilities extend beyond the core fermentation and distillation processes to provide an energy-efficient, water efficient and environment-friendly process. The “dream” is to create a plant that involves “waterless fermentation, steamless distillation and zero pollution.” The aim is to raise the bar on use of steam and energy without any compromise to the quality of alcohol produced.

Listening to Pramod Chaudhuri, I was reminded of an interview I read with the then CEO of Toyota, Katsuaki Watanabe, some years ago (Harvard Business Review, July-August 2007) – “I want Toyota to come up with the dream car – a vehicle than can make the air cleaner than it is, a vehicle that can not injure people, a vehicle that prevents accidents from happening, a vehicle that can make people healthier the longer they drive it, a vehicle that can excite, entertain and evoke the emotions of its occupants, a vehicle that can drive around the world on just one tank of gas.” Today, Praj is focused on integrating sustainability with all its new processes.

In its early years, Praj became one of the first companies funded by a fledgling Indian venture capital industry. Pramod gives credit for the funding to the doyen of India’s financial services industry, Mr. N. Vaghul, then Chairman of ICICI. Later, Praj received funding from the iconic Indo-American investor, Mr. Vinod Khosla, who has spent the last decade or so backing a range of start-ups and technology companies that can provide an alternative to fossil fuel technologies.

Praj Technology Development 2.0

About 5 years ago, Praj embarked on a more audacious and challenging innovation journey. It went beyond process design and application engineering to enter the demanding field of new generation biofuels.

The endeavour to “move beyond hydrocarbons to carbohydrates” is not new – interest in blending ethanol with fuels dates back to the first oil shock in the early 1970s. Much of Praj’s business in the United States came from a major shift towards blended fuels in states like California in the late 1990s. Such blending reduces particulates in emissions and also allowed enhancing the octane number without the use of carcinogenic additives such as lead.

But, what is new is the effort to move beyond traditional raw materials such as corn or molasses to a wide variety of biowaste. Interest in processing of biowastes is high because of the “food vs fuel” debate (use of corn for the production of alcohol has led to higher prices of corn and lower availability of corn as food). Effective processing of such wastes requires understanding of molecular biology and the identification of new organisms for the fermentation process. In other words, research has to become more fundamental in nature. Praj moved into this arena when it created the Praj Matrix Innovation Centre in 2005. The vision is to “be a global leader in Breakthrough, Sustainable and Commercializable Technologies for Renewable Energy and Biobased Chemicals and Materials, Environment and Health solutions while enhancing societal and stakeholder value.”

In its endeavour to create 2nd generation biofuels, the Praj Matrix Innovation Centre has set up a pilot plant for the conversion of lignocellulose to Bioethanol. Efforts to scale up this technology further will follow, and Praj hopes to be able to commercialise the technology in the next few years. Finding partners to share risks of commercialization will be the next challenge; even outside India, a company in the same space has had to set up a plant at its own cost to take commercialization forward. Hopefully, the Clean Energy fund of the government will help Praj when it reaches this stage.

Praj: The Power of Focus

What particularly impressed me was Praj’s focused attention to strategy and innovation. At the base of this is Pramod Chaudhari’s passion and desire to shape the future of the ethanol industry. Diversifications have been related to the core areas of expertise of the company. One such area is waste water treatment. Another is its recent entry into the high purity water business through the acquisition of Neela Systems. Praj’s technology team keeps its eyes and ears open for technologies that can be adapted to its business, both in India and outside. Pramod is advocating a new model where companies like his work with laboratory technologies from anywhere in the world that have not been developed further, and use low cost Indian engineering skills to commercialise these technologies. While the intellectual property rights remain with the original inventors, Praj will seek territorial rights to exploit the technology if the commercialization efforts succeed. This is a potential win-win for both, and is possible because of the end-to-end technological capabilities that Praj has built.

Praj uses standard innovation management tools like the stage-gate model to manage the innovation process. Pramod Chaudhuri’s innovation grid centres on three challenges (security, scarcity and scalability) leading to the triple bottom line results of people, profits and planet. The connectors between these two are education, innovation and entrepreneurship. In particular, he believes that intrapreneurship is the key to ensuring that innovation goes beyond ideas to reach the market. Praj works with local education institutions to give Praj Maha Intrapreneurship awards to individuals in the private sector and social sector in Maharashtra who have made significant impact as intrapreneurs.

Will B.PAC and iSPIRT Transform Urban Politics & the Software Product Industry Respectively?

While we usually focus on product, process and business model innovation as the main facets of innovation, some of the most impactful innovation can be the result of new organizational forms.


Take the case of India's white revolution. This was driven by a unique 3-tier structure of organizations - the farmers' cooperative at the village level as the basic organizational unit; a district-level federation of cooperatives with milk processing and marketing capabilities; and a state level apex body with brand and product management capabilities. And, behind this structure were larger organizations like the National Dairy Development Board at the national level that channelizes resources, support long-term investment activities, and accesses new knowledge and inputs. This arrangement takes advantage of flexibility - when required NDDB can look like an extension of the government, when required it is an independent body working with farmers' cooperatives. This flexibility has helped it manage in a complex environment.

Last week saw the birth of some organizations nowhere as complex as the milk production structure, but with the potential to have major impact.

B.PAC

NR Narayana Murthy launched the Bangalore Political Action Committee or B.PAC as it is being called. This is the first time we are seeing an organization christened as a PAC in India, though this is a common term in the US. I presume this similarity is not just a matter of coincidence. PACs in the US are not political parties, but organizations created to advocate and support a particular agenda. The B.PAC has similar objectives. At one level it aims to restore the quality of life of the city of Bangalore. But at another level it is a pressure group for more political power to cities which are the value creation engines of a modern economy.

The B.PAC's initial agenda is to enhance urban (read middle class, educated) voter enrolment and voter participation. They also promise to support candidates who back their agenda (new forms of city government, more resources, better urban planning, etc.) In the forthcoming assembly, parliament and municipal corporation elections. Subject, of course, to their meeting other criteria like no criminal cases against them, no record of corruption, etc.

B.PAC has been formed by a group of resourceful and successful individuals who have for long been expressing their dissatisfaction with the state of affairs like Kiran Mazumdar Shaw and Mohandas Pai. It represents their response to many of the issues they have raised in the past falling on deaf ears, and their inability to have a sustained impact on the political system.

Of course, the "involvement" of successful industrialists in efforts to improve Bangalore is not new. During the chief ministership of SM Krishna (1999-2004), the Bangalore Agenda Task Force was created under the chairmanship of Nandan Nilekani. The BATF tried to play the role of a coordinating body, creating a platform for different civic agencies, citizen groups and the state government to come together. While the BATF did manage to do some of this as well as have new bus shelters and toilets built, it was a body without any political legitimacy and was hastily disbanded after the Congress lost the 2004 elections in the state.

Newspaper reports indicate the existence of a similar attempt in the last few years under the chairmanship of Rajeev Chandrashekar. However, this one has been low key, restricting its role to that of a think tank. But again the long term impact doesn't appear to be substantial.

B.PAC is an interesting development because it shows an inching of rich, successful "middle class" entrepreneurs towards electoral politics. Though apolitical in the sense that it is not a political party, B.PAC clearly has a political agenda. It represents a growing realization that technocratic approaches can't solve India's problems. It also suggests that the efforts to create alternate public spaces such as those tried out by Janagraha or the BATF itself could have only limited success. The creation of the B.PAC is a welcome development, for the next logical step will be immersion in electoral politics. I hope to see a party such as the German Green Party emerging out of this process with the ability to push urban issues at the national level.

iSPIRT

The second organizational innovation in the last week was the creation of iSPIRT - the Indian Software Product Industry Round Table. It came into the public view amidst controversy with a Times of India headline announcing it as a breakaway trade body from Nasscom. iSPIRT's spokesmen were quick to assert that the organisation is an industry round table (not a trade body), that it will not offer membership, and that the founders will continue to be part of Nassom (Disclosure: I am a part of the iSPIRT Founding Circle).

I am excited by the prospect of iSPIRT because of the new activities it is promoting. An important role it will play is to act as a market maker. India has lakhs of small and medium businesses. These businesses are important sources of employment and economic growth but they face a major challenge of maintaining their competitiveness. Information technology has the potential to enhance the efficiency of these businesses. However, these SMBs often lack the ability to evaluate vendor proposals. They are price-sensitive, and risk-averse as far as IT is concerned. Burnt by past experiences, they are wary of making fresh investments in IT.

Under its iSMB initiative, iSPIRT plans to bridge the gap between domestic software product vendors who have relevant solutions and SMB customers. ISMB will study different verticals, map needs, and certify products meeting the vertical's needs. Only product companies that have customer dispute resolution mechanisms in place will be accredited. Product companies will get feedback on where their solutions fall short of customer requirements. This initiative is designed to bridge the trust deficit that exists today between vendors and users.

ISMB will build on the positive experience of CIO Connect, an earlier effort to bring Indian product companies and large Indian corporate IT users together.

Both B.PAC and iSPIRT are Market-Makers

Though in theory markets provide the opportunity for sellers and buyers to come together, information asymmetry and high transaction costs can prevent markets from functioning efficiently. Initiatives like ISMB and CIO Connect help smoothen out these market imperfections.

B.PAC can also be seen as a market maker. A democratic system in which a whole chunk of voters does not participate will not reflect the needs of different interest groups accurately.

We tend to expect government to combat market failure. Both B.PAC and the ISMB initiative of iSPIRT represent voluntary, community efforts to do so. I will watch both these organizational initiatives with interest.

Time is Ripe for Indian Companies to focus on Strategy

Last month, I started writing a new column on Strategy and Innovation in The Hindu Businessline. 

In my first column, I identified a key strategic challenge that Indian companies face: They can set aggressive numerical targets, and create fancy new business models, but given the absence of favourable tailwinds, they have no option but to find their own pivots that will catapult them over competition.

Building India's Innovation Capacity Ground-up: The Agastya International Foundation

India's grassroots innovators come up with amazing solutions through their own ingenuity. But I often wonder how much more innovation they would be able to do if only they had access to better education in their formative years.

The long-term solution to this is, of course, clear - improve the quality of school education across the country.  But, the gap between single classroom schools that characterize much of the government school system in rural India, and effective science education seems so wide that it is easy to despair about how long this will take.

Fortunately, some alternate models are at hand. On January 30, I had the privilege of visiting the Agastya Foundation's main science centre near Kuppam, a small town at the confluence of 3 states - Andhra Pradesh, Karnataka and Tamil Nadu.

The Agastya International Foundation Science Centre at Kuppam

In 2011-12, about 75,000 students from government schools in the vicinity of Kuppam and private schools visited this centre. Here, they attended science classes integrated with practical demonstrations that they would never be able to see in their own schools; were exposed to puzzling scientific phenomena; and even took apart bicycles and ceiling fans to put them together again. The more curious among them got a chance to work on their own ideas, many of which were developed with the help of the facilitators into concepts entered for innovation contests like IRIS and IGNITE.

The Centre also serves as a training ground for teachers - they have their own training sessions while their students are engaged in the Agastya experience.

An in-house workshop designs and fabricates apparatus for new experiments, or replicates apparatus for use in smaller science centres elsewhere and the 67 mobile science vans that take the excitement of science learning to school students across 10 states of India. 

How well does it work?

The experiments are well designed. Many of them can be done by students themselves. A signboard of dos and don’ts reads “Do touch and play” instead of the “Don’t touch” sign you would expect to see in a typical museum. That pretty much summarises the Agastya philosophy.

I found the hundreds of students at the centre (about 500-600 visit on a typical day) from government schools (girls and boys alike – I was relieved to see that Agastya has equal numbers of both!) involved with rapt attention in what was going on. (In contrast, I saw some of the students from urban private schools looking a tad disengaged - I was told that this was because their schools allow them to choose what they "like" and "don't like"!). Of course, learning science takes time – in the Chemistry class I visited, the instructor asked the students where in their homes they would find a Chemistry lab, but few could identify the place where their food was cooked as the answer.

Students who visited Agastya have been doing very well in national innovation contests. At the Initiative for Research and Innovation in Science (IRIS), a joint initiative of the Department of Science & Technology, CII and Intel, their concepts have been regularly short-listed at the final stage, and 2-3 projects have been winning prizes every year. One such award went to a team that developed a project on larvicidal activity of citrus fruit peel oil after the mother of one of the students suffered a particularly painful attack of Chikungunya!

2 students who have been through Agastya's programmes have been admitted to IITs.

Many of the student projects have an ecological flavor to them. The Agastya staff attributed this to the students coming from a rural background. But it is my experience that current students from diverse backgrounds are all much more committed to ecology and sustainability concerns than the generations that preceded them.

The Agastya campus is on a picturesque yet dry 100+ acre campus with distinctive architecture and views which add to the student experience.

There were very few discordant notes at Agastya. Credit for this should go to founder Ramji Raghavan and his committed team. Balaram, the campus manager who showed us around clearly took tremendous pride in his job, and the philosophy of Agastya. Though his education was in arts and law, he has a good understanding of all the experiments and has imbibed the Agastya philosophy as well.

My only crib was that most of the charts and documentation were in English though it was apparent that many of the kids would struggle to read the language. Over time, the students need to be exposed to relatively contemporary exhibits and experiments in electronics and information technology as well (a new IT building is close to completion, so the IT learning should start soon). And, hopefully, there will be more learning that transcends disciplinary boundaries.

How Scalable is the Agastya Model?

The Kuppam facility itself is a sprawling campus, and the capital expenditure in setting up such a campus would be very large. However, smaller science centres based on the Kuppam model can be created at reasonable costs. Already, Agastya Foundation has set up such centres across Karnataka. Other states including Bihar and Punjab are seriously considering adopting the Agastya model. The science vans are the other way of diffusing the learning process – each science van carries a set of exhibits and experiments and typically spends a day at a rural school. Agastya trains instructors to work in the science centres as well as the vans.

While the ultimate dream would be to have every school in India with a well-equipped science lab, in the interim the Agastya model could work well. Agastya’s commitment to science education and their interest in scaling up makes this more likely to succeed compared to setting up labs in all schools and training all teachers. In many places, I would imagine that government school teachers would tend to keep all apparatus locked up for fear that they would stop working or be damaged or stolen leading to audit and other questions! We asked Shibu, the head of the Kuppam facility how teachers viewed Agastya – he explained that they were happy to see their students learn things in a more practical way though they tended to find it difficult to keep up with the students’ questions after a visit to a science centre!  

I was really happy to see an art classroom in this science centre complex. As C.P. Snow observed in his classic on the two cultures, science and arts often get divorced from each other, to the detriment of both.

Agastya Foundation’s efforts mark an important step towards kindling creativity and innovation across the length and breadth of India.