Key takeaways
- Measuring innovation performance remains a major challenge due to inconsistent metrics and a lack of industry benchmarking standards.
- Risk management is becoming a core responsibility of innovation teams as organizations seek resilience in an increasingly volatile business environment.
- Innovation teams that align innovation strategy with corporate risk management frameworks can better justify long-term investments and strategic bets.
- Benchmarking innovation performance against industry peers is becoming essential for improving innovation effectiveness and securing executive support.
The role of innovation teams today
What’s the role of an innovation team in today’s world? In some sense, the answer hasn’t changed all that much: Innovation teams are charged with identifying technologies and launching new products, just as they were a decade ago. The world, however, has changed. The new normal combines intense volatility driven by geopolitical uncertainty, governments getting increasingly involved in industry, and a boom in hype and funding around a very narrow set of technologies like AI. This is a different environment from the one many innovation leaders are experienced in. Lux hears from clients that it’s increasingly challenging to know how to respond to this innovation environment. These challenges are reflected in the two major themes of this year’s innovation survey: innovation benchmarking and risk. The rest of this post will explore our hypotheses on these themes, but before you read on, I encourage you to fill out the survey! You can find it here; it should take only five to 10 minutes to complete, and you can remain anonymous if you choose.
How do innovation teams measure performance?
The first part of our survey seeks to understand how innovation teams measure their own performance and how they perceive their performance relative to their peers. We ask what metrics innovation teams use to measure their own performance, how innovation teams assess their own abilities and track record at meeting goals, and how they think this stacks up against their peers. Our hypothesis is that innovation teams are likely to underestimate their own impact and overestimate the performance of their peers. Part of this is simple human psychology, combined with an information asymmetry. You know all the failed projects that you undertook and none of the failed projects your peers undertook. The broader issue here is a lack of concrete metrics to which they can attribute their success. Many innovation leaders I talk to today still don’t have a truly concrete way of measuring outcomes except at the highest level — for example, the number of investments made or partnerships formed. The other part of the metrics challenge is that there are very few shared benchmarks. Even if teams use their own particular metrics that they believe reflect performance well, it’s very unlikely that these metrics are shared across companies, making performance assessment impossible. Perhaps the conversation starts here — so if you’re really confident in your metrics, you should definitely fill out this survey!
How do innovation teams handle risk?
The second part of the survey digs into risk, which has become a more and more prominent issue for innovation teams over the past decade. In some sense, you would expect that the current risk environment would be a good thing for innovation teams. Volatility in fossil fuels, for example, creates clear opportunities for new technologies that help reduce fuel consumption and provide alternative feedstocks. But based on Lux’s conversations with clients, the reality is that in these risky times, companies have generally sought to pull back on risk, and it has gotten harder to make the long-term bets that innovation teams are responsible for.
Our hypothesis is that innovation teams aren’t truly integrated with the other risk management functions within corporations and, as such, struggle to position their activities as part of a broader risk management framework. With our survey, we want to understand both how innovation teams think about risk and use it in their day-to-day work, and how innovation teams integrate with broader corporate risk functions. Our hope is that the answers can provide useful ammunition for innovation leaders when making the case for a more risk-informed innovation strategy.
Take the survey and receive a copy of the analysis
Again, I encourage you to fill out the survey. We will share the results with those who do. Stay tuned for a preliminary analysis of the survey results in August!