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The Value of Innovation: Knowing, Proving, and Showing the Value of Innovation and Creativity



The Value of Innovation: Knowing, Proving, and Showing the Value of Innovation and Creativity

Jack J. Phillips, Patricia Pulliam Phillips

ISBN: 978-1-119-24242-0 December 2017 390 Pages

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Innovation is the life blood of practically every organization. Innovation drives growth, development, and prosperity for many organizations and geographical areas.  Sometimes, innovation thrives within a certain geographical location or in certain organizations that are known for their innovative approaches. This outstanding new volume will demonstrate how to measure the success of innovation in all types of organizations. 

In the last decade, there have been tremendous investments in creativity and innovations sponsored by companies, cities, states, countries, universities, NGO’s, and even non-profits. With the magnitude of emphasis on creativity and innovation, the sponsors and key stakeholders will demand to know the value of these programs. The Value of Innovation: Measuring the Impact and ROI in Creativity and Innovation Programs will show step-by-step how to measure the impact and the ROI of innovation and creativity programs. The process collects six types of data: reaction, learning, application, impact, ROI, and intangibles. Data are collected analyzed and reported using a systematic, logic model. Conservative standards create results that are both CEO and CFO friendly. This proven process has been used now in 5000 organizations and this new book adapts the method directly to this critical area of innovation, showing examples and case studies.

Preface xix

Acknowledgements xxiii

About the Authors xxv

1 The Importance and Challenges of Innovation 1

Innovation Hype 2

Articles 2

Books 2

Jobs 3

Speeches 3

Experience 3

The Realities of Innovation 4

Innovation is Not New 4

Innovation is Necessary for Survival 5

Innovation is Equated with Success 5

Innovation is Truly Global 6

Consumers and Investors Expect Innovation 6

Innovation is Often Disruptive 6

Innovation is Not a Single Event 7

Little Ideas Often Make a Big Difference 7

Innovation Comes in Many Types and Forms 8

Innovation Spans Many Different Horizons 8

Trouble in Paradise: The Misconceptions 9

Misconception 1: Small Companies are More Innovative 10

Misconception 2: Uncontested Markets are Good for Innovation 10

Misconception 3: Spending More on R&D Increases Innovation 10

Misconception 4: Companies Need More Radical Innovation 10

Misconception 5: Open Innovation Turbocharges R&D 11

Misconception 6: R&D Needs to be More Relevant 11

Misconception 7: Wall Street Rewards Innovation 11

Innovation Challenges 12

Innovation is Expensive 12

Managing Innovation is Difficult 13

An Innovation Culture is Necessary for Success 13

Innovation Requires Many Personas 14

Innovation Success Rates Need to Improve 16

The Value of Innovation is Unclear 16

Final Thoughts 17

2 Status and Concerns about Innovation Measurement 19

Innovation: Definition, Models, and Measures 20

Sources of Innovation 21

Measurement Shifts 23

Measurement Shifts are Common 23

Value Perception. 24

The Search for Money 24

Hoping, Knowing, Proving, and Showing Value 25

Innovation is Systematic 25

Macro View of Measurement 27

Industry Level Measures 29

Company Level 30

Concerns about Company Level Measures 30

Micro View of Measurement 32

Final Thoughts 34

3 The Case for a New System 35

Innovation: A Cost or an Investment? 36

The Value of Innovation: A Summary 38

Intangibles and the Fear of not Investing 38

Relationship Between Variables 39

ROI Studies 41

Types of Data 41

Inputs 41

Reaction and Planned Action 42

Learning 43

Application and Implementation 43

Impact 44

Return on Investment 44

How Does Your Current System Stack Up? 45

Focus of Use 45

Standards 47

Contents vii

Types of Data 47

Dynamic Adjustments 47

Connectivity 48

Approach 48

Conservative Nature 48

Simplicity 48

Theoretical Foundation 49

Acceptance 49

Using Design Thinking to Deliver and Measure Results 49

Start with Why: Aligning Projects with the Business 50

Make it Feasible: Selecting the Right Solution 51

Expect Success: Designing for Results 52

Make it Matter: Designing for Input, Reaction, and Learning 52

Make it Stick: Designing for Application and Impact 53

Make it Credible: Measuring Results and Calculating ROI 53

Tell the Story. Communicating Results to Key Stakeholders 54

Optimize the Results: Using Black Box Thinking to Increase Funding 54

Requirements for the Value of Innovation: A Measurement Process 55

ROI Measurement Methodology 56

Terminology: Projects, Solutions, Participants . . . 57

Final Thoughts 57

4 Introducing the ROI Methodology 59

The ROI Methodology 60

Types of Data 60

The Initial Analysis 63

The ROI Process Model 65

Planning the Evaluation 66

Evaluation Purpose 66

Feasibility 67

Data Collection Plan 68

ROI Analysis Plan 68

Project Plan 71

Collecting Data 71

Isolating the Effects of the Project 72

Converting Data to Monetary Values 72

Identifying Intangible Benefits 73

Tabulating Project Costs 74

Calculating the Return on Investment 74

Reporting 75

Operating Standards and Philosophy 75

Implementing and Sustaining the Process 76

Benefits of This Approach 76

Aligning with Business 77

Validating the Value Proposition 77

Improving Processes 77

Enhancing the Image and Building Respect 78

Improving Support 78

Justifying or Enhancing Budgets 78

Building a Partnership with Key Executives 79

Earning a Seat at the Table 79

Final Thoughts 79

5 Aligning Innovation Projects to the Organization 81

Creating Business Alignment 83

The Purpose of Alignment 83

Disciplined Analysis 84

Determining the Potential Payoff 86

Obvious Versus not-so-obvious Payoff 87

The Cost of a Problem 89

The Value of an Opportunity 90

To Forecast or not to Forecast? 90

Determining Business Needs 90

The Opportunity 91

Hard Data Measures 91

Soft Data Measures 92

Tangible versus Intangible Benefits: A Better Approach 93

Impact Data Sources 94

Determining Performance Needs 95

Analysis Techniques 95

A Sensible Approach 95

Determining Learning Needs 96

Determining Preference Needs 97

Case Study: Southeast Corridor Bank 98

Payoff Needs 98

Business Needs 99

Performance Needs 99

The Solution 100

Learning Needs 101

Preference Needs 102

Developing Objectives for Innovation Projects 102

Reaction Objectives 102

Learning Objectives 103

Application and Implementation Objectives 103

Impact Objectives 104

ROI Objectives 105

Final Thoughts 106

6 Collecting Data Along Chain of Impact with a Toolbox of Methods 107

Questionnaires and Surveys 109

Types of Questions and Statements 109

Design Issues 110

A Detailed Example 111

Improving the Response Rate for Questionnaires and Surveys 113

Using Interviews 120

Types of Interviews 121

Interview Guidelines 121

Using Focus Groups 122

Applications for Evaluation 122

Guidelines 123

Measuring with Tests 124

Measuring with Simulation 124

Task Simulation 124

Role-Playing/Skill Practice 125

Using Observation 125

Guidelines for Effective Observation 125

Observation Methods 127

Using Action Plans 128

Using Action Plans Successfully 129

Advantages/Disadvantages of Action Plans 132

Using Performance Contracts 133

Monitoring Business Performance Data 134

Existing Measures 134

Developing New Measures 135

Selecting the Appropriate Method for Each Level 135

Type of Data 135

Participants’ Time for Data Input 136

Manager Time for Data Input 136

Cost of Method 137

Disruption of Normal Work Activities 137

Accuracy of Method 137

Utility of an Additional Method 137

Cultural Bias for Data Collection Method 138

Final Thoughts 138

7 Measuring Reaction and Perceived Value 139

Why Measure Reaction and Perceived Value? 140

Customer Satisfaction 141

Immediate Adjustments 141

Predictive Capability 141

Important but not Exclusive 142

Sources of Data 143

Participants 143

Participant Managers 143

Other Team Members 143

Internal or External Customers 144

Project Leaders and Team Members 144

Sponsors and Senior Managers 144

Records and Previous Studies 144

Areas of Feedback 145

Data Collection Timing 146

Data Collection Methods 146

Questionnaires and Surveys 146

Interviews 147

Focus Groups 147

Using Reaction Data 147

Final Thoughts 148

8 Measuring Learning 149

Why Measure Learning and Confidence? 150

The Importance of Intellectual Capital 151

The Learning Organization 152

The Compliance Issue 152

The Use and Development of Competencies 152

The Role of Learning in Innovation Projects 153

The Challenges and Benefits of Measuring Learning 153

Challenges 154

The Benefits of Measuring Learning 154

Measurement Issues 155

Project Objectives 155

Typical Measures 155

Timing 156

Data Collection Methods 157

Questionnaires and Surveys 157

Performance Tests 157

Technology and Task Simulations 158

Case Studies 159

Role-Playing and Skill Practice 159

Informal Assessments 159

Administrative Issues 160

Reliability and Validity 160

Consistency 161

Pilot Testing 161

Scoring and Reporting 161

Using Learning Data 162

Final Thoughts 162

9 Measuring Application and Implementation 163

Why Measure Application and Implementation? 165

Information Value 165

Project Focus 166

Problems and Opportunities 166

Reward Effectiveness 167

Challenges 167

Linking with Learning 168

Building Data Collection into the Project 168

Ensuring a Sufficient Amount of Data 168

Addressing Application Needs at the Outset 169

Measurement Issues 169

Methods 169

Objectives 170

Areas of Coverage 170

Data Sources 170

Timing 170

Responsibilities 171

Data Collection Methods 171

Using Questionnaires to Measure Application and Implementation 172

Using Interviews, Focus Groups, and Observation 172

Using Action Plans 172

Barriers to Application 174

Application Data Use 174

Final Thoughts 175

10 Measuring Impact 177

Why Measure Business Impact? 178

Higher-Level Data 178

A Business Driver for Projects 179

“The Money” for Sponsors 179

Easy to Measure 180

Collecting Effective Impact Measures 180

Data Categories 180

Metric Fundamentals 181

Identifying Specific Measures Linked to Projects 182

Business Performance Data Monitoring 183

Identify Appropriate Measures 184

Convert Current Measures to Usable Ones 184

Develop New Measures 184

Data Collection Methods 185

Using Action Plans to Develop Business Impact Data 185

Using Performance Contracts to Measure Business Impact 187

Using Questionnaires to Collect Business Impact Measures 189

Measuring the Hard to Measure 190

Everything Can Be Measured 190

Perceptions are Important 191

Every Measure Can Be Converted to Money, but not Every Measure Should Be 191

Special Emphasis on Intangibles 192

Final Thoughts 192

11 Isolating the Effects of Innovation 193

Why the Concern over this Issue? 196

Reality 196

Myths 196

Preliminary Issues 198

Chain of Impact 198

Identify other Factors: A First Step 199

Isolation Methods 200

Control Groups 200

Trend Line Analysis 203

Mathematical Modeling 205

Estimates 206

Participants’ Estimate of Impact 206

Manager’s Estimate of Impact 209

Customer Estimates of Project Impact 209

Internal or External Expert Estimates 210

Estimate Credibility: The Wisdom of Crowds 210

Calculate the Impact of other Factors 212

Select the Technique 213

Final Thoughts 214

12 Converting Data to Money 215

Why Convert Data to Monetary Values? 217

Value Equals Money 217

Impact is More Understandable 217

Converting to Monetary Values is Similar to Budgeting 218

Monetary Value is Vital to Organizational Operations 218

Monetary Values are Necessary to Understand

Problems and Cost Data 219

Key Steps in Converting Data to Money 219

Standard Monetary Values 222

Converting output Data to Money 222

Calculating the Cost of Quality 223

Converting Employee Time Using Compensation 227

Finding Standard Values 228

When Standard Values are not Available 229

Using Historical Costs from Records 229

Time 229

Availability 230

Access 230

Accuracy 230

Using Input from Experts 230

Using Values from External Databases 231

Linking with other Measures 232

Using Estimates from Participants 233

Using Estimates from the Management Team 233

Using Project Staff Estimates 234

Technique Selection and Finalizing Value 234

Choose a Technique Appropriate for the Type of Data 235

Move from Most Accurate to Least Accurate 235

Consider Source Availability 235

Use the Source with the Broadest Perspective on the Issue 236

Use Multiple Techniques When Feasible 236

Apply the Credibility Test 236

Consider the Possibility of Management Adjustment 238

Consider the Short-Term/Long-Term Issue 238

Consider an Adjustment for the Time Value of Money 239

Final Thoughts 239

13 Addressing Intangibles 241

Why Intangibles are Important 244

Intangibles are the Invisible Advantage 244

We are Entering the Intangible Economy 245

More Intangibles are Converted to Tangibles 245

Intangibles Drive Innovation Projects 246

The Magnitude of the Investment 246

Measuring and Analyzing Intangibles 246

Measuring the Intangibles 247

Converting to Money 249

Identifying and Collecting Intangibles 251

Analyzing Intangibles 252

Final Thoughts 253

14 Measuring ROI 255

Why Monitor Costs and Measure ROI? 258

Fundamental Cost Issues 259

Fully Loaded Costs 259

Costs Reported without Benefits 260

Develop and Use Cost Guidelines 261

Sources of Costs 262

Prorated versus Direct Costs 262

Employee Benefits Factor 263

Specific Costs to Include 263

Initial Analysis and Assessment 264

Development of Project Solutions 264

Acquisition Costs 264

Implementation Costs 264

Maintenance and Monitoring 265

Support and Overhead 265

Evaluation and Reporting 265

The ROI Calculation 265

Benefits/Costs Ratio 266

ROI Formula 267

ROI Objective 269

Other ROI Measures 270

Payback Period (Breakeven Analysis) 270

Discounted Cash Flow 271

Internal Rate of Return 271

Final Thoughts 272

15 Forecasting Value, Including ROI 273

Why Forecast ROI? 278

Expensive Projects 279

High Risks and Uncertainty 279

Postproject Comparison 279

Compliance 280

The Trade-offs of Forecasting 280

Preproject ROI Forecasting 282

Basic Model 282

Basic Steps to Forecast ROI 283

Sources of Expert Input 287

Securing Input 287

Conversion to Money 288

Estimate Project Costs 288

Case Study 289

Forecasting with a Pilot Program 293

Forecasting with Reaction Data 293

Case Study: Forecasting ROI from Reaction Data 294

Use of the Data 295

Forecasting Guidelines 296

Final Thoughts 299

16 Reporting Results 301

The Importance of Communicating Results? 303

Communication is Necessary to Make Improvements 303

Communication is Necessary to Explain the Contribution 303

Communication is a Politically Sensitive Issue 304

Different Audiences Need Different Information 304

Principles of Communicating Results 304

Communication Must Be Timely 305

Communication Should Be Targeted to Specific Audiences 305

Media Should Be Carefully Selected 305

Communication Should Be Unbiased and Modest in Tone 305

Communication Must Be Consistent 306

Make the Message Clear 306

Testimonials Must Come from Respected Individuals 306

The Audience’s Bias of the Project Will Influence the Communication Strategy 306

Storytelling is Essential 307

The Process for Communicating Results 307

The Need for Communication 308

The Communication Plan 309

The Audience for Communications 309

Basis for Selecting the Audience 311

Information Development: The Impact Study 312

Media Selection 312

Meetings 312

Interim and Progress Reports 314

Routine Communication Tools 315

E-mail and Electronic Media 316

Project Brochures and Pamphlets 316

Case Studies 316

Delivering the Message 316

Routine Feedback on Project Progress 317

Storytelling 319

Presentation of Results to Senior Management 320

Reactions to Communication 322

Final Thoughts 322

17 Implementing and Sustaining ROI 323

Why is this Important? 324

Resistance is Always Present 326

Implementation is the Key to Success 326

Consistency is Needed 326

Efficiency 326

Value is Maximized 326

Implementing the Process: Overcoming Resistance 327

Review Current Results 328

Developing Roles and Responsibilities 328

Identifying a Champion 329

Developing the ROI Leader 329

Establishing a Task Force 329

Assigning Responsibilities 330

Establishing Goals and Plans 331

Setting Evaluation Targets 331

Developing a Plan for Implementation 332

Revising or Developing Policies and Guidelines 332

Preparing the Project Team 334

Involving the Project Team 334

Using ROI as a Learning and Project Improvement Tool 334

Teaching the Team 334

Initiating ROI Studies 335

Selecting the Initial Project 335

Developing the Planning Documents 335

Reporting Progress 336

Establishing Discussion Groups 336

Preparing the Sponsors and Management Team 336

Removing Obstacles 337

Dispelling Myths 337

Delivering Bad News 338

Using the Data 338

Monitoring Progress 339

Final Thoughts 340

References 343

Index 351