Corporate venturing: challenges in measuring return on innovation

With the increase of technological, business and societal disruptions, innovation climbs even higher on corporate to-do lists. With it comes the increasing importance of corporate venturing, which provides as many opportunities as it does challenges. This article is the first in a series of three, and explores the challenges in measuring the return on innovation. Towards the end of the year, all the research will be compiled into a larger report.

Why is measuring innovation efforts such a hassle?

Even traditional industries, that have long stayed relatively unaffected by general disruptions, are looking to corporate venturing as a beneficial way to accelerate their innovation journey. However, many of these innovation units or activities do not always survive long-term, since most companies do not find the necessary justification to keep them going and – especially – do not evaluate their efforts correctly.

Measuring the return of these corporate venturing initiatives is critical to understand if the investment of time and resources amounts to anything. But in general, companies seem to forget to conduct a thorough analysis or simply don’t know how to do it. As a result, many innovation units are terminated for the wrong reasons, while others persist, despite not having the desired impact.

A series of in-depth interviews with the leaders of 15 companies in Belgium, Germany, the Netherlands, the UK and the US provides new insights into the top 5 challenges of measuring and reporting on innovation progress.

1. The intangibility of innovation value

Albert Einstein once said, “Not everything that counts can be counted, and not everything that can be counted counts.” – as is the case with the benefits of innovation. They often manifest in intangible and impossible to measure ways, like an increased market share, improved customer loyalty, greater sustainable impact or enhanced brand reputation over time. One interviewee even noticed a larger variety in the worker profiles their company attracts: “These people are young and extremely talented. Before our innovation efforts, we probably would have never gained their attention.”

Benefits such as these can only be measured through long-term evaluation, but many companies do not have the resources or the patience to do so. Some business leaders have experimented with short-term evaluation systems, but have since stepped away from these typical ROI measures, because of their difficult calculation methods and negative and irrelevant results.

2. Unfamiliarity with innovation logic

Generally, C-level executives are convinced that innovation is essential to grow a company, but they are sometimes not very well-versed on the topic and seem to rely mainly on the information that is given to them. Making them familiar with the inner workings of innovation was a task that multiple interviewees had to spend time on, since ‘innovation logic’ differs strongly from the ‘management logic’ they are used to.

• Innovation logic emphasizes creativity, experimentation, and risk-taking. It encourages organizations to explore new ideas and technologies, and to embrace failure as a learning opportunity.
• Management logic, however, is all about efficiency, consistency and control. Its primary objective is to optimize existing processes, reduce costs and increase profitability. All to ensure that the resources are used efficiently, and that operations are standardized and predictable.

This difference of understanding asks for corporate discussions on the definition and goal of innovation, to make sure all parties are aligned in their innovative endeavors.

3. Finding the reporting balance

Though innovation is difficult to grasp, the interviewed innovation leaders all agree that it is important to communicate openly with their C-level executives about the efforts and progress. “By guiding and educating them, we can get them involved – which results in easy approval of strategic changes”, one interviewee said.

This communication plan does require some extra work, to collect the data and discuss them clearly but concisely in typically monthly follow-up meetings. It is a matter of finding the right balance between reporting in a way that the key information reaches the C-level, while the workload remains under control.

4. Shared responsibility between departments

While the innovation unit plays a key role in driving innovation initiatives, they cannot be solely responsible for delivering the returns. The success of these projects depends on synergy on two levels.

• Cooperation between teams

Innovation is a complex and multi-faceted process that involves many different stakeholders and departments within an organization, who all have an effect on the outcome. The innovation unit cannot achieve innovation returns without their support. For example, the R&D department may be responsible for developing new technologies, but the sales and marketing teams are responsible for bringing those to market and generating revenue. There is a lack of centralization, with responsibilities scattered across different departments and no centralized teams.

• Aligned goals

The innovation unit cannot operate in a vacuum: they must be aligned with the overall strategy and goals of the organization. For example, if a company focuses on growth and expansion, the innovation unit should prioritize initiatives that support those goals, such as developing new markets or expanding product lines.

5. No single recipe

Many innovation leaders point out that there is no one-size-fits-all set of measuring and reporting on the return of innovation. Each organization has its own unique context, challenges, opportunities and goals. The formula for measuring the return on innovation depends on a variety of factors, but mostly on the following two:

• The company mission and how it is translated within the organization: If innovation is in the heart and DNA of the company and embedded in everything they do, then the reporting will be different from companies that did not have these values from the start.
• The position of the general manager: If the general manager has a great amount of power (as is often the case for SME’s or large family businesses), then other measurements and reporting ways apply.

While these five challenges were felt most strongly among our researched companies, they mentioned many other challenges – often smaller and company or sector specific – that will be further explored in the final report that will be published at the end of the year. In the next article, the innovation leaders will provide insight into their most frequently used KPI’s for innovation, in Belgium and abroad.

Connect with PwC Belgium via Enya Steenssens or Elise Carton