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Feb 11, 2014

Canada underperforming in measuring innovation: Report

Record getting worse, not better
    
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Canada underperforms on measures of business innovation and recent international comparisons indicate our record is getting worse, not better, according to a report by the Conference Board of Canada.

One contributing factor to this poor performance is that almost 40 per cent of companies don't measure the success of their innovation activities at all.

"It is perhaps the worst-kept economic secret in the country — Canada does not take advantage of its innovation capabilities, which is impeding its growth potential. Failure to use the right performance metrics is a big part of the problem," said Michael Bloom, vice-president of industry and business strategy at the Conference Board of Canada.

Innovation in firms is being hindered by a lack of strong executive involvement, market understanding, and an organizational culture that does not blend risk and innovation management.

Of those firms that measure innovation, most use both the number and kinds of measures that don't actually link well to the organizations' bottom line results, according to Metrics for Firm-Level Business Innovation in Canada.

Many of the most widely-used innovation metrics — such as "return on innovation investment" (profit minus costs), "product performance improvement" and "customer satisfaction with new products" — actually rank relatively low as reliable indicators of financial performance, said the Conference Board.

The closest co-relation to overall financial results came from measures such as:

•"executives' intensity involvement" (corporate time dedicated to innovation)

•"market understanding" (the rate of new products that survive in the market)

•"innovation risk management" (percentage of projects with risk management plans).

Those companies using multiple metrics did much better than the overall average of firms on all three measures of financial performance used — five-year cumulative average growth rate (CAGR), earnings before interest, taxes, depreciation, and amortization (EBITDA), and market cap growth.

This report, is the latest in a series of reports on the findings of the 2012 CBI Survey on Innovation Metrics and Management, based on 628 responses from leaders in Canadian firms

The report introduces a "relative associated performance" (RAP) measure to help firms select metrics that identify how well a company is performing by the relative value that it is receiving from its innovation activities.

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