An Official Measure of Innovation

A U.S. government-sponsored brain-trust is developing a better set of metrics for innovation initiatives—and they're asking the public to help

by Helen Walters

How best to measure innovation has bedeviled the business community for years. But with the discipline garnering increased attention—and investments—creating an accepted system of metrics to evaluate its impact has become top priority. Now the U.S. Commerce Dept. wants in. On Apr. 13, it issued a Federal Register notice asking for public comment on a series of innovation measurements it might use to drive public economic and innovation policy.

The two-page document is the first tangible product of an advisory committee formed earlier this year by Commerce Secretary Carlos Gutierrez. The panel brings together big names from big business, such as Steve Ballmer from Microsoft (MSFT) and IBM's (IBM) Sam Palmisano—along with some from the academic community, including Dale Jorgenson, professor of economics at Harvard, and Kathleen Cooper, dean of the College of Business at the University of North Texas.

Together, the 15 members make an impressive heavyweight group intended to represent the diversity of the U.S. economy as a whole. And while the balance may seem to lie with big business, the traditional champions of innovation—the entrepreneurs—are represented by Carl Schramm, president and chief executive officer of the philanthropic Kauffman Foundation.

"Looking for a Deeper View"

The first job the panel faced was to define what kind of innovation they're really looking to measure. Here's the definition they came up with: The design, invention, development, and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm.

"That's a really thoughtful definition," says Larry Keeley, president of Chicago-based innovation-strategy firm, Doblin (see BusinessWeek.com, 02/16/07, "The Greatest Innovations of All Time"). "They've been smart enough to realize that they need to look beyond a profound bias in favor of new products—at a policy level. They're looking for a deeper view of innovation, and looking for it systemically, which is pleasing. The wording could be a hair more granular, it could be a shade more rigorous, but at least they haven't started in the wrong place looking for the wrong things."

The document then goes on to define four major categories for which innovation measurements are necessary, and using a series of open-ended questions, calls for public comment and analysis of each one. The first category asks people to consider ways to improve the underlying architecture of the System of National Accounts, the set of accounts jointly published by the UN, the Commission of the European Communities, the IMF, the World Bank, and the Organization for Economic Cooperation & Development which is intended for global policy makers and economic analysts. In this context, the question is whether or not its methods can be improved to enable more effective means of measuring innovation.

Questioning Metrics

Next, the document asks if there are ways to measure economy-wide or sector-specific innovation. For example, can market-share growth be a good indicator of innovation? If so, would estimates in the change in U.S. companies' shares of regional, national, and global markets also be useful innovation measures?

Then it looks at current company innovation measurement policies, which are mainly conducted at a project or portfolio level. "Are these measurement practices sufficiently widespread and uniform to make data collection on either of these bases practical?" the document wonders. "How important is it to distinguish between types of innovation, i.e. radical vs. incremental?"