The aim of this chapter is to provide the foundations of a new measurement system that will help companies to diagnose and manage their innovation performance from a holistic perspective. Adopting a resource-based view of the firm (and more precisely, a dynamic capability approach), the measurement system proposed is intended to show whether the company has the right combination of resources (both tangible and intangible) in order to foster effective and efficient innovation, as well as the degree of mastery achieved in the combination and orchestration of those resources (i.e. capability excellence), the outputs obtained and their influence on value creation and on competitive advantage.
TopIntroduction
Today’s economy is driven by what we could call the “innovation imperative”. As Bessant & Tidd (2007) point out, the logic is very simple: if companies do not change what they offer to the world (products and services) and how they create and deliver them, they risk being overtaken by others who do. In other words, companies cannot be static: they must continually adjust, adapt or redefine themselves (Morris, Kuratko & Kovin, 2008). Actually, it is a matter of survival in a free market economy.
Consequently, innovation constitutes a high-order strategic priority for many executives all around the globe. However, just but a few are satisfied with their company’s current innovation-measurement practices. As the 2008 BCG report on innovation metrics reveals, companies under-measure, measure the wrong things or, in some cases, do not measure at all, which leads to poorly allocated resources, squandered opportunities and bad decision making. The fact that almost 60% of survey respondents were not satisfied with the return of their company’s investment in innovation seems to give clear support to this idea.
Measuring innovation has at least two dimensions: measuring individual innovation projects, and measuring the whole innovation system. In this chapter, we focus exclusively on the latter. Specifically, our aim is to contribute to a measurement system that illuminates the path to successful innovation (i.e. to value creation and firm competitiveness). This brings us to the field of strategic performance management, which involves identifying, measuring and managing organizational value drivers (Marr, 2006).
From an academic perspective, innovation measurement needs further development. Actually, most of existing proposals in this domain are clearly incomplete (i.e. do not cover all the scope of relevant resources and activities that could lead to successful innovation), show a clear bias towards technological innovation and R&D measurement, and fail to show how different resources are combined in order to enhance the innovation capability of firms. Therefore, the question arises so as to how to design an innovation measurement system that could help managers to have a complete and clearly organized picture of their company’s innovation performance. This is the specific challenge to be addressed in this chapter.
In particular, a new measurement system will be proposed (the innovation-value path) whose aim is to overcome the shortcomings of preceding systems. Although still in its conceptual stage (i.e. the new system has not been empirically tested yet), it has been conceived both as an assessment and management tool. In other words, the innovation-value path will provide managers with the foundations for developing and adjusting a sound innovation strategy that would help companies to improve their innovation results.
With this idea in mind, the chapter has been organized as follows:
The first section within the theoretical background will address the concept and nature of innovation and the second one the logic of value creation and competitive advantage. Nowadays, the resource-based view of the firm (Wernefelt, 1984; Rumelt, 1984; Barney, 1991; Grant, 1991; Peteraf, 1993) and its ulterior refinements (as the knowledge-based view of the firm–Kogut & Zander, 1992; Grant, 1996; Spender, 1996)–and the dynamic capability approach–Teece, Pisano & Shuen, 1997; Eisenhardt & Martin, 2000; Teece, 2007, 2009) constitute the predominant paradigm for understanding value creation. The latter will show us the relevance of intangible resources (i.e. intellectual capital) as a basis for generating competitive advantages. Therefore, a third section will be added within the theoretical background that will provide us with a deeper understanding of this type of resource.
In view of insights thus gained, a literature review on innovation measurement will be then presented in which two kinds of contribution will be considered. Firstly, those contributions which are specially geared towards the measurement of innovation or specific parts of it, such as R&D, will be analyzed. Afterwards, another set of contributions will be examined, which are much wider in scope (indeed, they are intended to facilitate strategic performance management in general), but which could also be used for innovation measurement.