Most Canadian firms failing to effectively measure and manage innovation

Companies hampering their growth

Link to publication: http://www.conferenceboard.ca/e-library/abstract.aspx?did=5884

OTTAWA, Feb. 10, 2014 /CNW/ - Canada underperforms on measures of business innovation, and recent international comparisons indicate that our record is getting worse, not better. One contributing factor to this poor performance is that almost 40 per cent of Canadian 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, Industry and Business Strategy, The Conference Board of Canada.

A Conference Board of Canada report by the Centre Business Innovation (CBI) found that measurement of innovation activities is inadequate. 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.

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

While choosing the right innovation measures is up to the individual firm, 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.

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

The group of 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. The online survey generated 628 responses from leaders in Canadian firms. When measured by revenue, about 84 per cent of responding firms were small and medium enterprises ($200 million or less in revenues) while 16 per cent were large firms. Almost half the responding firms were based in Ontario (48.6 per cent) followed by British Columbia (14.9 per cent), Quebec (13.3 per cent) and Alberta (11 per cent). About a quarter of respondents represented professional services firms; the next-most frequent group of respondents came from information and communications services, including software.

The CBI is a five-year initiative launched in 2012 to help bring about major improvements in firm-level business innovation in Canada. On May 28 and 29, The Conference Board is hosting a major event, Business Innovation Summit 2014: Accelerating Corporate Innovation and Commercialization, in  Toronto.

SOURCE: Conference Board of Canada