Five Innovation Accounting Indicators that are Telling you if your Middle Managers are Stifling Innovation
- Posted by Dan Toma
- On 21/11/2022
It is a well-established fact that middle management has a high impact on the success of innovation in companies. Independent of the industry, middle management – through their action – can drive innovation or stifle it.
But in the absence of indicators, it is difficult for corporate leaders to know if middle management is a blocker for innovation or a catalyst. Understanding the impact middle management has on the company’s innovation efforts can prompt leaders to take certain actions such as investing in innovation-specific training for middle managers, changing certain processes or investing in culture development.
Here are five indicators that can be used to measure if middle managers are indeed driving innovation, and the questions they help leaders answer with respect to the performance of the middle management.
1. Decision time.
Is middle management efficient in their decision-making process?
Middle management makes the connection between the company’s innovation strategy and the innovation practice. They represent the group of people that have the most say in the deployment of the innovation strategy. Also, middle management acts as the internal ‘Venture Capital fund’ of the company, being tasked to take investment or divestment decisions in the various innovation initiatives the company has decided to kick off.
Tracking the time it takes for the middle managers to take a decision with respect to a certain innovation initiative after the innovation team has presented their progress and evidence gathered through experimentation can help leaders understand if the middle management layer is stifling or not innovation.
Ideally, persevere, pivot or stop decisions should be taken immediately after the innovation teams present their progress. Any delay will have consequences on the company’s cost of innovation as well as the morale of the innovation teams.
2. Investment distribution or type of innovation ideas backed.
Is middle management investing in ideas that will help our company grow and/or prevent us from getting disrupted?
Through the budgets they have at their disposal, middle managers have a freedom to back certain initiatives and ignore others. Obviously, the company’s Innovation Thesis should help them decide what type of initiatives they should invest in and what type of initiatives they shouldn’t invest in.
In organizations that have a low tolerance to risk, middle management will be more inclined to back incremental improvement ideas or evolutionary innovation instead of radical or disruptive innovation.
Leaders need to understand that the innovation funnel of today represents the company’s portfolio of tomorrow. Tracking the type of innovation initiatives that middle management backs, paints a picture, on the one hand, of what the company’s future might look like, and on the other, what kind of innovation culture the company currently has.
For companies that are active in industries where there’s a high risk of disruptions, such as for example banking, telecommunication, automotive or energy, tracking the type of innovation middle management supports can represent a proxy for how likely it is for the company to get disrupted in the future.
3. The ‘time-to-maturity’ of the ideas.
Is middle management a blocker for innovation in our company?
Through their decisions, middle managers have a direct impact on the time it takes from the moment an idea is kicked off and that idea produces tangible results. Measuring the time it takes for an idea to reach a certain maturity stage from the moment it was created can offer a window into how effective are the decisions taken by middle managers.
Failing to progress an idea in the face of irrefutable market evidence gathered by the innovation team, will take a toll on the time it takes for that idea to have an impact on the company’s growth.
The longer the time it takes for an idea to reach a certain mutiny stage, the more innovation will cost the company and the more the company will be seen as an innovation lager. Ideas taking a long time to reach a certain maturity level can indicate a need for training middle managers on how to invest in innovation.
4. Funnel Conversion Rate.
Are the decisions taken by middle management effective?
Looking at the number of ideas reaching maturity from the number of ideas that were kicked off can offer a perspective on the decisions middle managers take.
If the innovation funnel’s conversion rate is low it might mean that middle managers are ‘killing’ too many ideas. With a high number of ideas killed the cost of innovation for the company will be high. The cost of innovation represents not only the cost incurred to bring that one innovation idea to market but the cost incurred by the company in the entire innovation exercise.
At the same time, a high funnel conversion rate might mean that middle managers are not ‘killing’ enough ideas, resulting in the company spreading itself thin when it comes to the innovation investment.
5. New Product Vitality Index (NPVI).
Have our middle managers taken the right decisions with respect to innovation?
A long-established innovation performance indicator, the NPVI is telling corporate leaders what percentage of the current revenue comes from products launched 3 to 5 years ago. In essence, painting a picture of how successful the innovation process is.
Through their decisions, middle management can sometimes back ideas that are only good on paper. Ideas that will (for a variety of reasons) fail in the market. Therefore tracking NPVI can offer a perspective into how good were the investment decisions of the middle management. Low NPVI figures might suggest that middle management is not taking the right decisions with respect to innovation – investing in initiatives that are not moving the needle or failing soon once they are deployed in the market.
|Question||Indicator||Actions that can be taken|
|Is middle management efficient in their decision-making process?||Decision Time||Innovation-specific training Innovation process redesign|
|Is middle management investing in ideas that will help our company grow and/or prevent us from getting disrupted?||Investment Distribution||Culture development |
Change in the incentives system
|Is middle management a blocker for innovation in our company?||Time-to-Maturity||Innovation specific training|
|Are the decisions taken by middle management effective?||Funnel Conversion Rate||Innovation specific training|
|Have our middle managers taken the right decisions with respect to innovation?||NPVI||Innovation specific training|
Innovation process redesign
None of the indicators above should be used as a stand-alone. None of them are perfect and all of them can be misleading or can be easily gamed. However, if they are used in conjunction they will complement each other and the company will be able to know if the middle management layer of the company is driving innovation or if it, indeed, represents the permafrost of the company.
This article was originally published on the Innovation Accounting Book’s Blog.