Measuring Innovation

Marty Cagan argues that popular product measurement tools, such as product scorecards and Eric Ries's 'innovation accounting', are valuable for focusing on outcomes but are insufficient on their own. Measuring only improvements to existing products risks falling into the Innovator's Dilemma. He proposes an additional, sterner metric: the share of revenue coming from products introduced in the last few years, drawing on his time at Hewlett Packard. He points to companies that repeatedly create new revenue streams, and to the pivot as a key route to them. The point matters because companies that track only incremental product gains can miss the need for new bets before their existing products decline.

01Key takeaways

• Track the share of revenue from products introduced in recent years, not just improvements to existing products.
• Set a clear target, such as at least half of revenue from products launched in the past three years, to make innovation measurable.
• Expect every product to decline eventually and plan new bets before that happens.
• Treat acquisitions as innovation only when they are genuinely synergistic with your existing offering.
• Make room for pivots by using a portfolio-level innovation metric so they are seen as opportunities rather than distractions.

02Key sections

Limits of outcome-focused measurement

Scorecards and innovation accounting help teams focus on outcomes rather than output, but measuring only the improvement of a single product can mask a deeper strategic risk.

A tougher innovation yardstick

Cagan recalls HP's practice of tracking how much revenue came from recently introduced products, with a target that at least half come from the past three years.

Product life cycles and acquisitions

Even strong products decline eventually, and buying growth through acquisition is usually not true innovation unless the deal is synergistic.

Examples of sustained new revenue

Apple, Amazon, Netflix and Zynga are cited as organizations whose product teams repeatedly create major new revenue streams, while Barnes and Noble is offered as a turnaround example.

Pivots as a source of new revenue

Companies that track this broader measure are more open to pivots, which are often the best route to new major revenue, whereas product-level focus tends to treat pivots as distractions.

03From the post

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04Frameworks mentioned

Summary and takeaways written by PM Atlas; quotes are short excerpts. © the original author.