As we’ve written before, innovation is notoriously tough to measure.

However, that just means that finding ways to systematically measure your ideation and innovation work is that much more important.

This is where Viima’s idea impact assessment feature comes to play.

With a systematic process in place, you’ll be able to assess how much it makes sense to invest in these activities, and even more importantly, how to get better at it.

By gathering data on the business impact of ideas, you’ll be able to recognize patterns on what kind of ideas are profitable for you and focus your efforts on similar ideas in the future. This helps you avoid making biased decisions based on subjective opinions.

However, there are a number of factors that can make assessing the business impact of an idea quite difficult which all relate to the future being unknown.

Let’s take the example of a new product or service that you introduce to your existing customers.

How do you know how many will buy the new offering? How long will it stay relevant? How much do we have to invest in marketing, selling and supporting the offering?

These are all factors that, at the time of launching the offering, are impossible to know with 100% certainty.

So, what point is there in trying to assess the impact at that point in time?

It’s quite simple really. If you’d assess the impact only when you have historical data for the entire lifetime of the idea, it will take years for you to get any kind of data to base your future decisions on, which frankly is unacceptable with the rate that our world is now changing.

So, the best way to approach impact assessments is to give your best estimate of the impact when the idea has been completed and then refine the assessment later when you get more data.

This way you’ll get the best of both worlds: you’ll get some data to base your future decisions on quickly but can also refine the quality of your data later.

What’s more, you’ll also get data on how well you’ve succeeded in assessing the impact of ideas, which will help you further refine your ability to do that going forward.

So, while there’s much more to measuring an innovation portfolio, the key here is to use financial metrics, which is why Viima’s impact assessment feature always converts the impact to your currency of choice.
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This has a couple of key benefits:

So, if you’ve come this far, you’re probably interested in best practices for assessing the business impact of ideas in a given process.

To succeed in this, it’s important to first understand the basics.

The business impact of all ideas comes from three primary factors:

Furthermore, all three of these factors can be either one-time or recurring depending on the nature of the idea. When investing money, the values are naturally negative.

For example, a one-time sale of surplus materials only benefits the company once, but if the company makes it a quarterly process, it can benefit the company every quarter for as long as the process is used. On the other hand, someone naturally has to run this process, which costs some money. However, as long as the sales outweigh the investment, it’s worth doing.

What makes the ordeal more difficult is that there are many different kinds of benefits and investments that ultimately lead to these primary factors that might not be as obvious as earning more money with a new product or saving on material purchases for manufacturing that product. For example:

So, to succeed in assessing the impact of an idea, you must look at all the different ways the idea can impact your business, set up metrics for each of them (these can be created on a per category basis in Viima) for the time frame of your choosing if the benefit or investment is recurring by nature.

The time frame is important as that has a large impact on the total value (business impact) of the idea. The longer the benefit is valid, the more it is naturally worth, with the caveat that money is worth more now than in the future. This is why Viima uses Net Present Value to determine the total impact of recurring ideas.

Once the right metrics are in place, it’s quite straightforward for the person responsible for a given idea to assess the impact of the idea with those metrics.

You simply need to have a systematic approach for breaking the problem down to figure out which factors affect any given metric.

This is best explained with a couple of examples.

Example 1: Saving time by automating parts of an internal process

Time savings are a great source of potential savings. Not only is time money, but it also allows you to use your time more productively to pursue other, hopefully even more beneficial activities. This means that the benefits quickly compound, which helps you build a real competitive advantage.

What’s more, these ideas often have very small initial investments.

So, you simply estimate how much the initial investment on automation costs and then add to it the amount of time saved each day/week/month times the cost associated with that time, which in practice means an estimate of the salary and all other associated costs of the person in question.

Example 2: Future revenue of a new product

Our second example is a bit more complicated.

There are many ways to assess the future potential of a new product or business. The two main approaches are bottom-up and top-down.

The top-down approach takes the market size for the given product and divides that with the market share that you believe you’d be able to achieve. This is usually very problematic in practice since it really doesn’t account for the company’s ability to execute the idea. It can, however, serve as a useful sanity check early in the process to give a rough idea of how attractive the market can be. However, beware of the innovator’s dilemma!

The bottom-up approach is our recommended approach. You start by estimating the number of potential clients you could realistically reach and sell to and then multiply that by the price that you’d be able to command.

This is not only much more straightforward than trying to guess which market report would fit your exact product and also be believable enough but is much more realistic.

This way you can base the estimates on your historic marketing and sales prowess, which in turn gives your estimate a much more realistic starting point.

So, what you’ll then end up with is a stream of potential future revenues, that you can add to the initial investment, as well as ongoing investment that selling, marketing and supporting the product costs.