How Do You Measure Innovation? Hint: It’s Not Efficiency
In the world of innovation, one question that often gets asked is: How do you measure success? Many are quick to look at metrics like efficiency, but the reality is, efficiency can lead you down the wrong path. Consider this: Kodak was likely highly efficient—right up until they filed for bankruptcy. Efficiency alone doesn’t keep you innovative; it keeps you comfortable.
The Problem with Efficiency Metrics
It’s tempting to equate efficiency with progress. If your processes are fast and streamlined, it feels like you're moving forward. But efficiency often hides a dangerous truth: you might be efficiently marching toward obsolescence. Just because you're executing well doesn’t mean you’re innovating.
Take the Vitality Index, for example. It’s a popular metric in corporate innovation circles, showing the percentage of revenue that comes from products launched in the last five years. While it’s a good measure of how fresh your pipeline is, it doesn’t capture the quality of the innovation process. It’s just one piece of the puzzle.
Introducing: Cost Per Lesson Learned (CPLL)
What if, instead of focusing on how efficient your team is, you measured how much it costs to learn each lesson? This metric—Cost Per Lesson Learned—captures the essence of what innovation should be: a learning process.
Every prototype, failed experiment, and pivot teaches you something valuable about your market, product, or users. The more you learn, the closer you are to finding a breakthrough. The key is to optimize the cost of gaining these insights, not the speed or efficiency of getting to a finished product.
Why This Matters
In a world where innovation is often seen as linear, the CPLL metric introduces a new way of thinking. It encourages teams to experiment, fail fast, and extract value from every iteration.
This approach flips traditional efficiency metrics on their head. Instead of asking, How fast can we get to market? you’re asking, What are we learning, and how cost-effectively are we learning it?
Convex vs. Concave Bets
Convex bets are opportunities where the upside is far greater than the downside. You invest a small amount and stand to gain disproportionately large rewards. Innovation thrives in this space. Concave bets, on the other hand, are risk-accumulated moves where the downside is much larger than the potential upside—this is where sunk-cost fallacy rules and innovation goes to die.
By focusing on CPLL, you’re effectively placing convex bets. You invest in learning at a low cost, gaining proprietary insights that can have huge payoffs. The result? You position your company to win in the long run, without burning through your resources.
As a career industrial designer and innovation practitioner, Ty Hagler has managed hundreds of new product development programs through the process of opportunity identification guided to commercialization.
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