The basic idea was already known to the Romans: the word “innovation” is developed from the Latin verb innovare (renew). As a noun, it means “newness” or “renewal”. The term is used in everyday language in the sense of “new ideas and inventions” and for their basic relationships.
An innovation rating traditionally includes the expectation following an investment budgeting decision that a new product or a new service will generate revenues. Relevant innovation ratings deal not only with products or services, but also assess process innovations and concept innovations (business and organizational innovations, business model innovations).
The number of employees, the geographic areas of activity of the company, the location of company headquarters, the sales and earnings in relation to research and development spending are indicators which matter.
Successful companies are run so that they generate ideas through their employee management. Not only their staff play a role in this analysis, but also consultants and freelance employees. However, the expenses for advice can be a deceptive indicator if other additional aspects are not used to measure performance.
Innovation and management culture in a company are closely related. The scope of customer feedback is just as relevant here as complaint management, whether from customers or employees. The question of which channels the management of a company uses to resonate with customers and employees, whether through targeted surveys, work groups, social media or big data analysis, can be instructive.
Rating analysts can use interviews with management to determine the industry and company-specific obstacles to innovation management. These obstacles range from legal barriers to technological difficulties. A number of criteria are used for the evaluation of internal as well as external obstacles.
The share of new products and services in earnings is broken down chronologically by cohort. In addition to data from external accounting, data from internal accounting can also be used to, for example, forecast innovation-related cost savings. To map innovation cycles, plans are analyzed in a target and actual comparison.
The Inventor’s Patent Dilemma
An increasing number of registered patents is an indicator of strong innovation activity. Filing a patent is not recommended for every invention, even if the patentability conditions are basically met. If the company cannot defend its patent after it has been granted or if the costs of the defense cannot be borne (should the patent be attacked by a third party), waiving the patent may make sense. It can be expensive if an unauthorized use of an invention shall be prohibited.
The innovation rating examines the extent to which inventions by the company can be circumvented: if the inventions can be exchanged using similar procedures that are not protected or cannot be protected, patent protection simulates but vulnerable strength, since imitation in a similar way by third parties must be expected, especially in profitable markets.
Companies often refrain from any disclosure, as is enforced when filing a patent, if the disclosure only enables a third party to reproduce and copy the invention: Confidentiality can mean better protection. For large companies, however, keeping knowledge secret in light of natural employee turnover can be a particular challenge. Therefore (as for other reasons) the company size also plays a role in the innovation rating.
Too high complexity of inventions can also speak against patent applications. If inventions consist of a multitude of elements that would have to be individually protected, patent protection would generate disproportionate costs. Protecting only certain, particularly important parts of a product with a patent can be a sensible strategy here, but it requires corresponding specialist knowledge in the management of patent applications and exploitation. The innovation rating therefore examines what conditions the company has created to meet these challenges. and which combinations with alternative protection mechanisms it can also use.
Successful Innovation Requires Taking Smart Risks
Innovation ratings require the management of the company to be profiled. The profiling helps to understand to what extent the management is willing to take risks in order to increase the innovative strength of their company. The extent to which employees and management are able to bring about and implement innovations in terms of corporate culture is of central importance.
Organizational-theoretical considerations as well as empirical surveys can help to reflect the suitability of virtual teams, the project or matrix organization as well as functional organization. Innovation rating is therefore also based on the company’s human resources. The human resources department provides figures on employees working in research and development, on the level of education and the use of further training measures, the professional experience of employees and employee satisfaction. The company’s internal methods of personnel and management rating are to be examined with regard to the extent to which priority is given to innovation goals in the assessment and incentive systems.
The innovation rating is not just the result of a point evaluation process or a simple computer model, but has to be understood as a committee-based process which is aimed at the integration of all aspects that are decisive for the ordinal classification of a company’s innovation success. The term “innovation rating” therefore designates both the assessment process and the result of the rating process in the form of a “grade”. The innovation rating provides both relative – namely in comparison to other companies – and absolute information, for example if a low rating indicates the complete lack of ressources for innovation.