How to effectively measure innovation in your business

By Rosalyn Page

Finance leaders are helping to steer organisations through macro shocks like interest rates rises, the introduction of artificial intelligence (AI) and the energy crisis. In this climate, pulling back on innovation spending can feel like the safe call.

In many ways, the opposite is true. Innovation is a pathway to growth that helps organisations thrive in periods of uncertainty, according to McKinsey research.

However, it should not fall into “innovation theatre” where activity is mistaken for outcomes. Innovation needs to be aligned with strategic organisational goals.

Kaushika Jayalath CPA, principal solutions consultant at Oracle and a CPA Australia board member, believes that properly measuring innovation is more than a reporting challenge— it requires the right strategy and discipline.

Organisations do not fail at innovation because they lack ideas, he says, “they fail because they lack measurement architecture that will force decisions when push comes to shove; where capital is reallocated, initiatives are stopped and successful bets are scaled”.

Beyond ROI

Organisations do not have unlimited resources to fund innovation. Funding discipline needs meaningful performance indicators.

The risk is turning to what is visible rather than what is predictive. Best practice is to adopt metrics that show validated learning, scaled solutions or measurable outcomes.

Return on investment (ROI) is the obvious indicator choice, but the challenge is knowing when it should be applied. “ROI is often misapplied when used as the primary decision filter for innovation portfolios,” Jayalath says. Too early, and projects could still be in the learning phases. Too late, and it might not provide enough time to influence important decisions.

To effectively measure performance, Jayalath suggests that metrics be drawn from three stages: input, process and outcomes [see breakout box]. These should account for financial outcomes along with non-financial drivers of long-term value.

The considerations are extensive. With inputs, it makes trade-offs explicit, such as where capital and talent are deployed and not deployed. With process, it reduces uncertainty quickly to improve learning velocity over activity volume.

For outcomes, it links to strategic outcomes such as growth, productivity, resilience or trust.

“Anything else is theatre,” Jayalath says.

When organisations undertake innovation, positive outcomes can often prove elusive despite good intentions and adequate funding. Experienced transformation leaders such as Joe Locandro, executive vice president and global CIO at Rimini Street, see common pitfalls that derail innovation efforts.

“Some companies measure innovation by the number of ideas generated or by the number of activities,” says Locandro, who warns that collecting suggestions without a structured methodology can lead to poor outcomes.

Workshops, startup meetings, pilots and even small seed investments create visible “innovation buzz”, but he suggests that finance and business leaders focus on more meaningful metrics such as the number of new initiatives adopted, or financial outcomes such as direct profit-and-loss impact. 

At a time when macro-economic shocks are becoming more disruptive and more frequent, Locandro says time-to-market and the opportunity cost of pursuing innovation projects are critical metrics.

“Two- to three-year innovation horizons used to be acceptable. But the time horizon for innovation now has to be shorter,” he says.

When it comes to funding, more is not always better. The right level of innovation investment depends on both industry segment and market dynamics.

 

"A lot of organisations in stagnant markets have a lower percentage [of innovation investment], which is unfortunate. They are trying to use innovation to cut cost or increase operational efficiency."

 

“A lot of organisations in stagnant markets have a lower percentage [of innovation investment], which is unfortunate. They are trying to use innovation to cut cost or increase operational efficiency,” Locandro says.

His advice for finance and business leaders is to broaden their risk appetite. This means being willing to put real seed capital into innovation and accept a high failure rate as normal. “Some of the most successful Fortune 500 companies, their risk appetite allows for it, so if only one in 10 ideas go through, that is fine.”

When considering the overall impact of innovation efforts, it is necessary to look beyond narrow financial risk.

“Strategic metrics are the ability of the business to pivot and the ability to remain competitive, which do not get taken into account in a Net Present Value or Discounted Cash Flow analysis,” Locandro says.

The potential of AI

There is now another factor changing the innovation equation: AI. Organisations are seeing value from their AI investments, but CFOs and CIOs often pull in different directions, which creates gaps in enterprise value, according to Deloitte’s 2025 Tech Value Survey.

While AI has a lot of potential, a narrow focus on ROI and short-term wins risks a longer-term strategic advantage, Deloitte warns.

 

"[Organisations] fail because they lack measurement architecture that will force decisions when push comes to shove; where capital is reallocated, initiatives are stopped and successful bets are scaled."

 

Locandro agrees that AI offers speed, tactical wins and lowers the barriers to entry and cost of innovation activity, but he worries about the trade-offs. AI could crowd out the appetite and capacity for larger, long‑horizon transformational projects that need significant capital and time, he says.

No matter how fantastic an innovation program looks, Locandro says it should ultimately be judged on what it has delivered to the business.

“At the end of the year, the question has to be: how many initiatives were adopted and what did it do to the bottom line?”

Three metrics for success

To effectively measure performance, metrics need to be drawn from three stages: input, process and outcomes, Kaushika Jayalath CPA, principal solutions consultant at Oracle and a CPA Australia board member, says.

These should account for financial outcomes along with non-financial drivers of long-term value.

When assessing innovation, context is important. For individual organisations, the choice of metrics will be determined by their size, industry, capital intensity and risk appetite.

1. Input metrics

Input metrics track what is being invested and should make the funding explicit and comparable. They need to answer the question: “Are we investing enough, and in the right places?” Jayalath says. “Input metrics alone run the risk of creating the illusion of spend equating to progress, which can be divorced from actual outcomes.” Useful input metrics include: 

• Innovation spend as percentage of sales: The proportion of revenue being reinvested into innovation activity, making the commitment visible and comparable.
• Dedicated project/program full-time employees: Headcount and salary costs assigned to innovation initiatives.
• Leadership time spent on innovation: The hours and associated cost of the senior leaders directly engaged in innovation work, recognising that their time carries a premium.
• Venture funding: Capital committed to early-stage or externally sourced innovation bets.
• Training spend: The investment in building internal capability to support innovation delivery.
• Change management spend: The resources dedicated to embedding new ways of working across the organisation.

2. Process metrics

Process metrics measure the quality and speed of experimentation, development, governance and scaling processes. Jayalath says that they should answer the question: “Are we converting effort into validated learning and scalable options?”

While these are useful in identifying bottlenecks, improving speed-to-learning and execution quality, they can also paint a rosy picture by over-optimising the pipeline.

“Process metrics can also be gamed by pushing low-quality work through stages as ‘quick wins’,” he says.

Track the mechanics of the innovation pipeline through these metrics:

• Cycle time from idea to experiment to pilot: The time required to move an idea through early development stages, measuring speed-to-learning.
• Experiment cadence: The frequency at which new experiments are being run, indicating active learning momentum.
• Stage-gate throughput: The rate at which initiatives progress through defined development checkpoints.
• Kill/continue rates: The proportion of initiatives being stopped versus advanced, signalling decisiveness and discipline.
• Compliance readiness for pilots: Whether initiatives meet regulatory or governance requirements before scaling.

3A. Outcome metrics — project level

Jayalath says project-level metrics should capture the impact of innovation. They need to answer the question: “Did innovation change customer, financial or risk outcomes in line with strategy?”.

He suggests a set of outcome-focused metrics:

• Percentage of revenue from new products/services: The share of revenue from new offerings within a defined period, measuring legacy-dependency reduction.
• Margin uplift: The profit improvement attributable to new products or services.
• Adoption/retention rates: Customer uptake and loyalty outcomes linked to a specific innovation.
• Risk reduction: Reduced compliance breaches, operational failures or other risk events attributable to innovation.
• Customer Lifetime Value uplift: Increase in the long-term revenue value of a customer, driven by new offerings.
• Percentage of transactions fully automated: The share of processes or transactions completed without manual intervention, measuring operational efficiency gains.
• Cost-to-serve reduction: A decrease in the cost of delivering a product or service to a customer as a result of innovation.

3B. Outcome metrics — portfolio level

These wider metrics should answer the question: “Are we getting better at innovation as a system?” says Jayalath, who recommends these key metrics:

• Innovation portfolio ROI: Aggregate return across all innovation investments, giving a system-level view.
• Horizon mix realisation: The balance of short-, medium- and long-term innovation bets and how they match the intended strategic mix.
• Capital reallocation efficiency: The proportion of funding actively shifted toward better-performing initiatives based on evidence.
• Kill-rate effectiveness: The proportion of initiatives stopped early enough to avoid wasted capital, treated as a positive signal of governance discipline.