MIT’s Sloan Management Review recently published a story that focuses on the research Spigit conducted with Northwestern University’s Kellogg School of Management around quantifying a culture of innovation.
In other words, we set out to move beyond the why behind creating a culture of innovation and look at the how. In doing so, we surfaced actions a company can take actually build and sustain a culture of innovation. After all, it is high on the priority list of enterprises as outlined in our 2017 Business Innovation Report.
Through examining Spigit’s own data consisting of millions of data points, we found insights that were both eye-opening and exciting.
The MIT Sloan Management Review article highlighted one component of the overall study, which we take a closer look at in this article: ideation rate.
What is ideation rate?
Ideation rate is a measure we define as the amount of winning ideas (ideas that get selected by management for implementation) divided by the amount of active participants (e.g. employees) in a given ideation challenge.
Here’s a quick example. If a company runs an ideation challenge and receives 1,000 ideas from 200 active participants but only selects 100 ideas for further development, their ideation rate would be 0.5 (100/200 = 0.5).
Several conclusions can be made from a company with a high ideation rate, including:
- The company has high participation and collaboration happening in its culture
- More ideas are being explored and implemented – the most critical part of creating a culture of innovation
Why is ideation rate important? It turns out that it’s a good measure of whether or not a company has an culture that encourages idea generation and, more importantly, takes action by bringing these ideas to life.
However, ideation rate reveals more. It has a strong correlation, as we found, with profit growth.
The correlation between ideation rate and profit growth
Is there a correlation between ideation rate correlate and profit growth? The data says, yes.
Turning to the dataset we used for the initial study, we calculated the ideation rates for 28 companies in a variety of industries using their publicly recorded financial metrics to measure the correlation.
What we found was astonishing.
The higher the ideation rate a company had, the stronger their profit growth. While there are other factors that can impact growth, this correlation was determined with a 99% level of confidence. For context, a 100% level of confidence means there’s no doubt of a correlation from a statistical standpoint.
The question is, what does ideation rate tell us about a company?
What we were able to determine based on the findings is that companies who have high ideation rates tend to have cultures that are more welcoming to ideas from different areas of the business. Management encourages employees to ideate on a frequent basis to help solve business challenges, and makes it a priority to implement the best ideas.
As the MIT Sloan Management Review article mentioned: the enterprise with the highest ideation rate among the 28 companies in our dataset was a large healthcare company. Their net profit grew 6% over the two years we studied.
When we looked closer at the company they had all the hallmarks of a company with a very innovative culture, including:
- Innovation is on everyone’s responsibility – not the responsibility of a handful of people
- They run frequent ideation challenges to source ideas around new products and internal improvements
- Employees feel empowered to challenge the status quo
So, what does all of this tell us? First, ideation rate is a quantifiable measure of how innovative a culture is or isn’t – and it can be adjusted. Second, the more often a company sources and implements ideas from employees, the higher the likelihood of profit growth – it’s not always about launching an innovative product.
As mentioned in the opening of this article, creating a culture of innovation is high on the priority list of enterprises. But it’s one thing to say you want an innovative culture, it’s another thing to actually create one.
Ultimately, the point of the study between Kellogg and Spigit was to demonstrate how important it is to leverage the knowledge of your employees (even outside parties such as customers) to create a more collaborative environment.