Emerson Electric's Innovation Metrics

Large companies, where data-driven decision-making rules the roost, have long sought ways to measure innovation. Emerson Electric thinks it has the answer

Emerson Electric (EMR) is a company that embraces numbers. If something can be measured, the fast-growing industrial conglomerate doesn't hesitate to do so. On a wall at its St. Louis headquarters, photos of 2,000 Emerson managers hang in ranked order—from Chief Executive David Farr on down.

So as the company has sought to improve its innovation efforts, it has turned to—what else?—a new metric. With 140,000 employees and 52% of its $22.5 billion in sales coming from outside the U.S., the company, like many others its size, had set an arbitrary goal for its 60 far-flung business units: make a third of sales from products released in the past five years. Now Emerson is taking a different approach to tracking new-product sales—one it considers more insightful, revealing, and effective.

In this system, which began last year, managers divide new-product sales into one of four categories: minor improvements, major improvements, products that are new lines for the business, and ones that are completely new to the world. This rubric offers a more accurate guidepost, says Charlie Peters, Emerson Electric's chief innovation officer.

Managers can spend more time and money promoting breakthroughs rather than creating incremental tweaks. "It really shows just how innovative—or, better yet, not innovative—people actually are," says Peters, an Emerson veteran whose post was created last year.

Large companies, where data-driven decision-making rules the roost, have long sought ways to measure innovation, though none have found a magic set of measures.

The "new-to-the-world" framework dates at least to an early '80s study by consultants Booz Allen Hamilton. Emerson, which makes a dizzying array of industrial and electrical components, from telecom wires to dishwasher parts, has explicitly linked the metric with a broader innovation push. Despite healthy growth—sales have risen nearly 13% a year since 2003—Emerson engineers had spent too much time chasing the 33% new-product-sales target.

Now company divisions can free up manpower and money to go after groundbreaking projects rather than iterations of existing products. Thomas Bettcher, CEO of Emerson Climate Technologies, uses the quadrant in strategic planning. "It just gives us better data about where our resources are going," he says. Last year, for example, a third of all the new-product sales in his unit were classified as "minor improvements."

Seeing that analysis led Bettcher to increase investment in projects that will yield new-to-market or new-to-the-world results.He's doubled funding for projects that would embed electronics in air-conditioner compressors, making them more efficient and easier to operate. The metric "has given us a tool," says Bettcher, "to go after projects that are a little more difficult, a little riskier."

Skeptics wonder whether Emerson has any business aiming for products that are new to the world. Plenty of digital music players, after all, preceded the iPod; what made Apple's (AAPL) gadget great wasn't its novelty but the way it tied together a user's experience.

Brian Uzzi, a professor at the Kellogg School of Management at Northwestern University who has studied innovation metrics, also notes that truly novel products have a very high failure rate. At companies like Emerson, with intense, make-the-quarter focus, he says, "reaching for more than you should could be detrimental."

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