Revolutionizing innovation rankings: the NHH approach
Innovation rankings of countries or industries are important as they steer politicians’ priorities and actions. The current media image of Norway is one of an innovation laggard. This hurts. But do the existing rankings actually mirror the reality?
The newly released Global Innovation Index 2016 paints a devastating picture. Once again, it shows that Norway, ranked number 22, falls behind our neighboring countries: Sweden (2), Finland (5), and Denmark (8). This position is supported in other rankings, such as the OECD National Innovation Systems and Bloomberg Innovation Index, in which Norway is also falling behind. There may be two reasons for this: either Norway’s innovation capability is actually weak or the existing measurements are wrong. We believe the latter is the case.
A review of the leading measurements, including the Global Innovation Index, shows that they rely on macroeconomic indicators (for example, number of patents, GDP growth rate, or foreign direct investments) or self-reports by managers and experts. Some of these indicators are dubious while others are directly irrelevant. For example, the Global Innovation Index includes the number of films produced, Wikipedia monthly edits, and video uploads on Youtube as indicators of countries’ innovativeness.
These approaches lack one crucial thing: they say nothing about the actual value that innovations (or the surrogates of innovations, for that matter) create for customers. Regardless of how many scientists or patents a country has, new solutions that are of little or no value to customers should not be considered innovations. In fact, countries are not innovative – companies are! And it is the customers, not the experts or managers, who should assess innovations and companies’ innovativeness. Based on these assessments, it would be possible to aggregate and compare innovation efforts across countries. It may very well be that Norway – despite of what existing rankings tell us – develops innovative and valuable solutions to customers. But to be sure, we have to take customers' judgment into account when measuring the success of innovations and the degree of innovativeness in companies.
Our response to existing rankings is a systematic measurement of companies’ innovation capability through the lens of the customers. The two most famous indices based on the customer perspective are the Norwegian Customer Satisfaction Barometer (BI Norwegian Business School) and the Citizen Survey (DIFI). However, these indices focus on the static characteristics of goods and services (i.e., quality) and do not reflect changes in market offerings. Possible changes in quality – if any – indicate renovations rather than innovations.
Today, the average customer satisfaction in Norway is 72 (on a scale from 0 to 100). This tells us that most Norwegian companies provide goods and services of high quality that confirm customers’ expectations. But this does not mean that they trigger curiosity, excitement, or any other strong feelings. Without such a trigger, customers might find companies predictable and not innovative.
Our research shows that customers perceive changes in companies’ core offerings, in companies’ service delivery, in customer relation management, and in the companies’ physical and digital environment. The challenge for companies then becomes to innovate in the areas that customers value most. To break away from predictability, changes must be of such a magnitude that they create a strong emotional reaction in customers. The sum of high quality offerings and exciting innovations make customers perceive some companies as more attractive than others, which strengthens customer loyalty and profitability in the long run.
During 1Q 2017 CSI/ NHH will launch a new approach to measuring corporate, industry, and nationwide innovativeness. Based on customers’ experiences, Norwegian Innovation Index will provide the answer to how innovative Norwegian companies are. Stay tuned and fasten your seatbelts!
This blogpost is based on an article “Er Norge en innovasjonssinke?” by T.W. Andreassen, L. Lervik-Olsen, and S. Kurtmollaiev, published in Agenda Magasin, January, 12, 2017.