The one and only KPI that directly tells you if your innovation program works

Every innovation lab, corporate incubator, or internal hub faces the same uncomfortable question: Is this thing actually working? And the answer is almost universally buried under a pile of KPIs that measure the number of projects incubated, workshops run, patents filed, startups scouted, employees "touched by innovation"... All these metrics are 1) easy to manufacture and 2) mostly about the process itself rather than productive outputs. These KPIs sound rigorous, technical, and busy.

Yet, they tell you nothing.

Here's the only question I mostly need to ask when evaluating such programs: where does the budget come from, and why?

Let me explain...

Uselessly optimistic by design

Programs that cannot demonstrate direct ROI will find ways to say and tell stories. Sometimes they don't even have to bother inventing anything, as they are asked to report on "key strategic corporate pillars" or whatever is trendy this season. On top of that, reporting dashboards of corporate innovation programs tend to grow over time, accumulating metrics that are available, positive, and (more importantly) easy to communicate upward.

These metrics capture inputs and throughput but leave the core question entirely unanswered: whether the program is generating genuine organizational value. They are the innovation equivalent of counting the number of meetings held to evaluate a sales team, or the number of logs entering a lumber mill to evaluate the quality of wood furniture design.

The KPIs can only be optimistic, as they don't measure much that could go terribly wrong. How many projects in the pipeline are too many or too few?

Where's the money coming from?

After years of designing and auditing these programs across industries, the single most useful indicator I have found is straightforward:

• What percentage of the program's budget comes from internal business units?

Above 70%, and I know the programs are doing something quite clearly valuable for the rest of the business. Below 20-30%, I can only assume a) it's early on in the game, and the program hasn't run for enough time yet to convince anyone of its intrinsic value, or b) it simply underperforms.

That's my main rationale. When a division head allocates part of their own budget to co-finance an innovation program, they have made the concrete calculation that the program is worth more to them than the alternative uses of that money. If they've been doing that for more than three years, they even have proof.

That is the closest thing to a market signal within a large organization, and it is quite hard to fake. A program funded mostly by internal customers paying out of their own budget lines doesn't lie.

That is the whole test.

The two red flags

On the other hand, two funding patterns reliably indicate a program operating on borrowed time.

The first is a yearly lump-sum budget flying down from the executive committee, with no co-financing from business units. You can have a pass for two to three years as you get the program in motion, but past that, it just means the exec committee is running what I call a "checkbox program." Do we run an innovation program? Yes? OK, check. Such programs only exist to reassure investors and the market that we are going through all the motions, as a serious company would.

Expect high-visibility programs, going all in on AI as we speak (was crypto and metaverse a few years ago), with many partnerships and events, trendy communities, and colorful bean bags. Style over function, babe.

The second, not as bad but only by a slim margin, is HR-funded innovation. In this very common case, the "people" and "culture" functions become the primary budget owners for an innovation lab. The stated objective shifts to something like "developing our innovation culture" or "building intrapreneurial mindsets."

It's not bad-bad, but still, expect no clear success criteria, no internal customer demanding results, no natural moment of reckoning. Such an HR-sponsored program can run for years, producing training sessions, hackathons, and internal certifications, while the organization's actual innovation output remains... modest (to put it nicely). Of course, culture change is a long-term endeavor, and we could argue that adding hours of innovation trainings and seminars, given time, will always have a positive impact.

To which, I'd say yes, but maybe try learning by doing? Investing in real innovation work, failing, learning, coming back at it, pivoting, succeeding, scaling, and so forth.

What this means in practice

I'm not advocating for removing all innovation KPIs. I'm merely proposing we consider the only rationale end-game of a functional corporate innovation program: accelerating value delivery and time-to-market for transformational initiatives. If you are running or commissioning an assessment of a corporate innovation program, add one question to whatever framework you are using: pull the last three years of budget allocation and identify the source (not the total amount; the source). And if you can, even do this before looking at any other metrics, because it contextualizes everything else.

If internal business units are progressively co-investing, something real is happening. But if the answer is exclusively top-down and centralized after four years of operation, whatever its dashboard says, the program is an innovation theatre.

Four years is a long time to still be checking a box.