In a previous article we identified 4 types of open innovation practices incumbents can engage in and we looked at how one of the four can be measured. Specifically how can free and paid pilots be measured.
Now let’s turn our attention to a second type of open innovation activity: acquisitions, more commonly referred to as M&A (mergers and acquisitions).
Following the logic of the funnel consisting of 3 phases (Demand, Live and Outcome), acquisitions can be measured as follows:
Measuring the Demand phase for Acquisitions:
For this type of open innovation imitative and this phase of the collaboration funnel, it is advisable for the company to track the following performance indicators:
- Number of requests sent for acquisitions per unit of time.
- Average cost of scouting one possible acquisition candidate per unit of time (this might include costs associated with due diligence etc.),
Measuring the Live phase for Acquisitions:
For this type of collaboration and this phase of the collaboration funnel, it is advisable for the company to track
the following performance indicators:
- Number of initiated acquisitions per unit of time.
- Percentage of initiated acquisitions from the total sent per unit of time.
- Total invested capital per unit of time.
- Progress in accordance with a pre-agreed roadmap of the joint venture.
- Progress towards pre-defined goals.
Measuring the Outcome phase for Acquisitions:
For this type of collaboration and this phase of the collab- oration funnel, it is advisable for the company to track the following result indicator:
- Average cost of acquiring a startup, including both the Demand phase cost and the Live phase, cost per unit of time.
- New revenue generated per unit of time as a result of acquisition made.
- New revenue to cost ratio (total cost of acquisition incl. the internal costs such as salaries of the responsible people) per unit of time.
- Assets appreciation per unit of time.
- Assets appreciation to cost ratio (total cost of acquisition incl. the internal costs such as salaries of the responsible people) per unit of time.
- Collaboration specific outcomes which will most likely vary from acquisition to acquisition but they should be agreed upon when the acquisition is made. (e.g. market capitalization etc.).
In a next post we will be looking at the indicators for another one of the remaining two open innovation initiatives types.
