What innovation ROI actually measures
The gap is not a minority experience. A McKinsey Global Innovation Survey exhibit found 84% of executives calling innovation important to growth strategy, and only 6% satisfied with innovation performance. Those figures are historical, and they are used here for the scale of the dissatisfaction they recorded, not as a current measurement.
Innovation ROI is the return a business earns from what its innovation activity changed — revenue from products launched, margin from processes redesigned, capacity released, cost avoided. It is not a measure of how much innovation happened.
That distinction is where most measurement systems fail. Counting ideas generated, workshops run, or projects in the pipeline produces a number that rises reliably while the business result does not move. The metric is honest; it is simply measuring the wrong thing, and it rewards the organization for producing more of it.
Why capable teams produce activity instead of outcomes
Under pressure to show progress, leaders ask for something visible. Innovation teams supply exactly what was requested. Neither party is acting unreasonably, and the result is a cycle that consumes budget and the attention of capable people without changing what the business delivers.
The condition has a name worth using, because naming it makes it discussable in a room: what Steve Blank calls innovation theatre. The workshops happen, the pipeline fills, the reports are accurate, and the performance is of progress rather than progress itself. This pattern does not require anyone to pretend. The system is measuring the show.
This is a system behaviour, not a talent problem. Replacing the team changes who is inside the cycle, not the cycle. The same incentives, the same measures, and the same absence of a route from strategy to funded project will reproduce the same output with different people in it.
The practical consequence for a CEO: an underperforming innovation function is usually evidence about the management system around it, and should be diagnosed there first.
The measurement problem underneath it
Two conditions produce this reliably.
Measures reward activity. When the reporting line runs on ideas submitted and sessions held, the organization optimises for those, because that is what it is being asked for.
No disciplined route from strategic goal to funded project. Where nothing translates an executive priority into a decision about what gets funded, stopped, or scaled, project selection defaults to enthusiasm and availability.
PwC's Innovation Benchmark, a survey of more than 1,200 global executives and business leaders, found 54% struggling to align their business and innovation strategies. It also reported that strategy, rather than the size of the investment, was the greatest determining factor in whether an innovation initiative succeeded. The two findings point at the same place, and it is not the budget.
Both are governance conditions. Both sit above the innovation team and outside its authority to change, which is why the function cannot fix this from inside.
Why this is a CEO question specifically
The conditions above cross functions. Measurement sits with finance, project selection with strategy, delivery capacity with operations, and the innovation team holds none of them. Only an executive with a view across all of them can change the conditions rather than the symptoms.
The mechanism is unremarkable once stated: conditions that span functions can only be altered by authority that spans them. That is why the diagnosis belongs above the innovation function rather than inside it.
What a redesign actually changes
Two examples, described as mechanism rather than result.
Turbine maintenance. The constraint was the length of the maintenance window, and most of the available time turned out to be in the order the stages ran in rather than the speed of any one of them.
Thai Union Manufacturing, cold storage. The constraint was energy consumption in cold storage, treated as a fixed cost of the facility. The redesign re-planned production scheduling so that the demand on cold storage changed shape, rather than seeking a more efficient way to serve the existing demand.
Neither engagement introduced new technology. In both, the assumption that broke was that the current sequence was a requirement rather than a choice.
Where to start
Ask for outcome reporting. Request the innovation report in terms of business results — revenue attributable to recent launches, capacity released, cost avoided. If it cannot be produced, that absence is the finding, and it is more useful than any figure the current report contains.
Establish the route from strategy to funding. Name who decides which projects are funded, against which stated business priority, and what causes a project to stop. PwC's 2026 CEO survey found only one in four CEOs saying their company had routine processes in place to stop underperforming research and development projects; where no such process exists, the third question has no answer.
Diagnose the system before restructuring the team. A capability assessment measured against an external standard can show which conditions appear to constrain the result, as seen from outside the function. Before reorganising the function, examine whether its incentives, measures and decision rights would change.
Where this does not apply
This addresses innovation activity that is not reaching a business result. It does not apply where the constraint is genuinely technical — a product that does not work, a market that is not there, or a capability the organization has not yet built. Those are real problems with different answers, and no amount of governance redesign resolves them.