How to Measure Innovation
No matter if it’s a test score, sports game result or a sales figure, what we measure is what goes down in history. After all, “what’s measured is treasured.” It’s human nature to look back at past results as a basis for comparison and for improvement in the future. For this reason, it is absolutely essential to carefully observe and measure performance in the New Product Development process. In each of the different stages of the process, keep track of how much time is being spent so you know if you are ahead or behind schedule compared to past NPD cycles.
What gets measured is what gets done. Therefore, it’s necessary to set leading and lagging indicators for how the NPD process is going. Leading indicators such as the number of new ideas in the database, number of projects in the hopper, patents applied to, and amount of time and resources spent are all important information that give you insight on the NPD progress. Lagging indicators could include number of new products introduced, patents granted, new product sales in the first three years after launch, and how close your team is getting to the goal of introducing “at least one new product per year.”
By the way the traditional measurement of % of R&D spend is no guarantee for success!
Things will not always go as planned so now is the opportunity to make corrective actions. By measuring performance, you will be able to address your team on what’s working and what’s not for continuous improvement.
Success in product development is seen as one of the top indicators of the future performance of a company. To sustain Innovation, companies need to continuously improve their new product development capabilities. Quantitative and qualitative measurements of new product development will lend insights into a company’s strengths and weaknesses.
Measuring performance doesn’t stop after your product is launched. Now it’s time to measure the fruits of your labor. Some very important and telling information can be collected during the first three years after the launch of a product. In a survey of 200 companies that design and develop new products, they shared these key performance indicators.
1. Measure Research & Development spending as a percentage of your total sales.
2. Look at your total number of patents filed, pending, awarded and rejected.
3. Track your total R&D head count, hours or days spend.
4. Measure the current year percentage of sales due to new products released in the past year, past three years, and past five years.
5. Count the number of new products released.
These metrics should be examined after every New Product Development cycle so you are clear on your spendings and ROI for each product. Look at your ratio of new product sales compared to total sales. Now you have a basis for comparison and can set a target goal for the next new product. This management by objectives style uses ongoing monitoring and is an effective method for keeping the NPD team focused on achieving goals. By looking at opportunities in the New Product Development process to increase ROI, companies are able to improve performance and ultimately, increase shareholder value.