Innovation may be vital to creating competitive advantage.
But how costly is ineffective innovation? That is, if a company sets out on a new product or service development initiative – and that effort fails along the way for whatever reason – what has been lost? Investments in time, effort, capital – even reputation?
What if the company set in place a practice of observing and measuring innovation at select or pre-set milestones along the way? Roadblocks, sticking points or issue that otherwise might have doomed a project to failure would have been identified, reported and measured – even corrected – along the way.
Success might not have been assured. But there would have been a higher likelihood of averting failure, or at least identifying troublesome issues early on.
Innovation is meaningless without attaching measurable goals to an initiative. Yet, many organizations fail to give meaning and measurability to their programs. They don’t measure the percentage of income that comes from products younger than five years old, or new product sales, or metrics that serve as innovation dashboard to track innovation activities, or R&D spending or headcount.
The importance of having measurable goals in the innovation process cannot be overlooked – or overstated. Yet, it often is both overlooked and understated. Many organizations go through all the right motions – they plan a new product, service or internal initiative launch. They gather the team, provide the specs, and let them loose with an imperative.
But no metrics have been set out to track their success. And without the ability to measure, how can you know whether the initiative is successful?
That’s where observation and measurement come in. Observation means tracking or watching how the team advances on the path of innovation. Measurability requires that accomplishments are weighed against milestones. Done well, the end result is an initiative that adheres to the intended vision, mission or strategy.
Simply put, without goals – which then are observed and measured (and supported by associated rewards), things won’t happen. Observation, measurement and tracking of NPD results are essential to helping ensure optimal ROI.
How is this done? First, create your baselines, with initial observations and measurements. Then capture the time to each gate, the time spent inside each gate, etc. Look for improvements in terms of reduction of time spent within each gate.
Once a product is launched, a key metric is the ratio of new product sales to overall sales. One method would be to track historical new product sales for the first three years after launch versus total sales. This is your baseline. Next, set a target goal for this ratio, based on your needs and taking into consideration your competitive environment and the competition’s baseline.
This would be further calibrated to account for the product lifestyle in a particular industry, but in any case, new product sales is measured as a percentage of the total.
Observation and measurement also can be fascinating to watch as headway is made. You see your margins grow, as the right mix of new products come on-stream.
This is part of an overall process of continuous improvement. Plan. Do. Check. Act. Repeat – or revise. Things won’t always go as planned, so take corrective actions and make ongoing course corrections.
Product lifecycles keep getting shorter and shorter, which mandates accelerated NPD cycles. In the personal care arena, for example, lifecycles are only two to three years. So each big idea has tremendous potential value and it’s important not to kill a potential success too early.
Some believe investment into R&D can help ensure success. Actually, R&D spend is no guarantee for Innovation success. In its simplest terms, what gets measured gets done.
Ideally look for leading and lagging indicators, from Innovation time spend to New Product sales…
- What’s Measured, Is Treasured: And that’s just human nature, so be sure to check and recheck performance – monthly. No exceptions, no excuses. What gets measured gets done.
- What to Look For?: the key performance indicators and metrics include:
- R&D spending as a percentage of sales
- Total patents filed/pending/awarded/rejected
- Total R&D head count
- Current-year percentage of sales attributable to new products released in the past year/three years/five years
- Number of new products released
For a recent survey on Innovation Measurements see: http://www.innovationcoach.com/resources/survey/ “What do you measure?”
[i] – Source: Goldense Group Inc.’s 2008 Product Development Metrics Survey Base: 200 companies that design and develop new products, Discovered via ThomasNet’s Industrial Market Trends.