Integrating innovation metrics into the business

The application of innovation metrics will be successful only if they are 'bought into and truly owned' by the business or business unit. All members of the business management team must see the benefits from the metrics, both to themselves and to their business unit. There are four steps in this integration:

identifying the growth gap, defining the innovation programme to meet the growth gap, defining an appropriate set of metrics for each project, measuring and tracking performance over time.

Step 1: Identify the growth gap

The first, and most important, step in the application of innovation metrics is at the strategic level where the required contribution from innovation is defined against future business targets:

• What is the total business growth aspiration?

• How much of this growth will come from organic growth?

• How much can be expected from mergers and acquisitions?

• What is the value of the innovations currently in the pipeline?

• What is the growth gap that must be filled by new innovation?

This is illustrated in Fig. 8.4.

Step 2: Define the innovation programme to meet the growth gap Determine the value and timing of the current innovation portfolio to ensure that it provides the required contribution to meet the growth gap. The total innovation portfolio value is made up of the sum of contributions from all innovation projects.

• What innovation projects are planned?

• What is the time of delivery of these projects?

• What is their predicted revenue and earnings before interest and tax (EBIT)?

• What is the total predicted value of the current innovation portfolio?

• Does this value meet the growth gap aspirations? If not, what further innovations are required?

Sources of future revenue

Sources of future revenue

-

Growth gap ^ !

New products currently in pipeline

. Traditional mergers and acquisitions

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Market expansion

Base revenue

Future target

Today

Future target

Fig. 8.4 Identifying the growth gap.

If satisfied with the current innovation portfolio value, use this value and the schedule of realisation of the value as a leading metric.

Step 3: Define an appropriate set of metrics for each project A set of leading and real time metrics should be defined and used to measure the progress of individual projects.

• Define the individual contribution of each project to the total. This becomes a key target for a leading metric for the project.

• Define a set of real time metrics and targets for each project. These might include milestones on time, expenditure against budget, etc.

Step 4: Measure and track performance over time

Lagging metrics should be used to measure past performance. This should be compared with the predicted performance as indicated in the leading metric targets. If the overall innovation portfolio is on target then the innovation contribution to the growth gap will be achieved.

• Use lagging metrics such as current return from products developed over the last five years to measure past performance.

• Compare this performance to the targeted performance required to meet the growth gap.

• Study the underlying reasons for differences between what is achieved and the target. Learn from past mistakes and successes and apply this learning to improvement in the overall innovation practices.

Over recent years a great deal of time and effort has been focused on the improvement of new product development (NPD) management. Not only are we seeing an abundance of research literature on the subject but we are also seeing significant emphasis on the management of research and development activities as a senior management function in many companies.

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