Business / Innovation / Research / Trends

Measuring innovation: The top five R&D metrics

The following are the top five R&D metrics used by industry (2008):

  1. R&D spending as a percentage of sales (77%)
  2. Total patents filed/pending/awarded/rejected (61%)
  3. Total R&D headcount (59%)
  4. Current-year percentage sales due to new products released in the past six years (56%)
  5. Number of new products released (53%)

    ————
    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

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    3 thoughts on “Measuring innovation: The top five R&D metrics

    1. The fact that these are the most used metrics does not necessarily mean they are the best, or together form a BISC, for balanced innovation scorecard.
      1 and 3 are input-indicators
      2 and 5 are output-indicators
      4 may be a measure of the succes of innovation output.
      What is absent is a process indicator like actual leadtime versus planned for NPD-projects.
      And senior management should have a clear definition of ‘new’ when using 4 or 5, otherwise any minor kai-zen-like improved product will be labelled ‘new’ by their business units aiming at presenting the required performance.

      • I just came across your comment this week. You’ve nailed it. A list of the Top 5 does not say anything about appropriateness, never mind good or best. GGI has been researching the penetration of metrics in industry since 1998. After each research project we are largely disappointed at the top R&D and Product Development metrics. A list of the Top 25 would leave you similarly concerned.

        There is good news though. True “performance metrics,” versus “monitoring or status tracking metrics,” in R&D and product development are on the rise starting around the 2008 time frame. The “Vitality Index” has now achieved a 50%+ penetration and “Return On Innovation” is creeping past 25%. Measures of profits from new R&D and product development products are also on the rise, along with measures for the contributions from Advanced Development and other Pre-Product Development activities. Historically, it was all about revenues. Profit metrics were no where to be found and Pre-Product Development was an untracked sandbox.

        Productivity metrics are also rising, Return On Innovation being the most prominent at this time. IP metrics are also on the rise, both IP-Protected revenues and profits along metrics that get at the various degrees of novelty in a product offering.

        To your point on TTM Plan vs Actual, some companies are now aggregating these project specific metrics across all projects to create a true “corporate-level” metric of aggregate slip for the company as a whole. This corporate-level metric is actionable by top management. There are typically several reasons contributing to aggregate slip and most can be positively influenced by a company’s top managers. Aggregating across projects/products is complicated, different durations and complexities etc., and that is why many companies do not tackle the bear. Companies that have done it are pleased that they invested the resources to do so.

    2. Preview of the Book
      The Delta of Technology
      By Jerrold Winger

      This book has been a labor of love since 1978 and as an engineer and a former director of technology it has satisfied my desire to know one thing: Can the impact of R&D investment on earnings be measured? The clear answer in my book is yes and much more. The “much more” part is even more fascinating.

      The analysis is simple and over-arching, beyond operating income statements, balance sheets, project life cycle analyses, economic value added and all the other sundry and elaborate auditing contrivances of the bookkeeping community.

      All throughout these many years since 1978 I have witnessed the various techniques for analyzing the above question in the popular financial journals, academia and of course in the accounting world. Many have claimed that there is no correlation between R&D expenditures and earnings when they graph these two factors for hundreds of companies. Others list out the top one hundred R&D spenders and find that many of these top spenders don’t perform well; witness the earnings disaster of GM and Ford, who either lead the list or are within the top five R&D spenders. Still others are amazed that many pharma companies return great earnings, and also spend large sums on R&D.

      Most analysts of R&D don’t have a clue! Most grandmothers, however, who shop at Walmart and have 401k plans understand that R&D is essential to producing the affordable miracles that we all purchase in our free market system and that there must be a connection.

      I am reminded by all of this expert analysis, of the person who repeats a failed attempt to solve a problem over and over in the vain hope that someday it may work. As the cliché goes this is called insanity or the government.

      In this book the reader will be introduced to the concept called The Delta of Technology, a figure of merit which can discriminate the best companies from the rest and ultimately determine that portion of Earnings attributable to R&D investment. The Delta only requires three analytical numbers, all of which are carried around in the head of a CEO. These numbers are the R&D expenditure, the gross sales (revenues) and the net earnings for a given year.

      Enjoy the book and become part of the new paradigm by asking your CFO, “what is our company Delta?”

      Lastly, what about ordinary small investors, who would like to participate in the technology revolution , but want safety and guidelines that give them a much better chance of success? To them I say, read this book.

      Jerrold Winger
      http://www.jerroldwinger.com
      2008

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