There are large investments made in R&D as well as a great deal of talk about innovation. Despite the buzz, many companies are simply not very innovative. Others are innovating but struggle to measure innovation. Many companies use the metric "percentage of sales from products that are less than X years old." This is a static metric that rarely captures innovativeness, and it is not predictive of future success. Manufacturing is easy to measure, but innovation is not.
It is easy to measure what has already occurred. But how can a company use metrics to predict its performance five years downstream? Good portfolio decision-making means making accurate predictions. Many firms try to estimate their future financial performance through estimates of market size and market share, which is adequate for near-term performance. However, making longer-term predictions depends on measuring the size of the customer need. This is the key measure that allows R&D leaders to pick future winners and make reliable project portfolio decisions that create a balance between products in existing markets with existing technology, and products in new markets with new technologies.
Many companies are asking how much they should invest in innovation. Absent the capability to measure innovation reliably, it is impossible to measure the return on investment or to benchmark innovation spending against competitors. Many firms invest a great deal in R&D and produce very little genuine innovation. For this reason, one-to-one comparisons of R&D spending are insufficient for benchmarking the value of these investments.
Many companies are wasting considerable time and money measuring factors that have very little to do with enabling innovators to do their jobs better. They gather hundreds of data points that do not predict success and this hinders rather than helps teams create innovative new products. With hundreds of metrics in play, product developers have two jobs: their job of creating new products and another job collecting and reporting data. The two are rarely in synch. Many companies use standardized metrics, which tell them very little about the real condition of their project teams. In their eagerness to gather the data, companies lose sight of the fact that metrics are useful if – and only if – they help the team and management do the jobs they were hired to do.
Too much time is wasted sitting in long metrics reviews with complex Powerpoint slide decks where one group tries to outdo the other in their presentation of the data. When this happens, it is a sign that metrics have taken on a life of their own and they are disconnected from the real work of innovating new products. Process metrics should be reviewed every two weeks and these reviews should take fifteen to twenty minutes. If the reviews take much longer than that, it means that there are probably too many metrics or the metrics have become an end in themselves rather than a tool for getting the job done better and faster.