A friend recently asked me whether New Product Cashflow (NPCF) was a good measurement for winning with new products following my post on Simple New Product Metrics. Could it be that NPFC is measuring R&D based on something that is not under their control to improve?
It’s a fair question. After all, R&D does not usually go out and sell. If NPCF is low, maybe the problem is in sales, marketing, or production, which aren’t doing their jobs.
But if your sales force cannot sell the new product, is that their fault? Could be. But was sales responsible for the design and manufacture of the product? What if the marketing information is confusing? What if the product does not work very reliably? Can they be expected to sell that? And the blame game is doing no one any good.
You might have the same questions. But to know if you are winning with new products, you first have to ask, how do you win with new products?
A Winning Definition for Innovation
Effective new product organizations treat innovation as a team sport. And teams live and die by the games they win as a team. That’s why my working definition of innovation has always been:
The organization-wide capability and passion for finding & profitably serving unmet customer and market needs
The NPCF metric is one of the metrics meant to measure whether the team is winning the new products game. In the US, it’s what they call complementary football. If the offense is putting up big numbers but the defense and special teams are giving away more, it’s hard to win. Product Management, R&D/Product Development, Procurement, Manufacturing, Quality Control, Sales & Distribution – the entire team has to play well for the team to win. They have to play complementary football.
Winning with new products requires alignment – not pointing fingers in a circular firing squad. I worked with a company where the CEO was preaching innovation to the Marketing and R&D folks. But their metrics weren’t aligned. At the end of the year, the CEO had no skin in the game and neither did the VP of Sales whose team found ti much easier to sell what was already on the shelf.
As Eli Goldratt said, “Tell me how you will measure me, and then I will tell you how I will behave. If you measure me in an illogical way, don’t complain about illogical behavior.”
The executive team was measured on delivering profit. They were perfectly happy (ie well compensated) if the company hit its targets without growing NPFC. So you can guess how that went.
If you are going to use metrics for measuring performance you have to include those measures to some degree for the entire team. If Sales is rewarded without regard to any measure of NPCF, that’s not complementary football. 🏈
What Priorities to Align On
One of the big differences between sports and new products is that in new products you get to choose your games. If you want to put up the most points on the board for your organization, the most NPCF, it’s important how you choose your next game. The way to do that is to force rank opportunities by NPCF per hour of development time. Unless you have an unlimited development budget, that’s how you maximize the return on your new product investment. So it’s critical to define and communicate that priority list. Without it, people will work on the priorities set by the wheels. The squeaky wheel – whoever makes the most noise or pushes the hardest. Or the big wheel – whoever wields the most influence. And that’s not how you maximize value.
Some Free Resources to Help Your Team Align
If you don’t have a clearly defined and communicated set of priorities, you can download our free Growth Prioritizer Framework by following the blue button below. It’s a spreadsheet to help you prioritize the best opportunities in your innovation pipeline so that everyone knows what starts next.