Your company invests significantly in its innovation pipeline. So it’s important to have new product innovation metrics to measure the success of that investment. It’s that old saying again, “What gets measured gets managed.”
But where do you start? I’ve seen companies tracking scores of different measures and scholarly articles proposing 25 new product innovation metrics.
That’s where your eyes glaze over as you wonder, “Who’s going to do that and how am I going to make sense of it all?”
You might also be amused to learn that the old saying was NEVER a call to measure everything in sight. In fact, the full saying was:
What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organization to do so.
That’s why I’m a fan of keeping new product innovation metrics simple and focused. You only need two levers for driving improvements in new product growth – The quality of the programs you work on and the quality of your execution. What I call:
Doing Better Projects & Doing Projects Better
That means several fundamental measures can give you a lot of useful information.
Metric #1 – New Product Cashflow is the cash flow from products launched in the last X years. X is the number of years that you consider a product new. The average is 3 but it ranges from 1-2 years in fast-moving consumer markets and up to 5 years in more conservative industries.
Why cash flow and not sales or profits? Because cash flow is the essential measure of whether you are making more money.
Of course, there are several variations that you can derive from this metric.
- Percentage of this year’s cashflow coming from new products
- Percentage coming from a specific industry, segment, category (adjacent vs. core), or type of new product compared to others
- Percentage of cashflow vs the amount promised
- New product cashflow as a multiple of R&D spend
I even had one client who measured the percentage coming from “Wow” new products vs. line extensions.
Metric #2 – Time to Revenue is the average amount of time it takes to go from a fully fleshed-out idea to the first sale after launch.
You might wonder why not just measure the time until the product is on the market. Simple. You don’t make any money until you are selling the product.
Of course, different types of projects can have dramatically different times to revenue meaning that a change in product mix can shift the numbers. So, tracking the duration by project type, product type, market, etc., can also clarify the picture.
Leading indicators need to be included. I had a friend that liked to tell a story about working at McDonald’s while in high school. The manager had them keep a tally of the number of times he asked, “Do you want an apple pie with that?” The store manager couldn’t measure sales performance until after counting the registers- a lagging indicator. But the number of tally marks was a leading indicator that they were doing the best they could.
Cashflow and time to revenue are both lagging indicators. For cash flow, you can easily derive a leading indicator by looking at the forecasted cash flow factored by probability from your experience on past projects. If the measure isn’t increasing, you are heading in the wrong direction.
For time to revenue, it requires a little more creativity and another simple metric.
Metric #3 – Opportunity Flow in this case is the percentage of programs that are healthy and moving along without any problems. You can self-report flow or track it in a project or portfolio tracking tool. At the project team level, they should already be doing everything they can, but if this metric starts decreasing at the portfolio level, you need to act and get it back on track.
Keeping it Simple
The key is to keep your new product innovation metrics simple and aligned. If anyone proposes a new metric, make sure it adds visibility and clarity and that it helps direct those key levers – Doing Better Projects & Doing Projects Better.
Interested in getting some help with the metrics for your new product pipeline. Our AcceleTrak software can simplify that for you.
And for better visibility into your new product pipeline don’t forget to check out our free downloadable templates.