Or, “How to Measure Success”
Measuring Success
And with just 3 seconds on the clock, our home team quarterback rushes into the end zone for a 6-yard touchdown! Score! Win!
Measuring success in New Product Development (NPD) is not quite as easy as it is in sports, since there is no universal “score”. Scoring a success in NPD depends on many things, but first the firm has to decide on exactly what is “success”. Each firm and each individual on the NPD Team are likely to define ”success” in personal and professional terms, that may not overlap with the definitions of ”success” of other team members or of the team.
For example, consider the definition of “success” by several NPD Team members.
Mary, an R&D Engineer supporting the development of the prototype defines success, “There are no major revisions between the prototype and the final commercial product.”
John, the Marketing Advisor for the NPD project calls the project a success if, “Market penetration of the new product reaches 40% within one year.”
Sam, the Project Team Leader measures success, “We don’t over-run the budget and we meet the gate deliverables on time.”
Barry, another R&D Engineer who is nearing retirement views success of the project if, ”This new product is launched before I retire.”
Finally, Judy, the division manager intends to call the NPD project a success if, “The NPV (Net Present Value) of the project is greater than $10,000,000.”
Apparently, each individual on the team has chosen a different measure of success, ranging from personal goals (retirement) to specific financial goals
($10M NPV). From our own work experiences, we also know that if each team member is working toward disparate goals, the work can get bogged down and the project will not advance smoothly.
Success metrics are often the basis for incentive goals and reward systems, (1) and human beings will adjust their behavior based on the metrics they are held against (2). Defining project objectives so everyone on the team can see and understand the same goals will avoid X number of people working on X number of projects instead of the same project (3).
Additionally, companies needing to understand the results of their Research and Development (R&D) programs will use metrics to flesh out their product development capabilities by determining what to measure and how to measure it. Today, managers often rely upon “intuition” and “experience” to determine innovation program value (1). Further, when a firm can analyze and identify gaps in their NPD capabilities, a metrics system helps determine how much improvement is needed, and the improvements in business processes can be prioritized, increasing reliability at the same time as decreasing waste (1).
One way to drive the team toward “success” is to define the metrics for the project up-front, preferably while the team develops the Product Innovation Charter (PIC). In this paper, we discuss six common metrics used in New Product Development*.
- Net Present Value (NPV)
- Risk-Adjusted NPV (ANPV)
- Return on Investment (ROI)
- Time to Market (TTM)
- Number of Ideas Submitted (# Ideas)
- Percent Profit from New Products over the Past “N” Years (% Profit)
Read On…NPD Metric #1
*For more information on detailed calculations or templates, consult Global NP Solutions at info@globalnpsolutions.com or 281-280-8717.
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