The real thing: New metric reveals the true impact of ideas on the bottom line

Researchers say they are seeing an uptick in the number of companies that want to know how to measure research & development productivity. Now vendors are offering new solutions that facilitate determining the costs behind the innovation process.<br/>


“Half my advertising dollars are wasted—but I don’t know which half.”

That statement has been attributed variously to Henry Ford and department store tycoon J.C. Penney. No matter its origin, the sentiment could be applied to the research & development (R&D) budgets of modern-day manufacturers.

Slowly but surely, attention is turning to rectifying that. From diverse directions, the spotlight is shining on metrics by which new product development effort can be measured.

For instance, Needham, Mass.-based R&D consulting firm Goldense Group has been tracking R&D performance in a biennial survey for the past decade. And after years of seeing the use of metrics relating to product development remain at roughly constant levels, an uptick is now detectable, says company president Bradford L. Goldense.

“R&D managers are more focused on business results,” he says. “More companies are using metrics, and using and defining them in the same way. What’s more, they’re using‘true’ performance metrics, rather than simple counts of projects in the pipeline, or people involved.”

Goldense says the heightened interest is evident in the steadily rising number attendees to the conference his firm hosts around the topic. The next Product Development Metrics Summit is scheduled for April 28-30 in Boston. This is the ninth such event over the past five years, and, says Goldense, “We’re seeing a big increase in people showing up and asking: How do I measure R&D productivity?”

The question has various answers. The most commonly used metric isn’t a traditional measure of productivity at all, says Goldense, but instead examines the impact of new product development on sales.

“‘Current year sales due to product released in the previous N years’ is a metric that’s tracked by just over half the companies that measure R&D effectiveness,” explains Goldense. N, he stresses, shouldn’t be some absolute number, but should vary by industry andmarket, and is the length of time that a product can be regarded as being new—and thus earning higher profits—and not mature, plateauing, or at end-of-life.

Among traditional measures, he notes, more companies are now calculating productivity measures such as‘products released per engineer or developer’ and ‘revenues and/or profits per engineer or developer.’

Goldense’s own preference, though, is for a measure known as RoI—where “I” investment , but innovation . The similarity to ROI—or return-on-investment—is unfortunate, he adds, because it leads to the assumption the measure applies at an individual product or product level, whereas return on innovation is more properly a portfolio-based metric, tracking the impact of R&D on profitability.

Essentially, says Goldense, RoI measures the profit attributable to new products as a ratio of the R&D investment necessary to create those products and bring them to market. While this concept is fairly straightforward, most companies have trouble gathering the data to calculate RoI.

“We’re working on the back end of the innovation process, creating metrics and capturing the financial aspects of R&D projects.”— Don Richardson, global director of innovation and PLM industry strategy, Microsoft

“There’s a lot of R&D expenditure that has nothing to do with delivering new products,” he notes—administration, training, and IT overhead, for example. The result is a dilemma: Businesses making efforts to precisely determine which R&D expenditures were relevant—and which weren’t—to the development of a new product may simply encourage people to‘game’ the system, moving costs between budget headings.

Microsoft is one vendor seeking to help manufacturers resolve that problem. It’s doing so through an Innovation Process Management Solution built on top of the Microsoft Office SharePoint Server 2007 and Microsoft Enterprise Project Management solutions. The goal is to show companies how to use this new platform to move through six stages of innovation process management—from idea capture through to product approval.

“We’re working on the back end of the innovation process as well, creating metrics and capturing the financial aspects of R&D projects,” says Don Richardson, global director of innovation and PLM industry strategy, Microsoft. Typical metrics include how many projects get scrapped part-way through, how many projects get changed or redirected, as well as basic measures of designer productivity.

But metrics focused purely on product life-cycle management (PLM)—as opposed to R&D, or a broadly defined “innovation” process—will be a tougher nut to crack, Richardson warns: “Cost data is kept in an ERP system, and design-related data resides within a PLM system—and it’s very difficult to put the two together.”

Yet customer interest in doing so is high, it seems. “Many of these answers around metrics are elusive, and a lot of customers are struggling with them,” says Richardson. Several are working collaboratively with Microsoft as it refines its approach, he adds.

As noted by Charles Johnson, Microsoft’s worldwide general manager for manufacturing, “We’re pleasantly surprised just how many customers are working with us—particularly in these uncertain economic conditions—as we collaborate to develop a solution. It’s clear that they see the [return on investment associated with measuring the return on innovation] as being significant.”

No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2013 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
A cool solution: Collaboration, chemistry leads to foundry coat product development; See the 2015 Product of the Year Finalists
Raising the standard: What's new with NFPA 70E; A global view of manufacturing; Maintenance data; Fit bearings properly
Sister act: Building on their father's legacy, a new generation moves Bales Metal Surface Solutions forward; Meet the 2015 Engineering Leaders Under 40
Cyber security cost-efficient for industrial control systems; Extracting full value from operational data; Managing cyber security risks
Drilling for Big Data: Managing the flow of information; Big data drilldown series: Challenge and opportunity; OT to IT: Creating a circle of improvement; Industry loses best workers, again
Pipeline vulnerabilities? Securing hydrocarbon transit; Predictive analytics hit the mainstream; Dirty pipelines decrease flow, production—pig your line; Ensuring pipeline physical and cyber security
Upgrading secondary control systems; Keeping enclosures conditioned; Diagnostics increase equipment uptime; Mechatronics simplifies machine design
Designing positive-energy buildings; Ensuring power quality; Complying with NFPA 110; Minimizing arc flash hazards
Building high availability into industrial computers; Of key metrics and myth busting; The truth about five common VFD myths

Annual Salary Survey

After almost a decade of uncertainty, the confidence of plant floor managers is soaring. Even with a number of challenges and while implementing new technologies, there is a renewed sense of optimism among plant managers about their business and their future.

The respondents to the 2014 Plant Engineering Salary Survey come from throughout the U.S. and serve a variety of industries, but they are uniform in their optimism about manufacturing. This year’s survey found 79% consider manufacturing a secure career. That’s up from 75% in 2013 and significantly higher than the 63% figure when Plant Engineering first started asking that question a decade ago.

Read more: 2014 Salary Survey: Confidence rises amid the challenges

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.