Tuesday, April 20, 2010

Unlocking the secrets behind Stage-Gate® metrics

by: Paul Gould
PMO Director, Innovation
Cytec Industries, Inc.

So how do you measure innovation success? Sales of new products, the number of patents filed or the return on your R&D investment?

The stock analysts love the Vitality Index (VI%) on annual reports - the percent of sales generated from products less than three-to-five years old. And Dr. Robert Cooper, the creator of the Stage-Gate® product development methodology, has been quoted as saying that “High performing companies have average sales of 27.5% generated from products created in the last three years.” This metric in particular uses a rear-view mirror approach: looking at where you have been, and then averaging your performance over a number of years. But how helpful is it to only look backwards when making decisions about the future of your company? We live in a dynamic world with a dynamic economy and shorter and shorter product life cycles. The pressure is on for all of us innovation practitioners to be more predictive about our trajectories into the future and to be more certain that we are on the right path. TODAY.

In 2009, my colleagues and I attended a number of conferences and seminars designed to examine the health of an organization’s innovation process. Together, we counted over 130 examples of metrics that companies have used to try and measure and declare innovation “success”. The focus on measuring innovation metrics shows a universal understanding that tracking the right metrics are important. The right metrics will likely vary from company to company, industry to industry, but some common ones include NPV targets, the number and speed of projects through the pipeline, and resources deployed.

However, after talking with colleagues in several different industries, a different picture emerges. It seems that many companies are focusing a substantial portion of their development resources on establishing innovation metrics or ensuring reporting quality – NOT on advancing their innovation maturity.

It is as though the metrics themselves have become “king” and not the process. I also speculate that many people are still struggling with understanding the key drivers at work in their innovation process. (“If you do not know which metrics to measure, then dazzle management by reporting lots of metrics.”) The up-side to the “metrics are king” mantra is that it gives people who are responsible for the process lots to do and something to show for it. (“I was able to deliver my metrics by the 5th of every month.”)
But how do we get beyond creating, gathering, reporting and providing generalized explanations about the innovation metrics and really understand the underlying behaviors and processes that drive real innovation – and then implement positive change?

I am not saying that metrics are a bad thing. In fact, without metrics to monitor the innovation processes that I am responsible for, I would be lost. As each company progresses on its own path to innovation maturity, they need to reach a place where they are executing the process efficiently and effectively, using innovation metrics as a way to benchmark their progress. In my own case, my company has worked hard to develop our innovation processes, supported by a good PLM system that provides reliable metrics. Consequently, we have achieved a high level of process maturity, especially by our industry’s standards.

What I am saying is that:
1. The best way to monitor innovation process health is by measuring the right metrics. There is no “one set of metrics that fits all” so determining the right metrics to measure depends upon your organization’s innovation strategy.

2. Implement a reliable innovation metrics reporting system so that you can track your progress over time. This is a key milestone along your path to innovation process maturity.

3. Don’t stagnate your innovation process by focusing most of your efforts on gathering, reporting and providing generalized explanations about your innovation metrics. Instead, use the metrics to guide your work in creating innovative new products.

4. To determine the right innovation metrics for your company, you will need to continually and consistently measure the outcomes of your innovation process (point 1). To grow the process beyond a stagnation point where “metrics are king” (point 3), you will need to challenge yourself to dig deeper and really examine what is happening behind the scenes, and what is really driving the success – or failure – of your innovation process. Then use that data to inform your development decisions and implement positive change.

I believe I have found a process that will allow you to unlock the secrets behind Stage-Gate® metrics using a combination of consumer marketing techniques, Design for Six Sigma and LEAN. If you are interested in learning more, join me for this Webinar on April 29. I’d be interested in hearing how your company is using different approaches to the Stage-Gate® methodology to achieve results.

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