By Professor Allan Anderson, Massey University
How often have you been asked to calculate the value of your NPD expenditure? So what do most of us do? We revert to the traditional measures of “number of new products launched in the last year” or “profit contribution from products developed over the past years”. Some companies claim that the number of patents lodged or NPD spend as a percentage of revenue are good indicators of NPD performance.
Yet most of these metrics provide only a simplistic and superficial view of overall NPD performance. They fail to focus on the areas of poor performance; they are often backward looking; and are seldom used as a basis for learning and continuous improvement.
Some key rules in setting up NPD metrics:
- Identify those areas that need improvement – use some form of benchmarking.
- Select a manageable set of metrics – probably 6-8, to focus on areas of improvement.
- Cover the range of lagging, real time, leading and learning measures. Examples include: lagging (profits from new products); real time (milestones on time); leading (project returns from NPD; learning (reduction in breakeven time).
- Focus your attention around measuring current NPD performance while learning how to improve future performance.
- Change the metrics as your company changes.
