Measuring the Success of Innovation
Innovation isn't really valuable unless someone is willing to pay for it. There are a variety of ways to measure the success of new products, but one of the most widely used is product vitality. This metric tracks revenue from new products as a percent of total revenues. But how long are products considered new? According to a recent MAPI survey, 48% of members use a 3 year time horizon, and 35% use a 5 year time horizon. Some observations on the drivers of the different approaches:
- Most companies with 5 year time horizons come from in slower innovation cycle industries like oil/gas, metals/materials, and machine tools. Their R&D spend as a share of sales is lower (nearly 90% spend 2.9% or less of revenues on R&D).
- Most companies with 3 year time horizons come from faster moving industries like hand tools, consumer goods, etc. Their R&D spend as a share of sales is much higher – half spend 3% or more of sales on R&D. This group also differentiates more regularly in terms of tracking evolutionary vs. revolutionary products.
Click here to download a excerpt from the survey.