How to Measure New Product Productivity in Your Industry

When you look at Innovation Performance in your industry, you must think in NPD Productivity. Many businesses now use metrics that can be used to gauge productivity from R&D spending. According to Robert G. Cooper in your book Winning at New Products, the productivity is defined as output (measured as new product sales or profits) divided by input (measured as R&D or new product development costs and time).

Thus:

Huge differences in product development productivities exist between the Best and Worst firms, according to the study (Cooper, R., 2011) that shows in th next figure:

We can see:

• The Best firms (defined as the top 25 percent) have twelve times the productivity in new product development of the Worst. That is, the average firm realizes $7.25 in new product sales for every $1 spent on R&D. But the Best see a huge $39 in sales per R&D dollar, while the 25 percent Worst firms achieve only $3.30 sales dollars.
• The most productivity industry is consumer packaged goods, including food. Every $1 spent on R&D here results in $13.64 in new product sales on average. But compare the Best and the Worst consumer firms: $80 in sales, versus only $4.80 for every R&D dollar, a stunning 16.7 times difference.
• The least productive industry is pharmaceutical, this reveals that for every R&D dollar, generates $1.95 sales dollars over the first five years on the market. But the most productive firms in this industry see $28 in sales for every R&D dollar spent, while the Worst receive a paltry 90 cents again a huge difference: The top 25 percent of pharmaceutical firms are 31 times more productive in product development than the bottom 25 percent.

The secrets to high productivity are not just “a few good years” or a couple of lucky new product winners; rather there are clear, measurable, sustainable, and consistent behaviors, approaches, and methods that the Best companies embrace, and that the rest do not: the “BEST PRACTICES IN INNOVATION”.