Metrics to Benchmark your R&D Department by
Benchmarking is the process in which performance or quality of a particular business process or product/service is compared with best in class companies. Top businesses always strive to benchmark their products, services and processes in order to stay at the head of the pack. They also know that staying innovative is the secret for staying competitive in today's global market. That’s why businesses need to give utmost importance to benchmarking their research and development departments. Even in economic downturns, top companies don’t retreat from investing in R&D because there is no growth without a culture of innovation in place.
There are various metrics by which R&D benchmarking can be achieved. Different business sectors may have specific R&D metrics for benchmarking. Those industry specific metrics should be considered as well. However, a global survey conducted in the year of 2007-2008 identified 86 R&D metrics that would be helpful for benchmarking across industries. They can be categorized into "Quantitative metrics" and "Qualitative metrics". Detailing each of the 86 metrics is out of scope of this article, but here is a summarized view of those metrics that you can use to better benchmark your R&D department against historic performance and competitors.
Quantitative Metrics: These are numbers driven measures that can be used for benchmarking R&D (unit for measurement here is a generally your fiscal year)
- Quantity of investment done on R&D as a percentage of sales
- Total number of patents filed or awarded or pending
- Sales percentage of the products that were invented or released in last, say 5 years
- Number of new products launched
- Number of products or projects actively in developmental stage
- Percentage of resources and investments dedicated per new product development
- Sales figure of new products in the first year, and successive years separately
- Measurement of ROI (return on investment)
- Number of previously invented products that are still being sold post X years
Qualitative Metrics: These are mostly strategic and managerial measures that can be used for benchmarking R&D
- Constant focus on innovative product, process, service and idea development
- Management of the portfolio of innovative products and ideas
- Identifying elements and processes that help increase productivity of research and development
- Monitoring overall R&D performance internally
- Staying competitive with industry leading organizations on driving R&D activities to grow the bottom line
- Understanding the effect of measurements and metrics on R&D performance
- Evaluating productivity of knowledge-based employees
- Identifying and implementing best-practices
Some of these metrics can be difficult to gather competitive data for. In these cases perhaps consultants can be used or historic performance could be tracked with internal Year over Year goals established. Benchmarking can also be helpful to do across industries along with intra-industry. Perhaps looking at how key players within other relevant industries have performed and benchmarking your company against these top players could also force the company to further improve R&D capabilities.
Benchmarking innovation and the ability to leverage innovation to drive profits is always tricky but is truly valuable if achieved. Looking through the metrics it is also clear that R&D activities are directly related to profit and revenue and should be bench marked accordingly. Companies in all the sectors of the global economy are becoming more and more conscious about the importance of R&D investment and benchmarking. Implementing and utilizing these metrics for maximizing your investment in R&D can be beneficial.