New Innovation Metrics

For more than three decades companies have relied on the vitality index–% of sales from new products. While helpful, this innovation metric is neither predictive, prescriptive, nor precise. It’s time to supplement this lagging indicator with two leading innovation metrics… the Growth Driver Index (GDI) and the Commercial Confidence Index (CCI). These will help your business build growth capabilities and ensure you’re working on real—not imagined—customer needs.

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Preview: New Innovation Metrics

You need leading indicators to drive your new-product innovation forward… not watch it in the rear-view mirror. With two new innovation metrics, you’ll build growth capabilities and ensure you understand customer needs.

Today, the most commonly used innovation metric is the vitality index: percentage of revenue from products launched in the past three (or five) years. But if this is your only metric, you’ve made a spectator sport out of improving innovation, when it should be a participant sport. This is especially troubling in new product development… where your innovation work can take years to produce meaningful revenue. It’s like turning up your thermostat and having the furnace come on next week.

Don’t supplant the vitality index, but rather supplement it… with new innovation metrics that are leading indicators. In this paper you’ll learn…

  1. Three shortcomings of the vitality index
  2. Four rules for better innovation metrics
  3. A new metric for building growth capabilities
  4. A new metric for achieving commercial confidence

The lagging nature of the vitality index isn’t its only problem.  Like other non-ideal innovation metrics, it suffers from three deficiencies:

  1. Not predictive: Lagging innovation metrics, such as the vitality index, only tells you what has already happened. And the look-back time horizon is so long. If you are in the C-suite of a company using the five-year vitality index, there’s a better-than-50-50 chance you were in a different job when some of these “new” products were developed.
  2. Not prescriptive: The vitality index doesn’t tell you how to increase new-product revenue. Think of all the actions you could take: a) Increase R&D staffing, b) Hire more marketing, c) Train your staff to understand customer needs, etc. With just the vitality index, you’re guessing which will work best. Imagine looking at three pedals on your car floor and guessing which will make you go faster. And then waiting years to learn if you were right.
  3. Not precise: With many innovation metrics, we’re still left with the question: “When is a new product really new?” If you change the product’s color, is it new? You should put rules in place to reduce “gaming” the vitality index. But also add a profit vitality index to your revenue vitality index: Track the percent of gross profits from products launched in the past three (or five) years.

For more, see the 2-min video, Employ new growth metrics, part of Dan Adams’ series of 50 (free) 2-min videos, B2B Organic Growth.

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