Innovation seems like a magic word for many firms in search of growth and aiming at protecting their competitive position in the marketplace. One should not forget, however, that innovation remains one of the most effective means to achieving strategic objectives. With this in mind, managers should focus on the right innovation behavior that will fit intended strategic choices.
Technological innovation effectiveness, from this standpoint, needs to be regularly assessed. Two simple R&D conversion metrics — R&D-to-product (RDP), and new-products-to-margin (NPM) — are too often overlooked by managers. However, they highlight the two sides of the coin of strategic innovation as they measure on one hand the reality of the strategic intent to innovate and on the other hand, the efficiency of innovation efforts from a profitability perspective. Their core components — gross margin, R&D, and sales from new products — are not new, but combining them can reveal fresh insight on the relative innovation performance of business units within an organization and relative to competitors.
The paper “Taking the measure of innovation” from McKinsey Quarterly explores the use of these innovation metrics. Click here to read it in detail.
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