Measuring innovation: Beyond revenue from new products

Research Technology Management

Volumn 49, Issue 6, 2006, Pages 42-51

  Shapiro, Amram R ^a,b  

^a PRTM   (United States)

^b Arthur D Little Inc   (United States)

Author keywords

Innovation; Percent of revenue from new platforms; Percent of revenue from new products; Smoot; Variable measures

Indexed keywords

COST ACCOUNTING; INDUSTRIAL PLANTS; INDUSTRIAL RESEARCH; MANUFACTURE; PRODUCT DEVELOPMENT;

INNOVATION; PERCENT OF REVENUE FROM NEW PRODUCTS; SMOOT; VARIABLE MEASURES;

INDUSTRIAL ECONOMICS;

EID: 37849188516     PISSN: 08956308     EISSN: None     Source Type: Journal    
DOI: 10.1080/08956308.2006.11657407     Document Type: Article

References (14)

1. Oliver R. Smoot, or Ollie as he prefers to be called, was the shortest Lambda Chi Alpha pledge that October in 1958 when the "hack," as MIT pranks are called, was performed. The measure became world famous and is found in many reference works and as part of the Google Calculator (using the standard smoot, or Ollie-based measure of 5′7″). The markings on the bridge are there still today, periodically renewed, and it is said the local police use smoot markings to call in locations on the bridge. As for "the ear," reported sometimes as an ear and sometimes as epsilon, it is a fixed measure, equal to the earhole of a football helmet. As an invariable measure though of inferred length like the biblical cubit, it is somewhat less interesting for my purposes. Ollie Smoot has accomplished a good deal more than notoriety as a yardstick. He has been one of the leading champions of standards as president of the International Organization for Standardization (ISO). He has also served as chairman of the American National Standards Institute (ANSI). Although the notion of the smoot as a variable measure is a novel interpretation, it may have been prefigured in the following limerick by MIT alumnus Ken Estridge: There once 'was a student named Smoot Whose name you could find 'neath your boot. As you felt yourself freeze In the cold winter breeze You kept wishing he'd been half a smoot.
2. Fusfeld, Alan R., Tipping, James W. and Zeffren, Eugene. 1995. Assessing the Value of Your Technology. Research-Technology Management, Sept.-Oct., pp. 22-39. This summary of the work of the R&D effectiveness subcommittee of the IRI's Research-on-Research Committee proposed a menu of 33 metrics, some retrospective and some prospective, arrayed in a "Technology Value Pyramid." The focus is on R&D effectiveness, and its first metric is a variant of Percent Revenue from New Products called "New Sales Ratio."
3. Kanter, Rosabeth Moss, Kao, John and Weirsema, Fred. 1997. Innovation Breakthrough Ideas at 3M. DuPont, GE, Pfizer and Rubbermaid. Harper Business. 3M shifted in the 1990s from longstanding targets of 25 percent of Revenue from New Products in five years to 30 percent in four (p. 55). Today, 3M has made another expectations shift with its "Acceleration Challenge" program, which targets doubling of new ideas reviewed and tripling of new products. Its New Product Introduction pipeline forecast, probability-adjusted, is now measured on a three-year basis. In 2005, it was reported to the analysts as having increased from S3.5 billion to S5.5 billion (presentation by Pat Campbell, 3M CFO to Morgan Stanley 2005 Basic Materials Conference, 2/23/05). As Clayton Christensen and others have pointed out, the market's "discounting" mechanism tends to make it hard to gain shareholder value benefit from pressing a position already demonstrated unless acceleration can be shown. The gradual upping of the "innovation ante" in 3M's targeting may reflect this need to not only be innovative but to show a pattern of increasing innovation.
4. Kanter, Rosabeth Moss, Kao, John and Weirsema, Fred. 1997. Innovation, Breakthrough Ideas at 3M, DuPont, GE, Pfizer and Rubbermaid. Harper Business. Another example of Revenue from New Products applied is found in the chapter on DuPont's application of the PACE® process: "In one of our businesses, revenue from new products has soared from 5 percent to more than 75 percent of the total, and the dollar amount has grown from S75 million to S450 million" (p. 86). As the driver of this new product revenue in this case was based on a new platform, this case study is one of true renewal.
5. Fine, Charles H. 2001. CLOCKSPEED: Winning Industry Control in the Age of Temporary Advantage. Time Warner Books.
6. These data and those in the tables come from PRTM's 1997 Product Development Benchmarking Study, which included data from 288 businesses in the following industries: Aerospace & Defense, Automotive, Chemicals & Plastics, Computer & Electronic Equipment, Medical Devices & Equipment, Semiconductors, and Telecommunications Services & Equipment. This landmark study addressed over $40 billion of industrial R&D expenditures in the aggregate. It is currently being updated by the Performance Measurement Group, (http://www.pmghenchmarking.com/pib)
7. Lombardi, Steve, Marwaha, Jitu and Yu, Ed. 2005. From Business Model to Product Ideation: Developing the Right Innovation Strategy for Superior Growth. PRTM, October 26.
8. Ketteringham, John and Nayak, Ran. 1986. Breakthroughs! How the Vision and Drive of Innovators in Sixteen Companies Created Commercial Breakthroughs that Swept the World. New York: Rawson Associates. This book was typical of the anecdotal research of the time, but atypical in its rejection of oversimplification. It debunked many commonly held prescriptions for achieving innovation because it found exceptions. It did not contribute in that sense to the task of what Christensen and Raynor call "theory building," but neither did it add to the underbrush. A revisiting of the case studies in the light of the theory of disruption would be interesting.
9. To get a sense of this breadth, take a look at the list of 75 case studies of disruption found in The Innovator's Solution. Boston: Harvard Business School Press, pp. 56-65. Can Christensen and Raynor's categories of sustaining vs. low-end disruption vs. new market disruption explain the gamut? It remains to be seen but because it is framed as theory and subject to upgrade as it encounters new "anomalies," it is an outstanding start.
10. A variant of this analysis focused more on the R&D portfolio uses the concepts of platform, major and minor project as a way of measuring R&D throughput. At PRTM, this is done by creating a resource ratio between platform, major and minor projects and then expressing throughput in major-project equivalents. (Because these ratios vary widely by industry, this measure is industry- or segment-specific.) If the portfolio is analyzed in terms of resources and numbers of projects in each category, the renewal "quality" of the portfolio can be related to the "throughput, " and reasonable targets set if a change is warranted.
11. Corning Glass Works' amazing history of repeated renewal on the basis of new applications of glass technology from the railroad lantern to the ribbon machine to fiber optics could be charted in terms of shifting across the quadrants. Corning's appetite for renewal has been kept keen by spinning off new platform-based products that required large capital investments, e.g., Dow Corning and Owens Corning. Whether its decision to keep the large optical fiber business within traditional Corning will subvert this old pattern remains to be seen.
12. The Innovator's Solution, p. 66. In addition to HP, IBM's entry into minicomputers, Teradyne in PC-based testers, Intel with Celeron, and Charles Schwab in online brokerage are offered as examples of the power of using distinct, independently chartered organizations as a way of building new platform revenue and helping established players defend their markets against disruption.
13. Peters, Thomas and Waterman, Robert H., Jr. 1982. In Search of Excellence. New York: Harper & Row. "3M is, indeed, the tightest organization we have seen, tighter by far, in our opinion, than ITT under Geneen." (p. 322) This striking comparison of the apparently egalitarian 3M to the classic "command-and-control" system of ITT makes perfect sense to me. To allow great freedom of action you must have a very strict adherence to some universally shared values. As Peters and Waterman put it, "autonomy is a product of discipline." (p. 322)
14. See also Sonnack, Mary, Thomke, Stefan and Von Hippel, Eric. 2002. Creating Breakthroughs at 3M. Boston: Harvard Business School Press, January 14, 2002.