Commonly used metrics for innovation projects
| Key performance indicator | Key applicability | Challenges for radical innovation evaluation |
|---|---|---|
| Net present value | Assesses (pre-launch) the difference between future cash inflows and outflows and discounts it to the value represented today | Uncertain and fluctuating net present value as future revenue is arduous to predict with accuracy (especially in early stages) |
| Return on investment | Gives (post-launch) feedback on the net income from launched projects. Compares gains versus costs of investments | Investments in radical innovation are broader than “single projects”. Return on investment does not provide a valuation of new competency and spillover effects built through radical innovation projects |
| Percentage of profits from products less than n years old | Provides information on how new projects contribute to the firm’s turnover and the firm’s competitive position | Analyses will often show that most profit comes collectively from incremental innovation projects, except for periods with radical innovation market breakthroughs |
| Total patents filed/pending/awarded | Explains how firms are able to secure patent rights, giving an idea of future licensing potential, etc. | Time required to patent is often longer for radical innovation projects. It may also be an unfamiliar patent landscape. A lot of experimentation is involved before product/technology descriptions are made |
| Time-to-market | Describes the speed from innovation project investment to the first customer | Expected conceptualization and experimentation for 2+ years before commercialization path is laid. Often a 5+ year time horizon to market |
| Success/failure rate of projects | Measures the degree to which new projects in the portfolio succeed/fail. Indicates our ability to select “the right” projects for the pipeline | “Failure” rates will be higher for radical innovation projects. These projects target multiple applications, and an initial project “failure” may not portray overall success and new competency development |
| Key performance indicator | Key applicability | Challenges for radical innovation evaluation |
|---|---|---|
| Net present value | Assesses (pre-launch) the difference between future cash inflows and outflows and discounts it to the value represented today | Uncertain and fluctuating net present value as future revenue is arduous to predict with accuracy (especially in early stages) |
| Return on investment | Gives (post-launch) feedback on the net income from launched projects. Compares gains versus costs of investments | Investments in radical innovation are broader than “single projects”. Return on investment does not provide a valuation of new competency and spillover effects built through radical innovation projects |
| Percentage of profits from products less than | Provides information on how new projects contribute to the firm’s turnover and the firm’s competitive position | Analyses will often show that most profit comes collectively from incremental innovation projects, except for periods with radical innovation market breakthroughs |
| Total patents filed/pending/awarded | Explains how firms are able to secure patent rights, giving an idea of future licensing potential, etc. | Time required to patent is often longer for radical innovation projects. It may also be an unfamiliar patent landscape. A lot of experimentation is involved before product/technology descriptions are made |
| Time-to-market | Describes the speed from innovation project investment to the first customer | Expected conceptualization and experimentation for 2+ years before commercialization path is laid. Often a 5+ year time horizon to market |
| Success/failure rate of projects | Measures the degree to which new projects in the portfolio succeed/fail. Indicates our ability to select “the right” projects for the pipeline | “Failure” rates will be higher for radical innovation projects. These projects target multiple applications, and an initial project “failure” may not portray overall success and new competency development |
Sources: Kirsner (2015); Bremser and Barsky (2004); Griffin and Page (1996, 1993) and own adaptation