NPD success is often measured by whether the new product meets 1) performance, product cost, and product quality objectives, 2) project cost objectives, and 3) schedule targets (commonly referred to as the “triple constraint”). While those are obviously important, it misses the point of why new products are developed in the first place: to satisfy customer needs better than competitive products and generate revenue and earnings growth for the firm. Just because a new product meets the performance, project cost, and schedule does not guarantee market success over the medium to long term. Maybe the definition for the new product was just not what the market wanted or needed. On the other hand, a new product might be a year late, but when it is introduced, is wildly successful in generating revenue and earnings growth.
A recent article in the December 2012 issue of Harvard Business Review entitled “Wall Street Doesn’t Understand Innovation” underscores the challenge of measuring NPD success, even for Wall Street. The research presented in this article shows that companies who are successful innovators are not necessarily rewarded by share price premiums over companies who are not as effective. The author tries to explain why investors might not get it by stating: “…innovation is one of the more-opaque activities companies undertake. R&D is uncertain. You never know when it’s going to pay off. It’s the hardest thing on a balance sheet or an income statement to value, and yet it can have a huge impact on a firm’s overall value.”
The point is that you have to be careful about short-term measurement of NPD success. It is not always easy to measure the true value of the tacit knowledge associated with an R&D organization. If a company’s management in particular is focused on measuring success using the familiar “triple constraint” parameters, management may miss an opportunity to create long-term value.
New Product Visions is a consulting company that helps organizations improve the effectiveness of their new product development processes. We specialize in small to mid-sized companies that manufacture highly engineered products. Contact us today about how we might help you!