No business analysis would be complete without a thorough overview of key performance indicators. In this article we’re going to look at some of the most popular ones and stress the importance of measuring these elements.
Key performance indicators should be used to build a fact-based follow-up for the future. Your business uses them every single day and there is no reason any new ventures should ignore them.
Generally using performance indicators that are more basic is recommended over truly arcane ones. While one can build extremely complex indicators it makes far more sense to keep it simple. Remember that data is only worth getting if it can actually be used and oftentimes complex data is unusable.
Profit
First and foremost your organization has to keep track of profit and loss on innovations. This is a business basic and should not need to be expanded on.
Beyond profit, expected profit and revenue is an important indicator regarding the initial launch of a product.
Asset Acquisition
Your company is going to have to acquire assets for its innovations. Keeping track of these assets as well as the rate at which they are acquired is highly recommended.
It’s part of keeping your firm financially healthy. Remember that by necessity new innovations are always a drain on the company until they’re profitable. Being careful to map asset acquisition is an important part of ensuring that spending is as efficient as possible.
Shipping rate
For every idea you create, how many actually reach the market? This is an important metric that displays how effective your company is at venturing. A critically low rate would be a sign of issues within the innovating process.
This indicator can take two different meanings. While it does show aggregate shipping rate it also could show the failure rate of ideas. In light of this a more valid way of looking at the shipping rate KPI would be in terms of ideas started versus how many actually make it to market.
Return on Investment / Return on Assets
These are the holy grail of business accounting ratios and at all times should be closely monitored to ensure that innovations are positive uses of your company’s capital.
Note that is entirely reasonable to expect innovations to have a lower ROI/ROA than your firm’s already existing business. Then again ideally your ventures would be running far more lean so that’s a tough judgement call to make without looking at a specific firm’s financial statements and your venture’s specifics.
Failure rate
When your company launches innovations some of them are going to fail, that’s a given. With that said the failure rate of products that are brought to market should be as low as possible.
3M is a company that innovates an insane amount and while they fail to get many of their projects to market at the end of the day they’re more concerned with the projects they actually launch doing well.
Naturally this makes perfect sense – it’s how every organization should pay attention to their business. It’s alright to invent and innovate but bringing to market is where the risk lies in production and promotion. If a product it simply not deemed good enough that’s alright.
So keep track of failure rate, but don’t obsess over it, that’s just silly.
Taking it further…
Beyond these key performance indicators, Sehested and Sonnenberg list other indicators that are worth tracking. They suggest that your company maps out:
- Product target cost
- Resource consumption
- Project intensity in terms of hours/participants
- Completion level of tests
- The number of milestones reached each week
- The number of times users have given feedback
- Team temperature
Some of these are certainly worth measuring but others are already falling into the trap of the arcane. For instance the number of times users have given feedback is, in the digital realm, something you can gather at any time.
If you’re a fan of the complex indicators you can find additional ones for process innovation in Lager’s Managing Process Innovation: From Idea Generation To Implementation.
Using key performance indicators is essential to your firm’s innovation process. As Drucker said, “what gets measured gets managed.” Without these numbers it’s going to be very hard to perform analysis on innovations and that’s not smart business.
If your firm is already innovating what key performance indicators have you looked at recently? Do you think there are other important indicators that we didn’t discuss here? Has your firm implemented those?
