The de facto bellwether for success in today's business environment, particularly in these grueling times, seems to be the ability to innovate. And that's great. No longer can companies rest on being the cheapest, or even the fastest, to outdo global competition. But how do we track and measure success in terms of innovation?

Research and development (R&D) and product development metrics is one path to tangible measurement.

Total funding for U.S. R&D is expected to increase just 3.3 percent in 2008 from the $355 billion funded in 2007 to the $367 billion expected to be funded this year, claims the 2008 R&D Funding Forecast from Battelle and R&D Magazine. At the time of the study's publication, in February (before the full brunt of today's struggling economy hit), the estimate for global R&D spending was expected to reach $1.2 trillion in 2008, 7.6 percent higher than 2007, due in large part to China's performance (estimated 28 percent growth in 2008; or, about 18 percent of global spending). In 2006, worldwide spending exceeded $1 trillion.

Contributing factors to the "generally sluggish movement of R&D funding and performance" start with the globalization of R&D wealth, according to the annual collaborative report.

Other factors that are contributing to the "dampening of overall spending on R&D" include the following:

• Restructuring of the major corporate R&D approaches in industry;

• Significant growth of the practice of offshore outsourcing of R&D;

• Shift in federal government priorities as a result of world events; and

• Growth of the federal deficit.

The largest chunk of the R&D funding pie went to product development (followed by applied research, technical support and basic research, respectively).

Recent research indicates that companies are now starting to focus on innovation measures and tangible tools to boost their overall innovativeness.

Earlier this year, Goldense Group, Inc. (GGI) surveyed 200 companies that design and develop new products and, in its 2008 Product Development Metrics Survey, determined the top R&D metric used in 2008: R&D spending as a percentage of sales.

"Our findings clearly indicate that there is an increased emphasis on measuring revenue and profits over the past decade," according to a GGI statement on its latest biennial survey of industry.

Of the 200 companies surveyed, some 55 percent "measure cumulative new product revenues in a rolling matter over time." That is a 20 percent increase from a decade ago.

The number of companies measuring new product profits is also beginning to rise, according to GGI. "It is the first significant rise in measuring profit from R&D in 10 years," according to president Bradford L. Goldense.

The following are the top 10 R&D metrics used by industry (2008):

• R&D spending as a percentage of sales (77 percent);

• Total patents filed/pending/awarded/rejected (61 percent);

• Total R&D headcount (59 percent)

• Current-year percentage sales due to new products released in the past six years (56 percent);

• Number of new products released (53 percent);

• Number of products/projects in active development (47 percent);

• Percentage resources/investment dedicated to new product development (41 percent);

• Number of products in defined/planning/estimation stages (35 percent);

• Average project return on investment or average projects payback (31 percent); and

• Percentage increase/decrease in R&D headcount (31 percent).

(Source: Goldense Group Inc., based on 2008 Product Development Metrics Survey)

Goldense recently told IndustryWeek that seven significant trends in R&D emerged from the 2008 Product Development Metrics Survey. He describes "seven distinctly positive trends [...] evident across the 86 metrics surveyed in 2007-2008." Among the seven:

• Increasing commonality of metrics;

• Increasing use of "current-year sales due to products released in the prior X years" to track new product revenues;

• Significant increase of tracking of overall profit from R&D (though still not a Top 10);

• "Open innovation," or multi-party development/sale/licensing of intellectual property "appears to be becoming a reality"; and

• Clear increase in "true performance metrics," (Example: calculating productivity measures such as "products released per engineer or developer").

"Because of the dominance of industrial funding as a source for the overall R&D enterprise, it is particularly important to pay special attention to industrial attitudes and practices," according to the Battelle/R&D Magazine findings. The good news is that "industrial performance of R&D is expected to reach $258.7 billion in 2008, an increase of 3.4 percent over 2007 levels."

But the accuracy of R&D measurement practices could mean the difference between failed experimentation and successful innovation.

Resources

2008 R&D Funding Forecast
Battelle and R&D Magazine, February 2008

2008 Product Development Metrics Survey
Goldense Group, Inc., June 2008

Tangible R&D Innovation Techniques Gaining Ground, Profit Measurement Is Increasing
Goldense Group, Inc., June 26, 2008

Seven Emerging Trends in R&D Metrics
by John Teresko
IndustryWeek, May 1, 2008