It is important to articulate your organization’s goals of innovation in your Product Innovation Charter (PIC). Your goals can be both quantitative and qualitative and they need to clearly stated so that the innovation team has a way of evaluating their own progress. And you ( the CxO) have a clear way of evaluating ideas that are presented. The common quantitative goals (qualitative goals in a later post) for innovation are profits, sales dollars and market share and here are some thoughts on each:
- Profits from a new product or innovative service are a function of two numbers. Your costs and revenues from the new product. While revenues correspond to sales dollars it’s really important to think about profits at the PIC (Product Innovation Charter). By doing so the innovation team will start looking at possibilities of reducing input costs and will demand ideas and inputs from the supply manager member on the innovation team. They might also be able to identify that a particular process in manufacturing has a high waste figure and speeding up an ongoing lean manufacturing initiative might reduce waste and thus cost. Apart from encouraging the team to think of input costs from very early in the NPD process the company leadership has to address their risk tolerance ability as this McKinsey article discusses. The company leadership will have to spell out how much initial losses they might be willing to bear as the product is launched and takes time to build market share.
- Sales Dollars as a quantitative measure leaves out units sold and is interested only in the multiplied number of sales volume and prices. The higher the dollar sales targets are the more the tendency of the team to simply assume that its going to be easy to sell the innovation at high prices. It is therefore a good idea to also include some minimum quantities that might encourage the team to think of multiple global markets right from the outset.
- Market Share as a measure is popular. However as Jack Welch discovered in GE, if you said that want to be no. 1 or 2 in the market managers tended to define the market segment very narrowly- to be no. 1 or 2. To understand this consider that you compete in the cola market then its easy to be no. 1,2 or 3 if you define your market as ” excluding Coca Cola and Pepsi” ! In addition, since global markets have become far more accessible over the last decade, it is a good idea to deal with market share aspirations in a global sense.
A big benefit of thinking and signing off on the above quantitative PIC goals by the C-Suite of officers is that they get involved at the early almost zero-cost stage of the NPD process. In doing so, the top leadership with the most experience provide their thinking bandwidth and can greatly help innovation success.