Given that CTO’s are responsible for a portfolio mixed with incremental, next- generation, and breakthrough programs, several questions are raised: Which metrics are actually in use today? How have things changed since the TVP subcommittee conducted its survey in 1997? To answer these questions, 24 IRI Board members and ROR subcommittee chairpersons were queried to determine which metrics were actually in their performance objectives for the year.
|Strategic Alignment||Financial Return|
|Projected Value of the R&D Pipeline||Distribution of Technology Investment|
|Use of Project Milestones||Development Cycle Time|
|Customer Satisfaction||Number of Ways Technology is Exploited|
|Number of Projects Having Bus./ Mkt. Approval||Market Share|
|Goal Clarity||Development Pipeline Milestones Achieved|
|Use of Cross-Functional Teams||Comparative Technology Investment|
|Project Championship||Sales Protected by Proprietary Position|
|Management Commitment & Accountability||Use of Stage Gate / Agile Process|
|Quality of Technology Plan||R&D Climate|
|Adequate Resources||Quality of Technical Team|
The survey presented the 22 metrics from 1997 that had been voted on for their importance and asked which ones were being used now. The survey also asked which metrics not on the list were being used. Of the 22 “important” metrics identified in 1997, only six showed up in most respondents’ 2002/2003 performance objectives. The top two “most important” 1997 metrics– strategic alignment and financial return–again made the top of the list across-the-board. Other metrics being used by most people were the projected value of the R&D pipeline, use of project milestones, development pipeline milestones achieved, and quality of the technology plan. No new metrics were reported to be in use by a significant portion of the respondents. Thus metrics can be viewed as quite dependent on the R&D Game Type the company is pursuing and the level of thought of the CEOs team.
Thus as R&D metrics moved from the quantitative (accountant’s viewpoint) to the qualitative (CEO’s viewpoint), another attribute of metrics evolved as well. Quantitative metrics are intrinsically transferable from one context to another. By this I mean that any accountant can measure the cost of a product, service, apiece of manufacturing equipment or a new computer and it will have the same meaning for everyone. However, when the ROI of the same list of items is calculated, then the picture starts to cloud.
The ROI of a new product or service is easiest to calculate for commodities where prices and costs are relatively stable and predictable. It is harder for next-generation products and hardest for breakthrough items. There are two reasons for this: 1) The future is uncertain, and 2) the price or value of intangible items is dependent on their context. For most business concepts, the future behavior is the easier of the two to model financially. Metrics accounting for future value and for option value are now available and accepted (12,13). What is still an issue for corporate functions dealing with intangible intellectual capital, however, is how to account for the change in value of an item with respect to its context or use.
For example, what is the value of a patent? This is a dollar amount that the IP and licensing organizations need to know for their quantitative metrics. What is the value of an R&D scientist? This is a number some HR organizations are now calculating to use with their quantitative metrics.
The answer to both questions is “it depends”; it depends on the use to which the patent or person is put. A patent can “sit on the shelf”, be used to prevent a competitor from competing with a company’s product or service, or be licensed to create a new revenue stream. In the latter case, the value could be high to a direct competitor, less to someone applying the art in a different field of use, and still less to a university building a portfolio of art in a specific area. What value should the licensing group assign the patent in each case?
We have been dealing with this class of problem for decades in R&D. The outputs of our laboratories can go into immediate products, launched within months, or they can be the scientific building blocks of breakthrough products to come. Depending on the viewpoint of the stakeholder and metric, greatly different values can be assigned.
Looking at the metrics contained within the Technology Value Pyramid (TVP) makes it possible to resolve the dilemma of the IP, Licensing, and HR departments. If you replace the words “research and development” with “IP department,” “Licensing department,” “HR department,” “Quality department,” etc. one obtains a set of metrics that make sense for these departments to consider using. Going on the website and browsing the metrics in more detail brings this point home even more strongly. This concept of adopting the underpinnings of R&D metrics for measuring other intangible assets is being adopted by some licensing and intellectual asset management departments with both interest and success.
What was created for use in R&D can be thus leveraged by other corporate functions. The key learning here is that all intangible intellectual capital assets have the same characteristics and metrics. In the same way, all tangible manufacturing (commodity- like) assets also have the same characteristics and metrics underpinnings as noted earlier. Because of this, R&D leaders can help other colleagues and organizations in their companies to quickly develop metrics for their area that make sense and provide consistency across functions. This will enhance executive effectiveness, efficiency, teamwork, and rapport.