If you’re part of a company conducting research and development, it’s absolutely critical that you’re measuring your research and development. This is so you know your activity is contributing value, and you’re getting a return-on-investment. As many will be aware, one of the best ways to go about this is by using Key Performance Indicators (KPIs). But how do you decide what KPI or KPIs will paint the most accurate picture? To go about this, we must consider some key details.
Why Use Key Performance Indicators?
KPIs or Key Performance Indicators are there to inform your department and the wider organisation of the effectiveness of your programme. They’re important, as they quantify the value that your department is generating. You can use this as a benchmark, aiming to improve the number over time. They also act as an ‘audit trail’. In the same way that an organisation keeps record of finances, KPIs record activity. KPIs are a key part of post-project evaluation and can act as an important communication tool, summarising your R&D efforts.
Though a KPI will seek to quantify, that doesn’t mean it has to be purely quantitative. KPIs may consider qualitative factors also. When developing your KPIs, they should consider everything that the department sees as valuable. This will be different for each organisation and industry.
R&D Metrics – Input and Output
The 2 most clear metrics to assess in R&D are inputs and outputs. Input can usually be defined as the time or cost spent on R&D. Output on the other hand can be more complex. It must summarise what the department produces – the results of successful projects. On the surface, this might include:
- Time savings
- Monetary savings
- Safety improvements
- Product improvements
- Service improvements
R&D however is as much about the journey as it is the destination. Output should also consider the less tangible outputs. This might include things such as:
- Learning achieved throughout the process
- Transferable skills gained
- Capital assets acquired
- Valuable business relationships formed
For these less tangible metrics, you may have to be creative about how you quantify them. Consider using 1-10 scales, and gathering stakeholders opinions. Though less scientific, you’ll gain a picture of the perceived outputs from a range of individuals involved.
R&D Metrics – Quality, Quantity and Time
Input and Output provide a solid base to communicate a high level overview of your department’s performance. To gather more detailed insights, we take a look at KPIs that test individual aspects of your R&D. A good general basis to work from is Quantity, Quality and Time.
Quantity is simply the amount of output. This may be the amount of:
- R&D projects that succeed
- Projects that are undertaken
- A specific measure within each project (i.e cost)
Quality looks more at the standard of output. This might include:
- Amount of successful projects divided by unsuccessful projects
- Average market readiness or Technology Readiness Level of projects
- Variance between project concept and delivery
Time is the speed of output. This can include average times for:
- A project to be delivered
- A project to break even
- A project to pass through a certain phase
We use these metrics to see where our strengths and weaknesses lie. For example, It may be the case that an R&D department produces a large amount of projects, but none of them are successful. In this instance, let’s say they mostly fail to adhere to the brief. The department can deduce that they must improve on the quality of their output, rather than the quantity.
North Star Metric
After defining high level more detailed KPIs, you will essentially have a portfolio of KPIs. This is very useful for managers or technicians working in R&D. It gives them the opportunity to monitor individual details, and make improvements as a result. For the rest of the organisation or external stakeholders however, you should strive for a single, all-encompassing metric. This metric is important, as it will be what the whole team is striving to improve. This creates a sense of unity and cohesion around improving this metric.
We call this metric, the North Star Metric. It will most likely take into account some of the metrics already in your KPI portfolio. Importantly, this North Star Metric must be aligned with the company’s objectives.
At this point, you should liaise with the c-suite executives of your organisation. Ask yourselves, what is it that our company set out to do? Once this is answered, how can we quantify this into a single metric, using the metrics we can currently access?
Objectives should be considered and weighted accordingly. We’re looking here to build a ‘balanced scorecard’, which considers different areas in different amounts, relating to how important each is for the organisation. Combining these metrics in their appropriate proportion will give the single, North Star Metric.
It’s this ‘North Star Metric’ that is the best KPI for research and development. Each organisation will have a North Star Metric unique to them, so don’t worry if it takes some time to figure this out. Once this metric has been decided, you can be sure the whole R&D department will be working in the same direction. With success, this KPI will improve.
In this article, we’ve examined some of the ways in which you can establish relevant KPIs that measure your R&D activity. We’ve also looked at how, through weighting different KPIs in a balanced scorecard, you can come to an aggregate North Star Metric, that communicates the overall performance to relevant stakeholders. If you’d like to find out more about establishing the best KPIs for R&D, get in touch via our contact us page, and one of our team would be happy to help. Alternatively, download our guide below, to find out more about how to best manage your R&D projects.