Measuring Productivity of New Products

(Innovation Excellence, 2 February 2012)

In Brief: A new book determines the productivity of R&D spend by dividing new product sales or profits by R&D or new product development costs and time. By using this formula, the author found that the most productive industry is consumer packaged goods, while the pharmaceutical industry is the least productive.

Our View: While most companies rely on the level of R&D spend relative to sales as a key metric that informs strategic decisions, we believe this metric does not strongly correlate with business performance. Instead, progressive companies closely monitor the composition of their R&D spend across project types to ensure that these investments generate commercial impact and contribute to long-term advantage.