Performance Measurement for R&D

“I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be” (Lord Kelvin, 1824-1907).

With an ever increasing demand for improved and performance oriented products and the new challenges that come across businesses with each passing day, companies are involved in series of activities ranging from scientific, organizational, technological, financial and commercial ones. The survival of a company is dependent on how it is using technology as a lever of strategic intent. The technology related innovations are the conversion of knowledge into a new or improved product and process through which society and businesses can be served better.

The term “innovation” has diverse meanings in varied contexts and it will depend on the specific objectives followed to its measurement and its analysis. Innovation is not only linked with technological part but it has scientific, organizational, financial and commercial dimensions as well. Research and development (R&D) is one of the activity will is involved at various stages of innovation and process. R&D is involved at various stages of development of product and it is not just source of innovative ideas.

Organizations are sensitive to the strategic impact of R&D and it is one of the main determinant of strategic success but traditionally very less attention has been given to measure performance of design and development process. The focus was always on manufacturing and operational processes not the research and development, and key to success was efficient processes for high-volume products. The relationship between inputs used during R&D processes and the outputs achieved is considerably lesser and uncertain than it is in manufacturing where standards are used for quite long time.

For R&D it is very important to have cohesive systems of measurement that capture both financial and non-financial returns and it must be aligned to the organization’s corporate strategy. R&D is becoming more of a strategic function for companies and is aligned with all functions of organization. The role of R&D has changed over the years, passing through a stage of seclusion to the stage of cohesiveness in product development process.

Importance of Performance Measurement

The slogans “What gets measured gets done” & “You cannot manage what you cannot measure” show the importance of performance measurement (PM) for an organization.  It is a subject which is often discussed but not well defined. It is the process of quantifying the actions, and measurement is the process of quantification and action leads to performance. According to the marketing perspective, organizations achieve their goals, by satisfying their customers with greater efficiency and effectiveness than their competitors. The terms efficiency and effectiveness are used precisely in this context. Effectiveness defines the magnitude to which the customer’s requirements are met, whereas efficiency is the measure of how economically the firm’s resources are utilized to meet customer satisfaction. It is an important point as it not only identifies two fundamental dimensions of performance, but also highlights the fact that there can be internal as well as external reasons for pursuing specific courses of action. For example, effectiveness means achieving a greater level of product reliability may lead to superior customer satisfaction and as far as efficiency is concerned it means how to reduce costs incurred by the business through decreased field failure and warranty claims. Hence the level of performance a business attains is a function of the efficiency and effectiveness of the actions it undertakes, and thus:

• Performance measurement may be defined as the process and metric of quantifying & measuring the efficiency and effectiveness of action.
• A performance measurement system can be defined as the set of metrics used to quantify both the efficiency and effectiveness of actions.

Over the past decade, a rapid increase in global competition brought about by technological change and product variety proliferation has accumulated the role of continuous performance in improvement as strategic and competitive requirement in many organizations worldwide. Nowadays, in order for organizations to maintain and improve their competitive advantages, performance measures are widely used to evaluate, control and improve business processes. Organizations understand that it is much more difficult to measure its performance and product development effectiveness than the other business processes. PM plays an important role in resource allocation, researchers motivation, and facilitating communications between researchers and the management. Significant amount of management’s and academics from a wide variety of management disciplines, time is devoted to the issues like “what and how should we measure”.

It is apparent from the work being done in automotive industry that both financial numbers and effectiveness and efficiency of new products dependent on the performance of their product development process. Organizations understand that to measure its performance and product development effectiveness is much more difficult to measure than the other business processes and because of this there are no broadly accepted performance metrics.

Organizational performance is measured as part of the process by which managers attempt to improve performance over time. Management is a team activity which involves people from different functional responsibilities and disciplinary backgrounds, yet historically performance measures of organizations are derived and aimed at needs of investors and hence financial measures are of prominence. But to measure performance holistically many companies around the world are adopting integrated approaches that will yield most attractive return on investment. The performance management system intends to do the following works –

• Quantifying the efficiency and effectiveness of past actions.
• Identification of how well organization is managed.
• What value is delivered to customers and stakeholder.