Introduction: How KPIs Support Successful R&D
Research and Development (R&D) is a crucial part of any organization that aims to stay ahead of the competition and develop innovative products or services. However, to fully understand the value and impact that R&D efforts have on a company’s overall success, companies that invest in R&D efforts must utilize Key Performance Indicators (KPIs). By identifying KPIs relevant to your business objectives and having the right systems and tools to track and measure those KPIs efficiently, companies can better understand the efficacy of their efforts, identify areas for improvement, track progress toward organizational goals, streamline their development processes, and stay ahead of the competition.
In this blog, we will review some of the common challenges with tracking R&D metrics, the importance of KPIs for R&D, outline a few of the most common KPIs that are tracked in an R&D organization, how they fit into a company’s overall objectives, and different solutions that can help organizations start or improve the way they track and measure their R&D performance.
The Challenge: Tracking R&D Performance Metrics
Despite the immense impact that tracking KPIs can have on not only improving and optimizing R&D efforts but the overall business outcome as well, organizations are still faced with challenges when it comes to effectively tracking and applying R&D-related KPIs. A few of the issues include:
- Lack of familiarity with the KPIs relevant/specific to their business
- Data attributed to metrics are scattered and unstructured
- Businesses often fail to track the bottom-line implications of performance improvements/adjustments
- Companies lack the systems/solutions to track metrics adequately
In a recent study, “R&D performance measurement and benchmarking,” surveying how R&D teams collect and report metrics data, “only 24% of respondents [were] using enterprise-wide systems to track metrics.” However, “companies with enterprise-wide systems experience fewer problems such as difficulty in standardizing the data than companies that haven't adopted the systems.”
With R&D KPIs so strongly associated with the impact on a company’s ability to innovate and survive and sustain itself in today’s market, companies must have a pulse on their R&D KPIs and can easily track and monitor any changes in improvement or decline. As such, having a strong data management system (like Uncountable’s all-in-one data management platform) in place that allows your R&D organization to access and manage its data in a structured and standardized method is key.
Luckily, there are various ways companies can begin to track their R&D performance, whether it’s going back and evaluating historical performance or identifying the right metrics and then establishing the right systems and tools to start tracking the right metrics.
The Importance: KPIs for Research & Development
KPIs are important because they inform both the department and the wider organization about the effectiveness of the research and development program. They quantify the value generated by the department, allowing for continual improvement over time. Additionally, KPIs act as an audit trail, like financial records, and are an important communication tool for summarizing R&D efforts.
Using KPIs, R&D teams can better benchmark their performance to objectively assess and quantify their product development performance and compare it against others in the same industry. It is crucial for companies engaged in research and development to measure their activities to ensure that they are contributing value and generating a return on investment.
Input & Output Metrics
When assessing R&D performance, the two most straightforward metrics to consider are inputs and outputs:
- Input typically refers to the time and cost invested in R&D. Input metrics are often quantitive values attributed to the change in output.
- Output can be more intricate and typically encapsulates what the department has produced, such as the outcomes of a successful project. Unlike input metrics, output performance metrics are sometimes less “tangible” and more qualitative vs. quantitative. In these cases, several methods (e.g., a 1-10 scale rating or setting a proxy metric) can be used to evaluate these outputs.
When understanding the importance and role that Input and output metrics play within an R&D organization, it’s helpful to evaluate input and output metrics based on their direct impact or contribution towards a project’s quality, quantity, and time.
How to Categorize & Measure R&D Performance
Numerous KPIs can be used to measure and track the performance of your R&D efforts. However, to identify the KPIs most specific to your organization and its R&D efforts, start by evaluating the different inputs and output metrics and identify which ones can be controlled by the efforts of your team and which cannot be.
It’s also important to understand how different input and output metrics relate to the overall business and departmental performance/objectives. Some of these performance metric categories include:
- Innovation Metrics
- Time-to-Market Metrics
- Financial Metrics
- Cost Metrics
- Safety, Regulatory, & Compliance Metrics
- Product improvement Metrics
- Talent & Service Metrics
To get a list of common KPIs that are used to track and measure the performance of each category above, check out part 2 of our series:"Unveiling The Top KPIs R&D Teams Must Track & Measure"
When you’ve established which inputs and outputs are dictated by your R&D efforts, then you can drill down into the specific KPIs that you can use to set benchmarks and measure your overall R&D performance/success.
To find out what specific KPIs can be evaluated within each category of R&D performance metrics, check out Part 2 "Maximizing R&D Success: Unveiling The Top Key Performance Metrics to Track & Measure"