TVP – Background

Background | User Guide | Program Contents | Stakeholders | List of Metrics

The creation of a set of metrics to measure the effectiveness of R&D has been a major need for research managers for some time. In recent surveys of Industrial Research Institute (IRI) participants need for metrics has ranked in the top three for the past three years. The enhanced importance of reliable metrics is being driven by several forces: the need to justify the investment in R&D to senior management; the desire to improve efficiency in the use of R&D resources; and a means to estimate the value of the R&D investment for the future growth of the company.

In 1991 the Research on Research subcommittee of the IRI formed a committee to investigate the problem and develop a set of metrics that would be of value to the broad range of research interests represented by the IRI membership. This committee studied the literature, met with scholars and talked with industry representatives to assess the current practices that were in use to measure R&D effectiveness.

The work of the committee resulted in the concept of the Technology Value Pyramid, which was presented at the IRI annual meeting in the Fall of 1994. This concept is also the subject of a paper published in Research Technology Management (RTM, Vol. 38, No. 5, 1995, p. 22).

The final product of the committee is a versatile user friendly personal computer based program, “Technology Value Program”, intended to meet the needs of a diverse customer base. It provides three different interrelated approaches for measuring R&D effectiveness.

The first approach the program introduces is the Technology Value Pyramid or TVP. This is a hierarchy of metrics of the fundamental elements of R&D and the relationships with business results in the long and short term. The apex of the TVP, Value Creation, investigates the financial returns arising from the investment in R&D. The returns are impacted by the next segments in the pyramid, Portfolio Assessment and Integration with Business. Portfolio Assessment examines the distribution of the R&D investment in terms of risk, timing and potential return. Integration with Business focuses on the interaction of R&D and the Business Groups in terms of process, teamwork and organization. The foundations of the TVP are the Asset Value of the Technology and the Practices of R&D. The Asset Value of Technology addresses the development of core competencies that are essential for growth and competitiveness. The Practices of R&D investigates the practices, culture, and operations of the R&D organization and their ability to contribute to enhancing the development of technology.

The second approach addresses one of the key practices of R&D which deserves special attention and measurements. This is the Innovation Proces — the multifunctional work process for taking an idea and turning it into a commercial reality. The model for this process is the “Stage-Gate” Innovation Process. This model divides the process into 4 stages: exploratory, concept demonstration, product development, and commercialization. Between each stage is a gate which represants the decisions which must be made before proceeding to the next stage. There are metrics for each stage and gate which measure the effectiveness of the activities and decisions and which measure the quality of the portfolio of projects proceeding through the process. These metrics help to assure that the level of R&D investment is appropriate and that projects passing to the next stage are most appropriate to the strategic goals of the company.

There must be a financial justification for R&D activity in each of the phases in the Stage-Gate process. Investment in R&D can be viewed as a cost of doing business or as an investment. Exploratory effort can be viewed as a cost of doing business while commercialization activities are viewed as an investment. These simplistic views, however, are not adequate to cover the range of activities as a project moves along the path from idea to commercialization. The concept of looking at concept demonstration activities as the creation of an investment option is presented. The potential risk and return are examined in light of the incremental expense to be incurred.

One of the most important keys to decision making in the Innovation Process is the assessment of the quality and potential of technology projects. The Merrifield Criteria provide a useful construct for evaluating projects for Business Attractiveness and Business Fit; metrics have been provided which correspond to these criteria.

Within a corporation, different stakeholders will select different sets of metrics depending upon their position in the corporation. Senior management can investigate the hard financial returns arising from their investment. Business management can investigate the linkages between R&D and their respective areas. Areas of strength and competitive advantage as well as areas for improvement can be identified by using the metrics proactively.

Research management can select metrics that will assist them in improving the effectiveness of decision making for project selection and execution. Analysis of decision making for project management is available using a Stage-Gate model.

Users can tailor a set of metrics that will be of value to their particular situations. Though there are fifty metrics available to choose from, not all of them will have relevance to each user. In fact, it is anticipated that most users will select four to six metrics for their own investigation.

The program allows the user to use a simple selection process to access the metrics of particular interest to them. The metrics themselves are presented in a text format that describes the particular metric and examples of how to use it. A bibliography is provided in case the user is interested in learning more information regarding the particular metric.

Questions or Comments?

If you have any questions or comments about the use of the Technology Value Program, we would like to hear them.  Please send correspondence to green@iriweb.org.   Modifications that will improve the usefulness of the Program will be incorporated into future updates.