Community Forum – Vitality Index
What is Your Vitality Index?
Vitality Index (new product revenues as a percent of total revenues) is a common metric used to show the innovation effectiveness of an R&D organization. Two IRI organizations ask that you please take a minute to complete the following survey to share how your organization defines the Vitality Index, what is a typical target and how this metric is used.
- Requiring more than one month FTE
- Unique benefit to customer
- Something that improves our core business – not simply a refresh or new packaging
5. What issues or concerns does your organization have with the Vitality Index calculation?
- We do not discontinue products. As our base grows it is hard to keep the vitality index. Isn’t the growth in revenues from new products a better metric in that case?
- Data collection and agreement on qualified product sales.
- The way the metric was defined originally has served us well to transition to current state, however there are voices advocating for a new definition to support next chapter on our innovation maturity journey.
- For some businesses it is difficult to get exact revenues on a product basis.
- Exact definition of ‘substantive change’ varies. For BU’s with products consisting of a single chemistry where R&D work is application development, how to capture ‘same product- new market’ sales under vitality.
- It CAN cause bad behavior (incremental innovation vs. strategic or breakthrough innovations) to hit the metric. It should be weighed against other key strategic metrics and strategic needs in the organization.
- Not sure what to do with the number. What is considered a “good” vitality index? Is higher always better?
- If a new product replaces an old one.
- Consistent criteria to test whether something is considered new. Also when to start the clock for timing (i.e. first sale of any sort). For some applications the first sale may start a long qualification period for our customer, so could be potentially a year or longer until the next sale will occur.
- How to define “new” (numerator) so the PVI value is useful as well as easy to maintain / update?
- What level (Business, Sub-Business, Product Family) is the PVI data actionable?
- It could drive some poor behavior. Specifically (1) not rewarding products for selling 50 years! (2) switching customers to new products when they do not want to.
- Information is not easy to be gathered and becomes very time consuming for the organization.
- Product launches occur at various times in different regions … typically use first launch.
- Definition of when to start the clock; length of time makes this a long-term, lagging indicator that is impossible to impact with short-term adjustments.
- Only factors new to world formulations. Does not capture new applications for existing formulations. Does not capture needed support for existing products.
- Technology primarily drives vs. the business. Very manual/subjective process. Continual debate around what should/should not be counted. Huge numbers reported by competitors create pressure to count things that aren’t really new.
- Be careful what you ask for. You have to be clear on what constitutes a new product or not. We’ve defined it as improving the core, new to our company, and new to the world. If you drive a vitality index metric without a strategic business context, you’ll be tempted to count everything, which renders the metric misleading and virtually useless.
- When big turnover generators are reneved the index is very high and visa versa.