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Does R&D Contribute to Profits? Fewer Than 40% of Manufacturers Know

CAMBRIDGE, Mass.--(BUSINESS WIRE)--July 22, 1999--While global competition is forcing companies to reduce product life cycles, most manufactures have only a rudimentary idea of how to measure their new product development efforts. This finding is from a recent study by the Cambridge-based management consulting firm Goldense Group, Inc (GGI). GGI collected data on metrics used by product research and development (R&D) centers throughout North America, Europe and Asia. Working in conjunction with The Management Roundtable of Lexington, MA, GGI surveyed 190 companies that produce medical, electronics, automotive and industrial products. Results from this 1998 Product Development Metrics Research are available from GGI.

All respondents used metrics of some form to track their research and development efforts, but survey results document (1) an industry-wide inability to measure the effect new products have on company profits, (2) a misplaced responsibility for product development within the corporate hierarchy, and (3) a lack of sophistication in the measurement tools used to capture results.

"The acceleration of product life cycles has elevated the importance of managing new product development to the level of implementing new product development," said Bradford L. Goldense, GGI president. "And you can't manage a system unless you can measure it."

Survey Reveals Problems

Although all responding companies performed some form of benchmarking, fewer than 40 percent measure new product development in relation to its contribution to the bottom line, the survey showed. Project-oriented metrics (which measure target product cost, time-to-market and target price) were used by 80 percent of respondents. On the other hand, metrics that tie projects to profitability such as "time to profit" or "breakeven time" were not used by most companies.

"This suggests that product development metrics are presently divorced from larger business concerns," Goldense said. "Without the information that these metrics supply, it is impossible to get a complete picture of R&D productivity."

The survey also showed that the responsibility for product development metrics is not assigned correctly within the organization. While industry touts the value of cross-functional team-based efforts, most respondents say that a functional leader or a top-level executive is responsible for the metrics program in his or her company.

"What is especially revealing in this response is who is not leading the charge in metrics reporting," Goldense said. "It is not a dedicated engineering metrics function leader, or a specialized quality function leader, or the leader of a cross-functional team."

The largest percentage of respondents (21 percent) said that the vice president of product development or engineering is the "owner" of product development. The next largest percentage of respondents identified their general manager or business unit manager as the responsible party.

"This survey result argues that a team-based culture, despite all of the talk of the past ten years, has not yet filtered down to the level of metrics system leadership and maintenance," Goldense said.

Finally, nearly one-half of all respondents claimed that their product development metrics system consists of "a number of unlike systems." Furthermore, 54 percent use a manual system to capture and report metrics activities.

"In most companies, metrics are not tied together into a coherent system that is accessible to various levels within the organization," Goldense said. "Centralized, multi-project metrics capability must first be in place if automated collection of project metrics is to occur at optimal cost."

The Spread of Metrics

The use of metrics for product development activities is growing in acceptance because metrics has led to many improvements in other areas of manufacturing. "Since the early 1990s, it has become evident that innovation in product development will be linked to innovations in measuring product development, Goldense said. Just look at the success of similar measurement approaches. In the 1970s, industry used a measurement-based approach to develop just-in-time delivery. By the end of the 1980s, total quality control resulted in lower manufacturing costs and higher product quality.

About Goldense Group

The Goldense Group is a consulting and educational firm that specializes in leading edge management techniques and technologies used by line management functions. GGI focuses on process and technology integration between product strategy, R&D, design engineering, product development, manufacturing and materials management.

GGI works with clients on manufacturing process improvements including computer integrated manufacturing, just in time delivery, materials management, vendor management, outsourcing and business systems integration. The company is also experienced with quality function deployment, and has assisted clients in designing integrated computer aided engineering and computer aided design environments.

For more information, contact:

Bradford Goldense, President,
Goldense Group, Inc.,
Six Bigelow Street,
Cambridge, MA 02139.
Telephone: (617) 876-6776,
fax: (617) 876-6766,