
Innovation is the lifeblood of any industry, driving growth, competitiveness, and profitability. However, transforming innovative ideas into tangible business value is a complex challenge. Business leaders must address three critical questions: how to drive a return on innovation, measure the value of these investments, and prioritize projects across the innovation portfolio. When it comes to measuring return on investment (ROI) from innovation, Allerup et al. highlighted in a 2023 article from Bain & co., that “Innovation can be seductive, but companies can’t let sexy ideas or pet projects distract from the ultimate goal: growing a business to scale.”
Innovation ROI also requires rules: clear financial expectations (and appetite) for individual projects and overall portfolios. And it means carefully managing where innovation ideas come from, how they’re evaluated, and who decides whether they meet the criteria for investment.
Allerup et al., from Bain & co.
This is where Product Lifecycle Management (PLM) comes into play. Often misunderstood as merely a set of tools or systems, PLM (or whatever you call it at your organization) is actually a strategic gateway-driven framework that drives product development deliverables, production, and commercialization. It links to a holistic approach that integrates people, processes, and digital tools to manage data across the entire product journey—from concept ideation to market introduction and beyond, up to delisting and recycling.
The Expansive Role of Innovation and PLM
Innovation extends far beyond the R&D department. It touches every aspect of business—from brand building, finance, and sourcing to manufacturing, quality assurance, compliance, commercialization, intellectual property, and asset maintenance. Measuring the impact of innovation requires a holistic view that encompasses all these areas, reflected in growth, profitability, and competitive advantage.
PLM supports this broad scope by connecting processes, data, and tools across the entire product lifecycle. It ensures that innovation efforts are not siloed but are integrated and aligned with business objectives, driving efficiency and strategic value. A truly effective PLM strategy focuses on coordinating all innovation-related activities, ensuring that new ideas are nurtured into successful products and services that align with business goals and market needs. PLM connects the boardroom and shop floor to product performance and other business analytics.
Key Strategies for Driving Return on Innovation
Generating substantial returns from innovation involves more than just launching new products; it requires a strategic approach that connects business goals with innovation efforts. To achieve this, companies should:
- Align innovation with business objectives: Ensure that innovation initiatives directly support company goals, such as entering new markets, improving operational efficiency, or enhancing product quality. This alignment is crucial for demonstrating the strategic value of innovation.
- Focus on customer/consumer needs: Engage customers early and often to understand their needs and preferences. Use these insights to refine innovation initiatives, ensuring that they resonate with the market and create real value.
- Adopt agile development practices: Use agile methodologies for rapid prototyping and iterative testing, enabling quick adaptations based on market feedback, reducing time-to-market, and minimizing the risk of product failure.
- Promote cross-functional collaboration: Innovation is not solely the responsibility of R&D. It requires input from marketing, sales, finance, and operations to ensure that new ideas are feasible, marketable, and financially viable. This collaborative approach helps break down silos and fosters a more integrated innovation process.
- Leverage end-to-end analytics: Comprehensive PLM analytics provide deep insights into every stage of the product lifecycle, from design to post-market performance. This data-driven approach enhances decision-making, predicts risks, and helps optimize the return on innovation by continuously monitoring and refining product strategies.
Measuring and Prioritizing Innovation Investments
Quantifying the value of innovation is challenging but essential for securing future investments and driving strategic decision-making. Effective measurement should go beyond basic financial metrics to capture a comprehensive view of the innovation’s impact, using:
- Financial metrics: Such as revenue growth, market share gains, and profit margins directly attributable to new products. These metrics show how innovation contributes to overall business performance.
- Innovation pipeline metrics: Including the number of new ideas, conversion rates from concept to prototype, and time-to-market. These metrics provide visibility into the efficiency of the innovation process.
- Customer metrics: Such as customer satisfaction, Net Promoter Scores (NPS), and retention rates for new products. These measures indicate how well innovations are meeting customer needs and enhancing brand loyalty.
- Strategic metrics: Evaluate alignment with long-term goals, such as entering new markets, achieving sustainability targets, or adopting breakthrough technologies.
Prioritizing innovation projects is crucial given limited resources. An effective portfolio strategy involves analyzing the current product portfolio to identify gaps, strengths, and opportunities. Resources should be allocated to high-potential projects that align with strategic objectives and offer a clear path to profitability. A balanced innovation portfolio, including both incremental improvements and disruptive innovations, helps manage risk while pursuing high-reward opportunities.
The People Aspect and Adaptation to Organizational Maturity
PLM effectiveness extends beyond processes and technology to include the human element. It requires the active participation and alignment of all stakeholders across the organization. Fostering a culture of collaboration and innovation is essential for breaking down silos and enabling cross-functional teamwork. Effective change management and ongoing training are critical to ensure that employees embrace new processes and tools, maximizing the value of PLM.
There is no one-size-fits-all approach to PLM. The success of a PLM strategy depends on the organization’s maturity, culture, and readiness for change. Companies must tailor their PLM initiatives to fit their unique context, scaling and evolving them as the organization grows. End-to-end PLM analytics also play a pivotal role, providing real-time insights that help organizations adapt their innovation strategies based on market feedback and internal performance.
PLM is not just about tools, systems, or technology; it’s a strategic approach that helps organizations drive sustainable growth through effective innovation management. By integrating people, processes, and technology, leveraging end-to-end analytics, and adapting to organizational maturity, companies can unlock the full potential of their investments and achieve lasting success.
Driving a return on innovation involves transforming ideas into value, integrating efforts across the organization, and continuously adapting to market changes. With a robust and adaptable PLM strategy, innovation becomes a powerful engine for long-term success and competitive differentiation.
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