Return on Innovation Investment (R2I)
…R2I also shows return on investment, but only from new product innovation investments, not all investments. It looks at the firm’s total profits from new products (cumulative new profits generated from new products launched) divided by its total expenditures for new products. This long-term ratio shows the firm’s total return from new products over a three- to five-year period. This number has two uses:1. Descriptive: to demonstrate the overall effective contribution of new products.
2. Predictive: to forecast or set goals for the organization.”
Don’t ignore the other measures and focus on R2I alone though. R2I is driven by all the other metrics, since all have an impact on the bottom line. Remember also, that for R2I measurement to work, the process must be applied consistently to all new products and services.
Case in Point: Citigroup
At the heart of the Citigroup’s Innovation Initiative was putting the right metrics in place. The Citibank Division already had an Innovation Index in place that measured revenues derived from new products but that was deemed insufficient. The special task force was challenged “to come up with more meaningful top-line metrics that could be used to track progress and could be integrated into the balanced scorecard, and ultimately tied to compensation of senior managers. The team eventually settled on 12 key metrics. They included such things as: new revenue from innovation, success transfer of products from one country or region to another, the number and type of ideas in the pipeline (and expected new revenues), and time from idea to profit.”
—from Driving Growth Through Innovation, Robert B. Tucker, 2002