Performance metrics for innovation and marketing strategy

Performance Metrics and Innovation and Marketing Strategy

Importance of metrics

Metrics to measure innovation

Return on Investment Metrics

Organizational Capability Metrics

Leadership Metrics

Portfolio Balance

Scaling

Metrics to measure marketing strategy

Cost of capital

Price elasticity

Customer Acquisition Cost

Market Share

Brand Awareness

Recommended Metrics in My Company

Performance Metrics of Innovation and Marketing Strategy

One of the fundamental goals of organizations is being effective in all business functions. Towards becoming sustainable and competitive, a business concern should design and employ metrics to measure effectiveness. The achievement of effectiveness and the development and adoption of metrics to measure has drawn a lot of interest from many business players in the recent past (Solcansky, Sychrova & Milichovsky, 2011). Every organization should exhibit capability for effectiveness and efficiency in conforming to industry accepted standards and metrics. A business entity may not be able to match its performance with other players in the industry properly, without employing industry-accepted standards for measuring effectiveness and efficiency.

Importance of metrics

Metrics play an important role in directing focus and helping business give their attention to important issues and activities that actually move the needle. The metrics companies can, and need to employed vary according to specific activities of the industry. Some of the metrics are mandatory and regulatory bodies enforce their use while others are implemented for internal use and are not mandatory. Generally, metrics adopted by an organization should help in the attainment of organization-wide and departmental goals. Activities like finance, monitoring of competition, marketing, customer service and human resource activities should all be measured at some level to help obtain tangible data that will help improve them and correct faults in processes. Metrics show the efficiency of an organization\'s performance and is a good indicator of an organization\'s ambition and ethos (Solcansky et al., 2011; Milichovsky & Simberova, 2015). In the long-term, metrics document the general trajectory an organization is making and whether it is likely to meet the targets it has set for itself.

Metrics help improve profits by providing insights to reduce costs and raise productivity and effectiveness. It allows organizations to direct their activities towards the goals they have set and informs the deployment and redeployment of resources. With metrics, an organization obtains the vital, constant feedback it needs to guide planning. Such data helps make decision-making process more rational and so more likely to be right. Budget usage becomes an informed process tailored to the prevailing conditions in an organization while not losing sight of the mission and vision (Milichovsky & Simberova, 2015; Cruz-Cazares, Bayona-Saez & Garcia-Marco, 2013). This implies that using metrics helps reduce an organization\'s risk exposure, especially to the risks on which it has some level of control. Lastly, using metrics allows performance benchmarking with competitors over time.

Metrics to measure innovation

Return on Investment Metrics (ROI)

Return on investment measures financial returns realized on resource investments. Using ROI induces fiscal discipline in the pursuit of innovation and ensures that all projects pursued make financial sense and have some financial value to the organization (Kaplan, n.d).

ROI inputs include:

• Capital percentage invested in the innovation activity

• Number of entrepreneurs working for the company

• Work hours dedicated to the project

ROI outputs include:

• Number of new services or products launched in the financial year in question

• Revenue percentage derived from new innovations

• Changes in wealth share in the market in the financial year (Oman et al., 2013; Chesbrough & Brunswicker, 2013).

Organizational Capability Metrics

The focus of organizational capability metrics is on innovation process and infrastructure. Capability metrics give insights into the presence or absence of sustainable and repeatable processes that an organization can employ to achieve its aims (Kaplan, n.d.). Measuring organizational capability involves using the following inputs:

• Employee percentage for whom innovation is one of the key performance goals

• Employee percentage who have been trained on innovation

• The number of methodologies and tools employees have access to The outputs include:

• Number of new competencies (i.e. the knowledge points and new skills that can help in innovation)

• The number of the organization\'s strategic options

• The number of new markets the organization has entered in the past financial year (Pman et al., 2013; Chesbrough & Brunswicker, 2013).

Leadership Metrics

Leadership metrics analyze leaders\' behavior and habits and inform them on the leadership skills and attitudes they must have, to support the innovation goals of the organization (Kaplan n.d.). A key metric is the proportion of an executive\'s time spent on strategic innovation as against that on daily operational activities of the business concern. Strategic activities and management drive innovation; hence requiring strategic managers to concentrate on assuring an environment where innovation flourishes.

Portfolio Balance

Good portfolio management is important especially where new innovative projects are consistently adopted. It follows that, Prioritization is important to ensure that activities and innovations that bring the greatest returns and help the organization achieve its goals faster and better, have easier access to resources. Portfolio balance starts by understanding the various projects an organization is currently pursuing, and their performance or potential. This requires a rigorous assessment centered on \'tolerance to risk\' and \'growth\' concerns (Cruz-Cazares et al., 2013). However, finding a good balance in portfolio management depends on the goal of an organization and the nature of its operations.

Scaling

Scale refers to the market penetration of an organization, and measuring scale is important as it ensures that projects have access to appropriate resources, while accounting for risks of expansion. The importance of Scaling is that it ensures organization\'s operational limits stay within its natural boundaries; transgression of the limits may lead to breaking point and if not controlled, to failure. Markets have several niches and innovation allows businesses to develop products and services that target these niches with amazing precision. Markets are becoming more fragmented and differentiated and only innovation can empower businesses to create and deliver products that meet the complex and specific needs of customers in today\'s marketplace (Cruz-Cazares et al., 2013).

Metrics to measure marketing strategy

1. Cost of capital

Managing working capital that goes to inventories and receivables effectively can help a business improve its ROMI.

In the normal operations of a business, cost of capital on receivables and inventories can be managed dynamically to help increase ROI/ROMI (Milichovsky & Simberova, 2015).

Equity always has either implicit or explicit costs and it is always possible to calculate this cost.

The net income a business gets after tax is divided by the equity on the comprehensive statement of financial position. This calculation yields the return on equity.

Price elasticity

Well-differentiated brands record lower price elasticity. As far as price elasticity is concerned, a brand is said to be resilient when very few sales are lost in the event of raising prices, and gain unexpectedly higher number of customers when their prices decrease. Price elasticity is of concern to marketers as it is one of the factors influenced by buyer behavior. The range of price elasticity is important when a marketer wants to change a product\'s price. The goal of a business concern is maximizing profits or revenues; implying that a marketer should avoid making a pricing decision that reduces sales volume and revenues.

Customer Acquisition Cost

The advent of online businesses has popularized the use of the metric customer acquisition cost. Traditionally, companies engaged in shotgun advertising methods in order to find ways of tracking their leads and customers through their decision-making processes. The current internet environment has made customer-tracking much easier with several tracking tools and analytics. This gives companies insights on the conversion ratio and probability, how long they stay as customers, what each customer is worth to the company and how much it costs to get a buying customer. Customer acquisition helps both the business and its investors. Its calculation involves dividing the number of acquired customers over a given period with the money that was spent over the period. For very specific campaigns, customer acquisition cost is the number of customers a marketing campaign yields divided by the ad spend for the campaign. A business should aim lower the customer acquisition cost against the projected customer lifetime value.

Market Share

Market share informs a company about its performance relative to the performance of its competitors. Besides helping get insights on market demand, it helps them know the mindshare they have in the market. It helps managers know the trends taking place in the market and the growth or decline possibilities. A company can grow by either capturing its competitors\' market share or meeting the demands of generally growing market. The latter is less expensive and less demanding. By knowing the extent of growth opportunities in the market, a business can allocate its marketing resources more efficiently. A business should always strive to increase its market share and not lose its clients to the peers in the industry. Losing market share poses significant long-term strategic problems for any company and further decline beyond a given limit can make a business unviable. Problems can also arise where only a few products in the portfolio account for the biggest proportion of the market share the company boasts of (TESCASIU, 2015; Solcansky et al., 2011).