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Reduce Total
Number of Metrics » across All Divisions »Standardize Metrics Measure Innovation Performance » Portfolio Decisions »Reevaluate
Innovation Metrics Selection and
Implementation Process
Best Practice Guidebook
• Fewer metrics produce greater insight
• Shared metrics and tools enable transparency and collaboration • Simplified dashboard informs key decisions about the portfolio mix
• Incremental Portfolio Value helps track growth from new products year over year Seeking greater insight into its innovation performance
across divisions, Parker’s corporate innovation team compiles metrics tracked by innovation teams companywide. However, the volume of information clouds companywide visibility into innovation effectiveness. Parker Hannifin INDUSTRY Diversified Manufacturing REVENUE (2012) $13 billion USD READ MORE »
The corporate innovation team selects a core set of four metrics based on applicability and usefulness that is standardized across divisions. The resulting clarity enhances decision‑making and improves innovation portfolio performance.
Parker’s Key Lessons Learned
Solution
Challenge
Corporate Strategy Corporate Development Marketing Competitive Intelligence Market Research Sales Leadership R&D/ Innovation Investors/ FinanceCEO
R&D/ InnovationApplicability to
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Parker Hannifin Organization Structure . . . .3
Overview Page . . . .4
Reduce Total Number
of Metrics. . . .5
Standardize Metrics
across All Divisions . . . .7
Measure Innovation Performance . . . .9 Reevaluate Portfolio Decisions . . . 12 Business Results . . . 13 Key Lessons Learned . . . . 14 Supporting Tools & Resources . . . 15
Parker Hannifin Organization Structure . . . . 15
Contents
Multiple executives at the corporate and division levels* commit time to this initiative:
• 50% time commitment from the Vice President; Chief Technology & Innovation Officer
• 100% commitment from the corporate
process owner (Director of Winovation Systems) • 50% commitment from each Vice President for
Technology & Innovation
• 25% commitment from division General Managers • 140 full-time division process owners
(usually Facilitators) • In 2010, Parker was tracking more than 2,400
active projects in its innovation pipeline. In 2013, Parker is tracking 1,136—a 45% decrease. • Portfolio value has increased by 20%.
• Parker can take on higher‑risk. (breakthrough) efforts because it has confidence in its risk management capabilities.
• Parker is seeing an increase in sales from breakthrough products.
Business Results
Resources Required
HEADQUARTERS Cleveland, Ohio, United States GEOGRAPHIC FOOTPRINT Global
OWNERSHIP Public EMPLOYEES (2012) 60,000
Contact the Growth Team Membership™ (GTM)
GTMresearch@frost.com
www.gtm.frost.com
twitter.com/Frost_GTM
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Vice President of Technology & Innovation Vice President of Technology & Innovation Vice President of Technology & InnovationParker Hannifin’s corporate innovation team is responsible for finding and developing
organic growth opportunities across the company’s 8 groups and 140 divisions
Parker Hannifin Organization Structure (Partial)
The Corporate Innovation Team
The team is comprised of the Vice President; Chief Technology & Innovation Officer, the corporate process owner, the eight Group Presidents, and the Vice Presidents of Technology & Innovation. These individuals collaborate—sometimes formally, sometimes informally—on all decisions relating to Parker’s long-term strategy for growth through innovation.
Chairman & CEO
Group President Group President Group President Group President
Vice President; Chief Technology & Innovation Officer
Corporate Process Owner (Director of Winovation Systems)
Strategic Marketing Executive Vice President of Operations Executive Vice President of Operations Vice President of Technology & Innovation
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Parker’s corporate innovation team launches a metrics-simplification initiative that delivers
greater insight into project value and enables principled adjustments to the portfolio
Innovation Metrics Selection and Implementation Process
Reduce Total
Number of Metrics Standardize Metrics across All Divisions Measure Innovation Performance Portfolio DecisionsReevaluate
Objective
Enable greater visibility into innovation performance
Objective
Ensure companywide adoption and prioritization of selected metrics
Objective
Draw relationships between innovation performance and growth
Objective
Prioritize projects with the greatest potential for long-term growth
Key Activities
• Simplify the data senior executives review • Gain buy-in among the
corporate innovation team for the simplified set of metrics
Key Activities
• Conduct a speedy roll-out of the simplified metrics to all divisions
• Empower division-level teams to gather and share accurate data
Key Activities
• Prioritize Incremental Portfolio Value (IPV) above other metrics • Translate corporate-level insight
into division-level action items
Key Activities
• Identify projects with the highest IPV score (i.e., those with the greatest contribution to growth)
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key takeaway:
Measure what really matters in innovation performance
Parker’s corporate innovation team stops closely monitoring all metrics, focusing instead on four critical measures
Cutting through the Complexity Reduce Total Number
of Metrics
Identify Barriers to
Innovation—Led Growth Focus on the Right Metrics Build a Centralized View of Performance
Decentralized structure: Each division tracks data differently, making it difficult for the corporate innovation team to understand companywide performance.
Too much data: The corporate innovation team tracks more than 50 metrics; this information overload prevents insight generation and project prioritization.
Lack of a shared language:
Metrics are defined inconsistently, making it difficult for divisions to “speak” to each other or collaborate on projects. Uneven prioritization:
Divisions select and monitor performance measures in a vacuum, seldom considering their context within or applicability to the larger organization.
Filter
Key Barriers From 50 Metrics to 4
The Big Four
Critical Measures of Performance
Project Management Tool
The Big Four metrics are central to a project management tool that captures data for every innovation project. It operationalizes the metrics at the division level.
IPV Dashboard
This dashboard focuses on one of the Big Four, Incremental Portfolio Value (IPV). Based on inputs from the project management tool, it rolls up project and division data for a companywide view of innovation performance.
Global or Companywide
Relevance
Removed: Any that are meaningful only for a specific division, or small sub‑set of divisions (e.g.,manufacturing cost, gate criteria)
Automatic Calculation Capability
Removed: Any measures that are open to interpretation (e.g., post-launch reviews, satisfaction scores)
Relevance to the Corporate
Team
Removed: Tactical, stage-gate-based metrics that can easily distract the team from strategic discussions (e.g., performance to schedule, performance to budget)
Metric Definition
1. Timeline for
Launch How long the project will take to develop and when it is estimated to enter the market 2. Revenue
Projection Ability for a potential project to hit specific targets or contribute to a specific target 3. Risk
Assessment Comparison of the potential loss (or gain) a potential product could deliver, weighted against the likelihood of that outcome occurring
4. Incremental Portfolio Value (IPV)
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key takeaway:
Generate corporate-level buy-in for the simplified view of performance
Supporting data for every measure convince the group presidents and vice presidents of technology & innovation to trust the Big Four
Securing Corporate‑Level Buy‑In
Note
All stakeholders provide input, but once the decision is finalized, they are encouraged to accept the result.
Note
Although the team prioritizes the Big Four measures, the other metrics are still monitored and available on supporting dashboards.
Note
Each time the team locates accurate supporting data, the Big Four’s reliability is reinforced; over time, the team feels less need to double‑check the numbers.
Note
Once the divisions understand corporate expectations, they can produce information that is valuable in managing the business.
Reduce Total Number of Metrics
Introduce the Big Four Invite Skepticism Zoom In Zoom Out
Purpose
• Orchestrate a coordinated roll-out of the new metrics • Build corporate-wide awareness
of the new metrics and how they will be operationalized
Action
• Notify the eight group presidents of the finalized set of metrics (final selection resides with the VP; Chief Technology & Innovation Officer and the corporate process owner)
• Prepare the group presidents to share the information with their VPs of technology & innovation • Set a plan for communicating
the information to division-level stakeholders
Action
Encourage all members of the executive team to question the accuracy of the Big Four
Action
Search for supporting information on lower-level, tactically-based performance databases
Action
Embed the Big Four into division-level tools that communicate innovation performance
Purpose
Demonstrate that simplified
performance measurement does not hamper visibility or transparency
Purpose
Convince leadership of each measure’s accuracy, building more trust in the metrics with every investigation
Purpose
Inspire the corporate innovation team to push the Big Four down throughout the divisions
Metrics Reinforcement Further Investigation
The Iceberg Principle
Center Group B Group C Group A Div. B Div. C Div. A Other stakeholders appreciate the level of attention these metrics receive, which helps connect all divisions to corporate priorities.
Project Data Division Data Group Data Timeline for Launch: Supporting Data
High-level metrics are monitored at every level from groups to divisions to individual projects.
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key takeaway:
Take a test-and-learn approach to rolling out the metrics to the divisions
Ongoing collaboration and information-sharing between the corporate and division teams help improve data quality and adoption over time
Metrics Introduction and Data Refinement Process Standardize Metrics
across All Divisions
Ever-better data translates into a dashboard with increasing credibility and usefulness.
Division teams must learn why data quality is poor, and take steps to improve it.
Data
“Dress‑up” InaccuracyData
Data Inaccuracy Data Inaccuracy Dashboard Rejection
Investigate Data Problems
Action: Collaborate with each division on identifying the root causes behind poor data (e.g., user training, lack of process discipline)
Outcome: Clearly defined action items for delivering improved data to corporate
Communication: Division reports to the corporate process owner its plans for addressing the root-cause problems (timeline for fixing problems is dependent upon the complexity of problem)
Refine Data Calculations
Action: Review newly submitted data; adjust overall projections accordingly
Outcome: Improved corporate dashboard
Communication: Corporate process owner confirms divisions’ new data or sends it back to the group or division for further review as necessary
Finish
Action: Ensure the dashboard is widely used and trusted
Outcome: A shared “language” that is spoken companywide
Communication: Ongoing, fluid dialogue between the divisions and corporate
Scrutinize the Data
Action: Scrutinize all divisions’ data as it is submitted; reinforce compliance
Outcome: Identified inaccuracies or discrepancies that require further attention
Communication: Corporate process owner notifies each VP of technology & innovation of opportunities to improve data quality
Gather the Data
Action: Require divisions to enter and/ or review their project data in the corporate tool within six weeks
Outcome: An unvarnished look at how divisions are monitoring the metrics
Communication: Division Facilitators and Team Leaders, under the
supervision of the General Managers, enter the data into the corporate tool
Start
Action: Notify divisions of the simplified metrics and data quality requirements
Outcome: Re‑set expectations for division-corporate alignment and visibility
Communication: Message from VP; Chief Technology & Innovation Officer; reinforced by Group Presidents
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key takeaway:
Hold divisions accountable for total data accuracy
People, processes, and tools work in concert to embed the metrics within the divisions and to create accountability for data quality
Framework for Institutionalizing the Metrics
* See the Tools & Resources section for Parker’s full division-level organization chart. Standardize Metrics
across All Divisions
Tools
Purpose: Enable all divisions to share projects’ performance according to the Big Four in a standard, utilitarian format.
What happens: An automated project management tool requires standardized inputs from all divisions. The software is programmed so that no division or team can modify the inputs.
People
Purpose: Designate individuals responsible for ensuring data are trustworthy, up-to-date, and compliant with corporate standards.
What happens: Project teams update the Big Four metrics for every project.
Accountability Impact: The corporate, division-wide view of innovation performance is based on thousands of projects. The project management tool is an essential ingredient in managing this complexity and enabling apples-to-apples comparisons across all projects.
Accountability Impact: A clear organization structure
institutionalizes accountability for providing data inputs. While others in the reporting chain have a responsibility for updating or analyzing Big Four, the bulk of the responsibility lies with the project teams.
Process
Purpose: Enable the divisions to deliver the data that the corporate innovation team requires.
What happens: All project teams must update the Big Four metrics for every project in the portfolio. Noncompliant projects are removed from the calculations and do not count toward a division’s total pipeline. Data from compliant projects roll up into the Corporate IPV dashboard (see page 10) for a high-level view of performance.
Accountability Impact: Nobody wants their projects disqualified. This encourages self-governance among divisions and a respect for the process as a whole.
Division-Level Organization Structure*
Position Innovation Responsibilities Metrics Use Facilitator Create projects and assign team leaders to projects;
set up the stage gates
Weekly check‑ins on affiliated project teams
Team Leader
Develop the project plan; maintain project discipline, perform financial analysis, update the project management tool Daily tracking of project performance Project Team Focus on project execution; update the project
management tool; inform leadership on project progress
Real-time updating of metrics
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Project 2013 2014 2015
A million$5 million$10 million$17
IPV million$5 million$5 million$7
Project 2013 2014 2015
A million$5 million$10 million$17
IPV million$5 million$5 million$7
B million$5 million$8 million$12
IPV million$5 million$3 million$4
C million$5 million$12 million$12
IPV million$5 million$7 $0
key takeaway:
Emphasize one essential measure of innovation performance and contribution to growth
Of the Big Four, Parker Hannifin highlights Incremental Portfolio Value—a measure of contribution to new revenue year over year
Measure Innovation Performance
How does it work? What is IPV?
IPV isolates the incremental revenue that can be attributed to innovation activity carried out by each of the divisions.
Why focus on one key metric?
IPV is Parker’s “North Star.” It orients everyone on growth above all other measures, enabling greater visibility, alignment, and clarity in decision‑making.
How do you calculate it?
Predict a project’s sales over a multi-year period. IPV is the difference between each year’s projected sales. FY15 FY14 FY13 $30 $20 $10 $0 Fiscal Year Re ve nu e (h un dr ed s o f m ill io ns )
New revenue is the most important measure of long-term potential.
Project-Level Data-Gathering Division-Level Roll-Up Corporate IPV Dashboard
Owner Team Leader Contributors Project teams Output Estimation of each project’s growth over a six‑year period Example Owner
Group VP for Technology &
Innovation, Division General Manager
Contributors
Facilitators, Team leaders, Project teams Output A “Group IPV” score that shows each division’s long‑term contribution to new revenue Example Owner
Director, Corporate Winovation Systems
Contributors
VP for Technology & Innovation
Output
Collection of all groups’ IPV scores; helps Parker pinpoint all new sources of revenue companywide
Example
Incremental Portfolio Value: Project-level Estimation
Illustrative
New Growth Year-over-Year
Illustrative
Incremental Portfolio Value: Estimation of all projects in Division B
Illustrative All revenue is new, since the project contributed $0 before it launched. $10 million in revenue is a $5 million increase above the
preceding year. If a project’s revenue is static year-to-year, the IPV score is 0.
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key takeaway:
Use IPV to build a macro-level view of innovation performance
The corporate IPV dashboard helps determine how much innovation-based growth Parker is on track to deliver, and how many projects are involved
Corporate IPV Dashboard Measure Innovation
Performance
who does what?
Facilitators and Team Leaders are responsible for updating project data. This data then roll up to the corporate-level dashboard, which is closely monitored by the corporate process owner, Group Presidents, and Vice Presidents for Technology & Innovation; the CEO also reviews it formally on a biannual basis and informally as needed.
Comparison to Industrial Production contextualizes sales using industry-wide performance. For example, Parker’s performance in 2011 eclipsed competitors’, indicating that Parker gained market share.
Focusing on the Long Term by providing six years of projections so project teams prioritize long-term expectations over short‑ term revenue performance.
% Alignment illustrates how close Parker is to hitting its IPV target.
Managing the Portfolio
by highlighting the Target for Incremental Growth (the amount of new revenue that is expected year‑over‑year) and the IPV for new products which emphasizes the key role of breakthrough projects in attaining IPV targets.
Macro to Micro
Examination is possible as the dashboard can provide companywide information, or drill down to a specific group, division, or project.
Benchmarking the Portfolio by tracking Actual
Sales & Estimates—how Parker has performed over the past few years, relative to its goals.
Monitoring the Portfolio by tracking performance against % Alignment—
how close Parker is to hitting its IPV target, and color coding the progress: • Red: 0 to 60% alignment toward goal
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key takeaway:
Monitor shifts in IPV scores to detect signs of future dips in performance
High-level, IPV-based insights trigger group-, division-, and project-specific action items
There and Back Again: A Case in Point Measure Innovation Performance High Level Going Deep Taking Action IPV Dashboard People
…and rectifying the reduction in corporate IPV that raised concerns initially.
…because Division B has put a project on hold…
…due to resource constraints limiting the number of projects that receive funding.
The group staff, now aware of the
division-level resource constraint, allocates a group resource or coordinates with a sister division to “loan” a resource…
…which closer scrutiny reveals is due to a large drop-off in Division B… Monitoring the group IPV for the period FY13–18, the corporate innovation team detects a change in value…
…improving Division B’s IPV score…
…allowing it to continue contributing to Division B’s pipeline value…
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key takeaway:
Use IPV to demonstrate the value of breakthrough innovation
IPV forces division-level teams to rethink their portfolio mix and shift resources to projects with the greatest potential contribution to new revenue
Evaluating the Portfolio Mix Reevaluate Portfolio
Decisions
Identify Performance Gaps
A Division General Manager’s decision to change the portfolio mix begins with the realization that current innovation activities are failing to attain the IPV target.
Understand the Portfolio Problem
Portfolio analysis reveals too many low‑risk, low‑reward projects with a low contribution to IPV.
Project Portfolio Risk/Reward Matrix
Change the Focus
The division must create a more balanced portfolio mix. The project management tool helps the Division General Manager identify and prioritize projects with a stronger contribution to IPV.
Reorganize the Project Teams
The emphasis on breakthrough innovation projects results in staff being reassigned from incremental projects to higher risk, higher reward projects.
Rebalancing the Portfolio
Bread-and-butter projects can be compared against one another, clarifying which should be abandoned and their resources redirected to Oysters or Pearls. Each division is assigned an IPV target
and is responsible for managing its portfolio to achieve the target.
White Elephants
Costly, never-ending projects that sap resources
Oysters
Promising projects that could become Pearls
Bread and Butter Not substantively contributing to growth Pearls Projects that will be key to future growth Reward Risk High High Low Low Incremental
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FY08 FY09 FY10 FY11 FY12 0
5,000 10,000 15,000
Business Results
Simplified metrics and a commitment to growth deliver efficiency gains and improved portfolio value
2013 2011 Total Sales Sales from Breakthrough Projects
Number of Projects in the Innovation Pipeline
Changing Portfolio Mix Bang for the Buck
Portfolio Value (Indexed)
20% increase
Each year, breakthrough projects comprise a larger percentage of Parker’s total innovation portfolio. Fiscal Year Sales 4% 6% 8% 13% 19% Year 2013 2011 Year 2,400 1,136 45% decrease
In essence, we’re executing lean on our innovation program just like we were executing lean on our manufacturing program. We want the leanest innovation program we can have. We don’t want to spend a lot of money on projects that aren’t going to yield any results.
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Key Lessons Learned
Profiled Company Perspective
•
Fewer metrics produce greater insight:
The more metrics you track at the corporate level, the more tempting it
becomes for senior leadership to shift focus from the strategic to the tactical. Of course, determining which
metrics to trim and which to keep is critical to establishing and maintaining visibility, so make sure you screen
for the right things (such as strategic value, objectivity, and relevance). Importantly, this is not a battle you
fight, and win, once. Unless you continually reinforce the importance and effectiveness of simplicity, metrics
that had been removed will slowly find their way back onto the corporate dashboard, and complexity will
return with them.
•
Shared metrics and tools enable transparency and facilitate collaboration:
Because all divisions now track and
prioritize the same measures, they can “speak” to each other far more readily and clearly than they could
before. They find it easier to collaborate on projects, share resources, and together drive increased
performance. Furthermore, objectivity and transparency have created a much firmer sense for what the
corporate innovation team expects at every level of the organization, and employees can be sure that the
corporate team is treating all divisions and groups equally and fairly.
•
Know thyself:
By taking a very frank assessment of its own culture and challenges in achieving profitable
organic growth, Parker determined that innovation and its associated processes were too often relegated
to engineering, when in fact they should be approached as business challenges, involving the full spectrum of
functions and leadership. To get that broader perspective, Parker subjected its innovation activities to the
same standards for visibility and accountability to which all other aspects of the business are held.
•
Success begets success:
Simplified metrics have made key senior leaders aware of Parker’s issues around
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Supporting Tools & Resources
Parker Hannifin Organization StructureRole Innovation Responsibilities Metrics Use
Vice President; Chief Technology & Innovation Officer
Forge a connection between marketing insights and engineering efforts; oversee collaboration between groups
Biannual assessments of all groups’ project teams
Vice President for Technology & Innovation
Maintain visibility over all projects; be a champion for the new product
commercialization process; foster cross-division and division-corporate collaboration
Biannual assessments of all divisions’ project teams
Division General Manager Balance corporate goals and division activities Monthly monitoring of project teams within his/
her division
Facilitator Create projects and assign team leaders to projects; set up the stage gates Weekly check‑ins on affiliated project teams
Team Leader Develop the project plan; maintain project discipline, perform financial analysis, submit project business cases
Daily tracking of project performance
Project Team Focus on project execution; update the stage-gate system; inform leadership on project
progress
Real-time updating of metrics