Engineering utilization, productivity and throughput are among the most important metrics for measuring R&D performance. If you want to improve your R&D capability, focus on these three metrics.
Productivity and utilization directly determine throughput, and throughput is the most important of all R&D performance metrics. It measures the rate at which an R&D team develops production-ready products. The higher the productivity and utilization, the higher the R&D throughput. Higher throughput means the R&D team churns out more products in a given period of time. That usually translates to revenue and profits— assuming the rest of the enterprise pulls its weight. Big assumption, right?
Every R&D organization should constantly be boosting throughput, and the quickest way is to increase utilization. Utilization measures the percentage of the engineering workforce's time spent on revenue-generating activities. It's the percentage of time it spends on developing products – those intended to generate revenue. Here's the key point though—only tasks directly contributing to a specific product's development qualify as revenue-generating. All others are non-revenue-generating, and time spent on them reduces R&D utilization. Although there are "gray" areas, these activities typically include attending trade shows and conferences, pre-and post-sales support, corporate improvement initiatives, paid time off, etc. In a nutshell, anything that diverts resources from revenue-generating activities reduces utilization.
According to PRTM, a top management consulting firm, the utilization level of best-in-class semiconductor companies is around 73 percent. In contrast, many organizations are in the 40 to 50 percent range. Show me workforce spending less than half its time on non-revenue generating activities and I'll show you a company destined for bankruptcy. (In the interest of disclosure, PRTM is a partner of Numetrics.)
Boosting utilization is a two part process, the first of which determines the percentage of time the R&D organization truly spends on revenue-generating activities. Management consultants accomplish this fairly quickly via interviews and surveying the R&D organization. After tallying the numbers, "resource leakage" immediately reveals itself, and this enables the executive team to take appropriate action.
Interestingly, improving utilization is usually much easier than increasing productivity, although the two go hand-in-hand. Companies can improve utilization rates overnight by simply changing policies—e.g. "no more trade show boondoggles." In contrast, increasing productivity requires meticulous dissection and study of the tasks underpinning product development. Both need to be done, but raising productivity often takes years, whereas utilization improvements can occur almost immediately.
Ronald Collett is president and CEO of Numetrics Management Systems, Inc.