In your quest to encourage innovation and entrepreneurial behavior in the medium
ID: 459753 • Letter: I
Question
In your quest to encourage innovation and entrepreneurial behavior in the medium sized medical equipment company you founded five years ago, you see the need to develop specific measures of performance against which innovative products or services can be measured once they are developed. Explain how the following financial and non-financial measures will be used to assess and evaluate recent innovations:
Financial Measures
Return on investment
Growth in market share
Profitability
Non-financial Measures
Employee loyalty and commitment
Breadth of employee participation
Employee retention
Employee willingness to change
Strategic repositioning
Competitive capabilities
Potential creation of further breakthroughs
Number of potential future innovations
Submit your report in a 5- to 6-page Microsoft Word document.
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Explanation / Answer
Business Performance Measures
Below is a report on how the listed financial and non financial measures will be used to assess and evaluate recent innovations.
Financial Measures
Return on investment
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.
This provides a clear indication of which innovations have provided adequate returns for the costs that were incurred in getting them to market.
Growth in market share
Market share is the percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period.
The growth in market share after introduction of an innovation clearly provides an indication of how well received the innovation is in the market.
Profitability
Profitability is the ability of a business to earn a profit. A profit is what is left of the revenue a business generates after it pays all expenses directly related to the generation of the revenue, such as producing a product, and other expenses related to the conduct of the business activities. It is typically measured in the context of customers or groups of customers.
Thus each innovation is looked at from the perspective of its target segment and how effectively the expenses towards the customers are converted into revenues.
Non-financial Measures
Employee loyalty and commitment
Employee loyalty can be defined as employees who are devoted to the success of their organization and believe that being an employee of this organization is in their best interest. Not only do they plan to remain with the organization, but they do not actively seek for alternative employment opportunities.
As employees see the innovations adding value to customers and hence, society at large, they get more loyal and committed. Thus, loyalty and commitment are expected to increase with each new innovation. In cases where the reverse happens, deeper analysis into the root cause is warranted.
Breadth of employee participation
Increasing the breadth of employee participation can develop the positive beliefs and attitudes associated with employee engagement, and that these practices can generate the kinds of discretionary behaviors that lead to enhanced performance. Simply put, employees who conceive, design and implement workplace and process changes are engaged employees.
With each new innovation, these high involvement work practices are expected to be fostered and cases where they are not, need to be investigated.
Employee retention
Employee retention refers to the ability of an organization to retain its employees. Employee retention can be represented by a simple statistic (for example, a retention rate of 80% usually indicates that an organization kept 80% of its employees in a given period).
This has a direct impact on the hiring and firing costs which are huge in the medical equipment industry. There is also the bigger effect on employee morale and employee trust. As the organization matures, its focus on people needs to be on the increase.
Employee willingness to change
Willingness to change is an important parameter in the current world with ever changing business scenarios and customer expectations.
Employees are more apt to support change if they are ready to make changes. This means that they believe in the changes, have the time and energy to invest in the changes, and the organization outside of their department or work group is ready to support the changes
Strategic repositioning
"Strategic repositioning" is the term applied to firms who are seeking to exploit opportunities for their core technologies in sectors that are far outside their home markets. Strategic repositioning has become a necessity for firms in many industries who find that radical structural shifts in their environment threaten their viability.
The medical equipment industry too is a very global industry facing unprecedented pressure from multiple angles. With new innovations, the products of the business are expected to have more universal utility. Hence, this is a determinant of the effectiveness of the innovations.
Competitive capabilities
As the organization grows, it is not possible to compete with just 1 competitive capability. Other capabilities need to be harnessed. Both Organic and Inorganic growth of capabilities must be explored to remain competitive and profitable.
Potential creation of further breakthroughs
Further creation of breakthroughs from the existing innovations means that the costs incurred in getting the innovation to market would be yielding significant returns multiple times over. This is a critical parameter as many innovations do not see light at the end of the tunnel and a mechanism of harnessing those that do is important for the sustainability of a business thriving on innovations.
Number of potential future innovations
Potential future innovations or the innovation pipeline is a measure of the process and people capability of the business. In the medical equipment business, this is an absolute must. Without a strong product pipeline, sustainability is a challenge. It also provides assurance to employees and stakeholders alike.