Innovation pipeline strength (IPS)

Innovation pipeline strength (IPS) estimates the future value represented by innovations in development. It helps leaders judge whether the portfolio is sufficiently valuable, balanced and credible to support future growth or service improvement.

When to use it

• Answer the key performance question: “To what extent have we got a strong innovation pipeline?”
• Assess this KPI within the Operational processes and supply chain perspective.
• Define the valuation horizon, evidence requirements, formula, review cadence and data ownership.
• Compare scenarios and trends rather than relying on a universal benchmark.

Origins

Pipeline measurement developed from portfolio management and staged product-development systems. Robert G. Cooper’s Stage-Gate research made the progress and attrition of ideas through explicit decisions visible to managers. IPS is a composite application of that logic: its usefulness depends on adjusting opportunity value for evidence, strategic fit, timing, development risk and likelihood of launch, not merely counting projects.

What it is

Perspective: Operational processes and supply chain perspective.

Key performance question: To what extent have we got a strong innovation pipeline?

Spending on R&D is an input, not evidence of valuable innovation. IPS looks forward by estimating the revenue or other defined value that active opportunities could generate and the probability that each will reach market or operation.

A strong pipeline is not simply a large total. It should have enough quality, diversity, timing and capacity to survive normal attrition without hiding duplicate assumptions or excessive concentration.

How to use it

Measurement

Data collection method

List material innovation projects and record their stage, strategic purpose, target customer, expected launch, value range, cost to complete, key assumptions and evidence quality. Keep commercial owners and independent reviewers involved so enthusiasm does not become the forecast.

Formula

IPS = Sum (Innovation project × Future revenue potential)

A stronger variant probability-weights expected value and may subtract remaining investment or include non-financial service outcomes. Select a consistent horizon; organisations may use 6, 12 or 24 months after launch. Report assumptions and avoid collapsing uncertainty into one apparently precise total.

Frequency

Review quarterly by default, adjusting the cadence to the speed and decision points of the portfolio. Update immediately after material evidence, cancellation, delay or market change.

Source of the data

Use governed portfolio records, experiment evidence, finance assumptions, customer research and delivery estimates. Separate facts from judgement.

Cost/effort in collecting the data

Meaningful measurement requires project review and challenge, so effort can be substantial. Automating portfolio data helps, but estimating future value and risk still requires informed judgement.

Target setting/benchmarks

There is no generally applicable benchmark. Compare the portfolio with the organisation’s growth needs, innovation capacity, historical conversion rates and relevant sector evidence. A pharmaceutical pipeline and a hospital-service pipeline require different definitions.

Example

Assume two product innovations, A and B, and one service innovation, X.

• Product A enters a new market and is expected to generate $500,000 in its first year and $750,000 in year 2.
• Product B replaces an offer currently generating $250,000; projected revenue is $300,000, an additional $50,000 per year.
• Service X is expected to generate $60,000 in both its first and second years.
• Best- and worst-case scenarios reflect the possibility that market entry fails or a competitor weakens product B or service X.

The individual innovation strengths are:

• Product A over 12 months = 500k (+1250k, − 400k)
• Product B over 12 months = 50k (+50k, − 50k)
• Service X over 12 months = 60k (+20k, − 60k)
• Product A over 24 months: 500k + 750k = 1,250k (+500k, − 1,050,000)
• Product B over 24 months: 50k + 50k = 100k (+100k, − 100k)
• Service X over 24 months: 60k + 60k = 120k (+40k, − 120k)

Overall IPS (12 month) = 500k + 50k + 60k = 610k (+320k, − 510k)

Overall IPS (24 month) = 1,470k = 610k (+640k, − 1,270k)

Use the calculations as transparent scenarios, not promises. Reconcile the apparent totals with the detailed assumptions and correct any inconsistent arithmetic before decisions are made.

Top practical tip

Show expected value together with upside, downside, probability, launch timing and concentration. A funnel or range makes uncertainty more visible than one headline number.

Top pitfall

Do not reward forecast inflation or pipeline volume. Require evidence, apply consistent attrition assumptions and distinguish value creation from revenue shifted from an existing product.

Further reading

McKinsey Global Survey Results: Assessing innovation metrics, October 2008