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May 3, 2006
R&D is not the same as innovation
The April issue of the Harvard Business Review (subscription required) contains an interesting article on innovation by Larry Selden and Ian C. MacMillan: "Manage Customer-Centric Innovation -- Systematically." The New York Times recently ran a summary of the article - "Solving the Innovation Shortfall":
It will happen several times this earnings season, because it always does. A company will report strong sales and earnings, only to have its stock drop sharply because investors were expecting more.
"This growth gap, as we call it, springs from the fact that companies are pouring money into their insular R.& D. labs, instead of working to understand what the customer wants and then using the understanding to drive innovation," argue Larry Selden and Ian C. MacMillan in the Harvard Business Review.
Mr. Selden, professor emeritus at Columbia Business School, and Mr. MacMillan, a professor at the Wharton School, lay out a three-step process for closing this gap. Their main idea is to move "the innovation effort away from headquarters and the traditional R.& D. lab out to those closest to the customer."
Step 1 in the process is identifying and developing "a deep understanding" of the core customers. For the luggage maker Tumi, the core market was male frequent air travelers. And it turned out that ease of packing and unpacking and mobility were far more important to them than size or style.
Once the company knew what its core customers wanted, they created it, instead of first designing products that the company then hoped to sell.
Step 2 is to enlarge the core business by satisfying the customers' other needs — for example, Tumi's core customers also need bags for laptops — and looking for customers who have needs like those of the core customers. The obvious choice for Tumi was women who travel frequently.
Step 3 is to "stretch segments," that is, find customers beyond the core who can be served with your expertise. For Tumi, this would be young male travelers who are much more interested in style.
In each case, customers, and not R&D, drive innovation.
The paper is a damning critic of the traditional pipeline model of innovation: research to development to product design to marketing. The Selden-MacMillan innovation model does not eliminate the role of R&D. It does place it in the context of focusing on customer needs.
This customer driven model of innovation is similar to other bottom-up views of innovation.
While I am a critic of the linear pipeline model of innovation, I recognize that there are multiple models of innovation which may all be valid in certain situations. Science-based R&D is an important part of the innovation process. And the most important critique of customer driven models is that it is more likely to produce incremental rather than breakthrough innovations.
But, the customer-drive models have a point. After all, eventually the innovation has to succeed in the marketplace by meeting customer needs. Remember, Henry Ford did not invent the automobile. The innovation of the Model T was the development of a vehicle that the average person, especially a farmer, could use. The Model T was highly customer focused.
The customer-driven models also continue to point out the failings of our innovation metrics. If traditional R&D is not the key to economic success, why are all of our economic competitiveness measures still focused on traditional R&D? Every time we discuss competitiveness the conversation is dominated by the number of patents, the number of scientists and other traditional R&D measures. We desperately need to develop new measures.
Posted by Ken Jarboe at May 3, 2006 10:38 AM
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