Jim Sims is CEO and chairman of the board and Sam Kogan is president of GEN3 Partners Inc., a product innovation consulting firm.
From automakers to cellphone makers, many American manufacturers are in a crisis. They are fast losing shares of global markets they once dominated. Of course, the poster child for America's manufacturing decline is General Motors, whose recent discounts have momentarily masked its precipitous U.S. market share decline from 50% in the 1970s to less than 30% today. But GM has plenty of company. Many American producers of computers, furniture, plastics and even socks are in trouble. Not only are they being bloodied on the world stage, they no longer can bank on the domestic market as their salvation.
We all know that many manufacturers abroad have significant built-in advantages over those in the States: factory labor costs that are a fraction of U.S. wages, government subsidization and protection from outsiders, and quality techniques that in countries like Japan produce more reliable products. So how must American manufacturers respond? Their only recourse is product innovation -- creating a raft of new products that elate customers at prices that they and the manufacturer producing them can afford.
American managers do not need to be convinced of this. A McKinsey survey of executives in March 2005 found their biggest mandates were bringing innovation to current products and inventing new ones. But that's easier said than done. For every iPod music player or Chrysler 300 automobile, dozens of ventures fail spectacularly (like Motorola's ill-fated global cellphone network Iridium) or generate small returns. One sobering study found that for every product success, 3,000 new-product ideas and 125 small projects fail.
Why? From working with some of the world's most successful product innovators, we find three fundamental differences between the way they and less-successful innovators create new products:
- in their criteria for innovation,
- the way they determine the demand for innovation,
- the way they manage the supply of innovation.
A Different Criteria For Innovation
The most successful product innovators that we've worked with know innovation isn't an end unto itself. To identify the most promising ideas and make sure they don't become enamored of an interesting new technology, they scrutinize how much value the concepts will generate for their target customers. How much time and cost does the product save target customers over current products? Does the product significantly improve the way intended customers accomplish their interests? Do customers even care about improvements in such "parameters of value"?
Southwest Airlines' legendary chairman Herb Kelleher once said that customers gave him lots of advice over the years about how to improve the airline. But when asked which of their ideas they would pay extra for, none were interested in anything more than low fares and convenient schedules. If a new product concept does not deliver value that's important to customers, it will fail in the marketplace. As we put it, the most successful product innovators put their money behind concepts that create a significant increase in a main parameter of customer value.
Better Assessing The Demand For Innovation
By funding concepts they know will generate value that customers desperately need, the best product innovators can better estimate demand and decide where to place their chips. Ironically, this happens because the product innovators actually listen less to the "voice of the customer" -- that is, to what customers tell them in focus groups, surveys and other research soliciting feedback on new concepts. The product innovators realize that customers can provide valuable feedback on products and features whose value they understand. But customers aren't good at reacting to whole new types of products whose value they cannot recognize.
Determining The Supply Of Innovation
A product concept that makes a dramatic improvement in a main parameter of value is still not a product worthy of investment until the supply part of the innovation equation can be solved. That is, a new product concept that is not technically or economically possible to produce (i.e., at a price to make a profit) is still a bad concept. The best innovators reduce the risks of failing on the supply side of innovation by evaluating where their technology is on its evolutionary lifecycle. All technologies, like biological systems, follow evolutionary principles. The most successful innovators better determine the cost, risk and time it will take to push the technology on its lifecycle. If the technology doesn't exist in their industry, they look for ones from other industries that might solve the problem.
In two upcoming articles, we will show how several companies have leveraged these innovation principles. We will also show how a growing number of product innovators are turning to countries like Russia to solve the supply side of their innovation problems -- countries with virtually untapped scientific and engineering expertise.
Jim Sims is CEO and chairman of the board and Sam Kogan is president of GEN3 Partners Inc., a product innovation consulting firm. Based in Boston and St. Petersburg, Russia, GEN3 that helps manufacturers identify their best opportunities for new products and new manufacturing processes and solve the technical barriers to achieving them.