Make Your R&D Dollar Count

Jan. 10, 2007
R&D spending needs to be a rational process led from within the core marketing strategy by people free of inventoritis.

Companies seeking a competitive advantage spend vast amounts of money on R&D but an endless series of winning products is not the normal result. Many senior managers and owners are dissatisfied with the relatively low rate of hits to misses and with how their company identifies new products and categories, while being aware that modern R&D is usually detached from marketing needs and often led by people with inventoritis. We define inventoritis as a condition in which management falls in love with their products and often acts in reliance on the assumed fact that the product is great.

Where Does R&D Spending Yield Solid Results?

A 2005 Booz Allen Hamilton study of the global top 1000 R&D spenders found no direct correlation between R&D spending and sales growth, operating profit or shareholder return. However, they found a strong correlation between R&D spending and higher gross profit margins -- although the correlation was lost when expenses not directly related to creating the product were included. Product design improvements through both lowering costs and increasing consumer value perceptions led to these higher margins.

Thomas Edison applied this wisdom when he produced the world's first commercially viable incandescent lamp by improving upon existing technology. Edison worked hard at driving down the costs of his early light bulbs to meet his market research based 40-cent target price, while increasing lamp longevity, brightness and efficiency. Over a few years, Edison managed to drive the costs down from $1.25 to 22 cents while keeping his selling price at 40 cents. He did so by setting up certain kinds of machinery, changing the processes, improving work flow and standardizing the number and type of parts while continually experimenting with different materials and suppliers.

World's Greatest Product Marketer

Edison was the world's greatest product marketer, while being free of inventoritis. Edison's strengths included:

  • Knowing his customers and competitors; the competitive landscape and his place in it.
  • Building a diverse network he could influence or ask for feedback, including world-class advisors Henry Ford and Harvey Firestone.
  • Executing his projects brilliantly and inventing or improving upon many marketing concepts and techniques.
  • Being extremely teachable and having a strong commitment to self-improvement, while recruiting and attracting world-class talent.
  • Controlling credible distribution and media channels and knowing how to price products and opportunities well.
  • Managing his brand effectively through public relations, media photos, kits and show rooms with his image as an inventor being part of his carefully cultivated and controlled public relations and media strategy.

Legendary carmaker Henry Ford identified inventoritis in his description of an inventor as one who "frequently wastes his time and his money trying to extend his invention to uses for which it is not at all suitable." He asserted, "Edison has never done this."

Three Steps To Avoid Leading R&D From The Rear

  1. Establish R&D lead from within the market strategy center. The R&D initiatives must be led from within the marketing strategy center and the resources applied rationally, not speculatively. A marketing expert, free of inventoritis and highly tuned to the market like Edison was, should be directing R&D with the technical specialists close at hand.
  2. Keep people with inventoritis out of the key positions and meetings. These people act out of excessive reliance on the assumed idea that one's product or idea is an excellent one. Resistance to products or ideas "not invented here" is an obvious sign someone has inventoritis.
  3. Create measurement and assessment systems which measure the correlation between R&D spending, alignment with marketing strategy objectives and company performance. A carrot and stick approach that systematically rewards people who contribute constructively towards market-derived results from innovations is long overdue in most companies.

A century later, there are emerging examples of companies following Edison's true example and beginning to place their marketing strategies ahead of product R&D such that the company is not being led from the rear in determining its product offerings. Microsoft and Procter & Gamble are among them. In January 2000, highly market-savvy Chairman and CEO Bill Gates of Microsoft, the world's biggest R&D spender, stepped down as CEO and took over as Chief Software Architect. Global consumer brands giant Procter & Gamble through its 2000 appointed CEO A.G. Lafley, created its Connect & Develop strategy to replace its old bricks and mortar R&D infrastructure 'invention model' with a more open market-led innovation system.

Innovation does not need to be speculative. Edison knew this but we seem to have forgotten how to rationally apply our R&D dollars. Going back to basics by putting the marketing strategy ahead of R&D initiatives, while checking anyone with inventoritis at the door, will make your R&D dollar count.

Tatsuya Nakagawa is president and CEO of Atomica Creative. He has assisted numerous companies in diverse industries with their early stage deployments and product launches in North America, Europe and Asia.

Peter Roosen, co-founder of Atomica Creative has an engineering background and founded numerous companies including firms involved in locomotive and plastics manufacturing, computer software and marketing.

Atomica Creative Group Ltd. is a specialized strategic product marketing firm based in Vancouver Canada, positioned to help companies assess their R&D processes relative to market drivers and establish a marketing strategy led approach so that R&D spending can be applied rationally for greater returns on these important investments.

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