Are You Doing Innovation Backwards?
Updated: Jul 8, 2020
There are basically two major approaches to innovation (with variations on each): Market-driven and research-driven. As the names imply, market-driven organizations get most of their innovation ideas from the market (in theory; more on that in another blog), whereas research-driven companies get their ideas from their R&D activities.
Which of these ways your organization leans will largely determine your innovation success rate, time to market, and ROI.
Many large organizations, especially manufacturers, are research-driven. In fact, R&D spend is widely considered an indicator of "innovativeness."
The majors spend anywhere from 5 to 25% of their total revenues on R&D. Meanwhile, typically less than 20% of new product launches are successful. In Consumer Packaged Goods (CPG), the average "successful" (>$7.5M in sales in Year 1) product launch cost an average of $71M in 2012 (up 5X over 2007).
In most organizations, innovation is little more than institutionalized GAMBLING.
Where else would you blow a quarter of your earnings rolling the dice, knowing full well that you'll lose your shirt 80+% of the time?
And it's not just the lumbering behemoths that fall into this trap: I have a friend who heads a small manufacturing company. He recently asked me to advise him on the market for a certain category of building products, e.g., pricing, installation costs, etc.
Their R&D department had come up with a material with very specific and unique features. They were now excitedly looking for potential applications for it (sound familiar?). They had heard that the construction industry could benefit from similar features, and were trying to determine the potential value of pursuing that market.
I gave him the information he requested, and then asked,
"Even if your material does exactly what you think it will in this application (which it may not), what makes you think the customer will value that feature enough to pay for it?"
He didn't have an answer.
Then I told him about Jobs-To-Be-Done (JTBD) theory. I explained that the only reason anyone buys anything is to help them get something done, and that studying the "job" the customer is trying to get done gives you a stable target at which to aim with your development efforts.
JTBD allows you to know before you spend a dime on development that your efforts will likely address unmet needs that have been confirmed with the customer and backed up by data. And therefore, that they will likely buy it.
This needs-first, market-driven innovation approach is much less risky, less expensive and ultimately faster than spending months or years and a good chunk of your revenues cooking stuff up and then hoping to find someone who'll buy it.
My friend listened politely, and then decided to keep doing what they've been doing.
That was last year. Last time I talked with him, they hadn't sold an OUNCE of their new material.
So where do YOUR innovation ideas come from?
If you find yourself "pushing" your inventions into the market, you might want to step back and take a look: You've probably got your cart before your horse.