What I Learned: Is Innovation or Product Pipeline Killing Profitability?

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What I learned this week … came from Bill Poston at Kalypso in his reply to a Business Week article titled “Innovation Interrupted – The Failed Promise of Innovation in the U.S.

BusinessWeek June Cover
BusinessWeek June Cover

Bill’s commentary really got me thinking about a really fundamental question. Do companies have too few product innovation ideas, or are we just not good at turning those ideas into profitable products? It also made me ask a separate question, “is this really a U.S. -centric issue or is this a global issue?”

Overview

The original article, written by economist Michael Mandel, appeared in BusinessWeek in June. In the article, Michael makes some strong assertions that  the U.S. has not been as innovative over the last decade as it has been in the past, and goes further to point to this lack of innovation is a contributor to the current U.S. financial trouble. He points out a number of areas that held promise in the late 1990’s that failed to live up to market expectations, including:

  • Biotech
  • Alternative energy
  • MEMS (microelectromechanical systems)

Michael explains that “the commercial impact of most of those breakthroughs fell far short of expectations,” and points out the information technology (IT) market as the shining star of innovation over the last decade. What Bill picked up on was what I believe is the story within the story. In Bill’s words, “the problem is more often in the basic fundamentals of new product development and commercialization.” Mr. Mandel supports this as well by saying “Many of the technological high hope of 1998, it turns out, were simply delayed” and “if the current rate of commercialization picks up” the U.S. Economy may recover more quickly. Bill comes down clearly on his viewpoint, saying that “We do not believe that we lack the ability to deliver innovation nor that success is necessarily dependent on brilliant insights or strategies” but that companies “need to focus on the fundamentals and make better business decisions.”

My Perspective

Is this an innovation problem, or a product pipeline problem? Or am I just splitting hairs, and the definition of “innovation” should end with “to make a profit?” I think if I looked through my archives I would find that I define profitability as a core part of my definition of innovation. To me, this story (and Bill’s response) is what I hear from manufacturers everywhere I turn:

  • We have enough ideas, we just don’t know how to sort through them to find the valuable ones
  • We don’t have a process to effectively take innovation and turn it into profitable, commercial products

Digging deeper, we would probably hear:

  • We have too much junk in our portfolio / product pipeline
  • Our product pipeline is overloaded
  • We can’t move new product development projects through the pipeline fast enough
  • We don’t kill projects soon enough

What does all of this mean? Like Bill says, most companies are missing the fundamentals. There are very good, proven best practices that a lot of manufacturers have not adopted. Many companies face the same problems. They are solvable. A process for innovation is important, but a process to commercialize that innovation is a fundamental requirement for a commercial business.

Implications for Manufacturers?

The implications? I will keep this brief. Focus on innovation, but don’t just focus on coming up with great ideas. Focus on new product development and (like the tagline of my old company Sequencia) turning product innovation into profits! Sounds simple, but there is a lot of work to do and it is time to get started.

So that is what I learned this week, I hope you found it interesting. Let me know what you think.

SPEAK YOUR MIND

  1. Jim – great post / analysis. This is an age old problem indeed and now one that is exacerbated by the current economy – “do we need to invent more or better commercialize what we already have?”. I know most engineers don’t want to hear this, but managing a product development pipeline is a lot like managing a sales pipeline: you have some deals that come out of nowhere (bluebirds), you have some that follow all the steps and stages (what you hope is the majority) and you have some that never seem to move forward. With that analogy in mind, manufacturers can get much farther in analyzing their pipeline and developing some core metrics to figure out the winners and losers early enough to have an impact on what gets pursued and what gets left behind. The other important lesson from managing a sales pipeline is that you should go back now and again to what’s been put aside and see if there is anything worth recycling – sometimes the timing can just be wrong.

    • Chris,
      Thanks for the comments, I like the analogy.
      I think it is particularly true about going back to visit dead-ends. There are too few stories that you hear about companies that go back and pull out the “failed” project because the market has changed, material/component costs have changed, a technology has matured, or some other external factor that can turn a project where the timing was wrong into a winner. There is a great CPG story about a “runner up” product for a moisturizer that had one factor that made it less desirable than the top pick, but was then re-used for a different application where that factor (sheen) made it perfect. I don’t know if I am allowed to share the product names or the company (although you may also know the product development lead on these two projects), but both are blockbuster brands. Unfortunately, how many times are those “dead ends” lost because they weren’t well documented? In my opinion, that is a very important area where PLM can help.

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