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May 10, 2005
Rethink R&D or RIP
Research and development has achieved near-ubiquity as an acronym. But it's not receiving the TLC it deserves from many companies, and the consequences will be calamitous as an estimated 70% of today's manufactured goods will soon be obsolete:
In just six years, researchers say, shifting customer demands and rival offerings will make many of today's products outmoded. In fact, these soon-to-be-obsolete products currently account for more than 70% of manufacturers' sales. And for companies in the most rapidly changing industries such as high technology and fashion, products will become passé even faster--perhaps in a year or two. In short, writes John Teresko in a recent IndustryWeek feature, "without innovation, companies are doomed to decay."
But many are not heeding this and thus endangering their survival. A recent Deloitte study of 650 companies in North America and Europe found that while manufacturers believe that releasing new products and services is the best way to drive revenue growth, they also name fostering product innovation as one of their lowest priorities. And Douglas A. Engel, vice chairman and U.S. manufacturing industry leader, Deloitte & Touche U.S.A. LLP, says that this attitude extends to almost all the industries that Deloitte has observed--from automotive and high tech to chemical and pharmaceuticals.
Engel tells IndustryWeek that the pressure to innovate will only intensify for manufacturers. The Deloitte study discovered that executives believe that new product revenue as a share of total sales will increase from 21% in 1998 to 34% in 2007. But the industry's overall U.S. R&D spending has remained almost unchanged for the past four years, according to the Battelle Memorial Institute in Columbus, Ohio. For instance, this year's spending total by private industry is expected to reach $191 billion, barely edging out last year's estimated R&D total of $187 billion.
According to Engel, companies must take three actions to ensure their survival: enable innovation, take advantage of innovation and most importantly, nurture innovation capabilities. And this entails a different approach to R&D--one that is more global and collaborative. Companies with global R&D operations must leverage these resources and acknowledge R&D off-shoring as a fundamental business shift, not just a strategy to gain access to low-cost labor.
Engel also recommends considering all the elements of the business network--from R&D to the value chain, which encompasses suppliers and production facilities--and viewing them in a holistic manner. For example, Paul Wilbur, president and CEO, of automotive supplier ASC Inc. in Southgate, Michigan, points out that collaboration comes with substantial advantages. "For example, consider that a manufacturer's R&D collaboration with a supplier can bring unique value in terms of greater customer value, shorter time-to-market and cost effectiveness," he tells IndustryWeek.
More manufacturers are realizing this and collaborating with their suppliers on R&D, says the IndustryWeek feature, to reap the aforementioned benefits as well as to improve design. For instance, Boeing is relying on its suppliers to develop the 787, according to Hamilton Sundstrand Aerospace, a subsidiary of United Technologies Corp., Windsor Locks, Connecticut. And the companies that are implementing such value-chain improvements "generate better business performance with profit levels up to 73% higher than all other companies studied," says Deloitte.
Source:
Pipeline = Lifeline
John Teresko
IndustryWeek, May 1, 2005
www.industryweek.com/ReadArticle.aspx?ArticleID=10178
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12 CommentsThe great unit volume in sales is the mature market, just prior to obsolete or decline. This would explain the 70%. The innovative product will have the highest margin per unit, prior to the competition offering immitations. This is part of the product life cycle for all products.
Some manufacturer's thrive on being second or third to introduce a product, that is after the most innovative company has shown success with it.
Frequently, some features are reduced to lower the cost, sell more volume and even obtain more profitability.
Very Nice article. I hope this article opens up the eyes of CEOs to put more money into innovation.
May 10, 2005 4:40 PMenable innovation, take advantage of innovation and most importantly, nurture innovation capabilities.
I can only add to the dismay of realizing that "engineering innovation" is going the way of the dinosaur! R&D is not only near-ubiquity, but totally misunderstood in my engineering circles because some of this leadership has become unapologeticaly non-engineering minded. I see the
calamitous consequences first hand, in that our Design Group cannot survive with out this innovation mindset. And so I have only recently suggested a "vision", but I am afraid it is all falling on deaf ears, and a great opportunity slips through the cracks again.
I am an engineer for the Federal Government. I have 23 years of experience. I have worked in an Engineering Research Laboratory and now I work in a Design Group. This Design group has been dramatically reduced in all aspects of engineering resources in favor of "Supply" oriented products.These products are listed in elaborate databases which allow for imediate purchase and delivery. And as long as we supply satisfactory items, innovation is looked at as some sort of over-the-top endevor. This Design Group was created and developed by engineers who are long gone, and now run by logisticians who could care less about real innovation or engineering! I have a feeling that m problem is more widespread than I thought.
May 10, 2005 5:26 PMI, or should I say my company is in the realestate business.However,I find your articles on inovation very encourging and I intend to use as a staple your advice on looking to the future and being ahead of the curve. My company is very young only two years old but I will give my customers the best in product support and strive to be as inovative and creative as possible.
thanks for the tips.
charles samuel
president- homerehab company
mantra- living just above the luxury level
New Product Design should be part of the total companies "vision". SDI has been training corporations on Design For Six Sigma (DFSS) for 6 years now and we start with the Executives. We then train the Design Team Members which includes Engineers, Marketing, Purchasing, Manufacturing and others. We then move on the the companies key suppliers so that they can "communicate" on the same level. It really works very well when the company is of one "vision" when it comes to new product development.
www.stat-design.com
Hi
I have workerd for years installing reticulation and irrigation equipment in domestic and rural situations in Western Australia.
As an installer I believe that sub surface irragtion equipment (prior to establishment of lawns etc)is a hell of an innovation.
However the old school is versed in standard equipment and the consumer and manufactures are geared for this.
This is one example of how, simple, effective new products have some difficulty penetrating the established market.
Cheers
Stan Maley
May 19, 2005 8:48 AM
