JOURNAL

The Value-Based R&D Revolution: A Formal Front-End for Innovation

By Stephan Liozu August 22nd, 2013 |

Budgets are tight these days. Innovation and technology teams are asked to do more with less and, at the same time, to invent the next big thing. As we saw with the Apple maps debacle or the Microsoft Surface fiasco, there is more scrutiny on the ROI of R&D and innovation failures are not tolerated. Yet we witness many of the same dysfunctional behaviors potentially polluting the innovation process and leading to R&D budget waste. Here are a few examples:

  1. Innovation ideas going too quickly to the labs. Too often, the exciting or “pet” projects are fast-tracked to lab development without proper investigation.
  2. Technological push to the market. The development process may lack market and/or customer needs, leading to over- or under-engineering of products.
  3. Disconnection between marketing and R&D. Teams tend to work in silos without proper alignment and communication mechanisms.
  4. Assumptions about customer value. Things become skewed during improvisation and “guestimating” of customer value information.
  5. Product failures and long R&D cycles: Customer specifications are not clearly defined and understood in the front-end of the process, leading to bigger problems later on.

You might find nothing new here. You might  say that a thorough screening process of the innovation pipeline should lead to the selection of the right opportunities.

But the issue is not the pipeline or portfolio approach; it’s how business teams select the projects to work on. The funnel needs to include a much more thorough filtering. We’ll call this a “value grinder.”

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In fact, I conjecture that not a single dollar of R&D money should be spent until projects are firmly vetted with a clearly defined value proposition, crisp unique selling propositions and credible measurement of economic value. So how do you get there?

  1. Replace fuzzy by formal. The front-end of innovation should include the most advanced voice-of-customer research methodologies, such as ethnographic research, customer observations, willingness-to-pay research or conjoint analysis for example. Using traditional brainstorming and ideation methods is no longer sufficient.
  2. If it seems impossible to make, it is probably disruptive. Teams screen ideas on technical feasibility and easily reject concepts that seem difficult to grasp or look impossible to produce. It’s too early to screen for feasibility, making this a flaw for the R&D team.
  3. Do not spend $1 in R&D until you have done the value homework. Make it a rule and a discipline. Embed concepts of value proposition, value drivers and economic value estimation early on the innovation process. That requires strong collaboration between marketing, R&D and pricing teams.
  4. Invest up front to save later. Every dollar invested in the formal front-end of innovation should avoid waste in the back-end and potentially save R&D efforts by working on the right products that customers will be willing to pay for. Balance your innovation budget and challenge traditional allocation between voice-of-customer research and development costs.
  5. Put your teams in discovery mode. Focus on what you do not know. Shift from design-based innovation from the existing “sandbox” to a discovery-based innovation that challenges the status-quo.

This is not your innovation and R&D process as usual. It requires breakthrough thinking and innovation in the innovation process. Innovation is not a purely technical profession and, as such, should be led by a creative and breakthrough leader.

Stephan Liozu

Stephan Liozu

Stephan Liozu is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management.He earned his PhD in Management from Case Western Reserve University and can be reached at sliozu@case.edu.
Stephan Liozu

Stephan Liozu

About Stephan Liozu

Stephan Liozu is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned his PhD in Management from Case Western Reserve University and can be reached at sliozu@case.edu.

2 responses to “The Value-Based R&D Revolution: A Formal Front-End for Innovation”

  1. Richard J Orlando says:

    Excellent post Stephan. I especially like point #3 about a disciplined approach demanding strong collaboration between R&D, Marketing and Pricing early in the process. After all, how can you develop a B2B product, create sales collateral, or determine a price until first determining the ultimate value to the customer in economic terms? Thank you.

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