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Maximizing Innovation Productivity

Here are four ways to get more bang for your R&D buck.
MARK DECK

any companies have learned the hard way that throwing more money at R&D does not buy results. Recent cross-industry studies show little or no correlation between R&D spending and business growth, profitability, market cap, or shareholder value. A large percentage of executives feel their innovation organizations perform below potential, improvement efforts don’t meet expectations, and returns on innovation dollars are poor. Why is this happening and what can be done? In our experience, many underperforming companies increase their spending on front-end innovation without changing any of the operational practices that determine the return on this investment. Yet the real issue is not only about generating good ideas—it’s about selecting and managing these ideas to become commercial successes. Lessons from top performers clearly indicate that excellent execution is the key to their innovation productivity (Sidebar 1). Best innovators put in place operational strategies that help them capitalize on a range of opportunities to get more value from available resources. We have helped our clients take advantage of as many as 10 such sources of innovation productivity—from leveraging external innovation networks to optimizing key internal capabilities, such as R&D staff, management systems, and business processes. How do these efforts pay off? Our benchmarking studies confirm companies that focus their efforts on improving their existing operational capabilities first—before

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spending more money on R&D—can reap productivity gains of up to 50%. In fact, best performers commercialize 30% more products from the same investment and achieve 30% to 40% higher profits than their average peers. It is only after they do the hard work of raising innovation productivity that their additional R&D investments pay off. Given existing knowledge of best operational practices for executing innovation, less-advanced companies can quickly bring themselves up the learning curve. In this article we focus on four areas of opportunity that offer high potential for productivity and innovation leverage but are often overlooked or underutilized by development organizations: platforms and architectures, resource management, information automation, and cross-functional teams.

Leveraging Platforms and Architectures Product platforms—strategic sets of technologies, capabilities, and integrating architectures that form the basis for related products—are now routinely used by leading companies as a rich source of innovation productivity. On the input side, they allow companies to decrease costs in three ways. First, they can reuse components and subsystems across product lines. Toyota is a master at leveraging platform reuse across vehicles. It leads the industry in number of vehicles produced per platform, giving the company a speed and cost advantage over its competitors. Automakers with
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© 2002, 2006 PITTIGLIO, RABIN, TODD & MCGRATH, INC.

materials. They drive improvements in both the input and output sides of the innovation productivity equation by either decreasing input costs or increasing the volume of new products. A much-celebrated example is how Black & Decker dramatically reduced the cost of its hand-held power tools by using modular architectures. Yet in any such paradox often lies the seed of true breakthrough thinking. and enhancements delivered in a given timeframe • All process innovations that create a competitive cost advantage or more customer value In short. operational strategies based on platforms and architectures can improve innovation productivity in three ways. This approach to cost reduction was a design and manufacturing innovation in its own right. Innovative companies use a number of operational tactics to make it happen. for lower inventory costs. That’s the idea behind innovation productivity: increase the total output of your innovation engine from a given input cost. By contrast. and outside contract support to create new product and services • Any investments in new capabilities required to create. By speeding up the process of product evolution. they can end up with more innovative and advanced offerings. the company was able to use one motor/drive subsystem in a broad range of tools instead of designing and manufacturing different motors for each and every product. By leveraging its platforms. First. in so doing. product extensions. fewer vehicles per platform are needlessly taking on an added investment. they get new product generations of products to market faster than competitors. With careful platform planning. and quality requirements and. imagine creating more new products. With careful architectural planning. TODD & MCGRATH. your company can avoid investing in additional platforms. Toyota is able to hold a one. RABIN. productivity suggests structured processes with high yields and low variability—anathema to the freedom and creative spirit needed for innovation. INC. customer value. or cost performance—anywhere in the lifecycle and across the whole development portfolio—will also improve innovation productivity. companies can use modular architectures to reduce complexity and decrease product and maintenance costs. Careful product planning lets you postpone these activities until late in the development cycle. Finally. product or service quality. and deliver new product and services • The cost of service and support directly related to maintaining new products and services Innovation outputs include: • All new products. Conventional wisdom dictates that innovation requires unstructured investment and many dead ends in pursuit of a few blockbusters. deliver more lifetime customer value (as measured by profits from new products). . Carrier Corporation uses this strategy effectively by driving local customization for its air conditioners. cost.What Is Innovation Productivity? Innovation and productivity don’t traditionally go together. 2006 PITTIGLIO. anything that improves project throughput.to 2 © 2002. Platforms can create a large and sustainable speed advantage. Without increasing costs. produce. On the output side. How do we define innovation inputs and outputs? Inputs include: • The total cost of labor (both direct and indirect). companies can cut costs by moving final configuration closer to the customer—postponing assembly and integration. services. and solutions that better meet customers’ performance. Is it possible to be more productive and more innovative at the same time? We think it is. Second.

Most companies still plan projects 3 . RABIN. tracking their usage and charging it back to business groups. better utilization leads to greater productivity so you’ll be able to generate more and higher-value output without hiring more people. You can increase utilization in three ways. The third way to boost innovation output is to focus innovation efforts on key product modules. Productivity of other resources suffers when a single. How can you tell if you’re adequately leveraging your platforms and architectures? Ask yourself the following questions: Do you have a clear understanding of your current product or service platforms and how the platform concept applies to your business? Do you have an explicit productline planning process that includes platform strategy? Do you have integrated product. At any point in time. critical resource becomes a bottleneck.By speeding up the process of product evolution. Simply measuring and managing utilization to a reasonable goal can have an immediate impact on productivity—especially when you focus your resources on innovative. and set goals for improvement. First. The software company offers an array of new user application modules developed by and licensed from lead users. As product development expert Christopher Meyer puts it. Making Best Use of R&D Resources By optimizing the time and talents of your development staff you can increase innovation output without increasing costs (which are fixed). Second. approved projects that create new product revenue is 10% to 15% lower than expected. Visio understands this concept well. improve how you balance resource supply and demand. understood this strategy very well. architecture. and technology road maps? Do you monitor both product and platform lifecycles in your market planning? Does your organization have the skills needed in modular design. Many companies are surprised to find that although their people are busy to the point of overload. Most IT-intensive service companies like Sprint and FedEx have been managing the utilization of their IT development resources for some time. Without a modular architecture that includes applica© 2002. new revenue-producing projects. use resource planning and scheduling to better meet your current and future needs. you’ll end up with more innovative and advanced offerings two-year lead over other automakers for next-generation vehicles. know what your current utilization rate is. Companies that practice modular innovation focus new development efforts on different modules of a product instead of creating an entirely new product. For years the company was able to stay ahead of Microsoft by focusing on the operating system and user interfaces that drive superior usability and customer loyalty. 2006 PITTIGLIO. companies tend to put “too many cars on the freeway. Toyota’s vehicles are likely to have more innovative technology than competing vehicles in a comparable model class. tion-programming standards for external developers. actual utilization on high-value. TODD & MCGRATH. Companies like DaimlerChrysler have worked hard to create the information systems and processes to keep bottlenecks from occurring. This means matching people with the right skills with the right projects at the right time to minimize the bottlenecks that reduce throughput.” which limits throughput. then your company is probably making very good use of this source of productivity and innovation leverage. high-value. INC. As with any fixed-capacity operation. companies can also boost innovation output by focusing investment on a defining technology that differentiates a product line and preserves its distinctiveness. and strategic product/market planning to drive platform and architecture leverage? If you can answer “yes” to these questions. Visio wouldn’t have achieved the same degree of success in this highly competitive marketplace. Second. platform. Third. bringing resource capacity and demand information into portfolio decision-making. The same concept is powerful when applied to more traditional R&D resources. Apple Computer.

We found that on average. and communicating knowledge. Unfortunately. INC. in siloed applications that are inaccessible to the people that need them. and portfolio information. RABIN. and reduces duplication of effort. combining. and value chains. plan projects around actual resource availability—this kind of information access depends on integrated systems. most of the innovation productivity strategies depend on accurate. for instance. and reduce ECO duration by one-third. TODD & MCGRATH. companies experience a productivity loss of over 20% in resource management. conducted in-depth research with ten companies to better understand how much time people waste in product development chasing down information that should be more readily available. project. In many companies. Leading innovators excel at using information to expedite and improve their operational and business decisions—driving down costs. © 2002. estimates that by consolidating over 30 parts databases into one and putting in place automated workflows for engineering change order (ECO) management. For greater productivity. EMC. After all. resulting in significant time and cost savings. Moreover. product. However. Block assignments lead companies to “hoard” scarce resources. and complete information that can be integrated throughout the product lifecycle and shared with all participants—both inside and outside the company. 2006 PITTIGLIO. This transparency makes it possible to synchronize resource schedules. product development is about transforming market and technology opportunities into ideas and viable concepts. companies no longer have to regenerate product information that already exists and could be leveraged—such as multiple component libraries that can’t be accessed across business unit or location silos. refining. with visibility across the entire product development cycle. companies can schedule scarce resources to parts of projects instead of making block assignments that won’t fully leverage constrained skills if assigned on a full-time basis. When used as a part of comprehensive strategy for product information management. supply chains. timely. PRTM and IDe. one of the leading providers of integrated development systems. and overall process management. Automating Information to Optimize Product Decisions Innovation and product development are arguably the most knowledge-intensive processes in any company. and boosting innovation output. this technology allows companies to share information and optimize product decisions across lifecycles.assuming infinite resource availability. speeds up changes. As product development becomes increas- Simply measuring and managing utilization to a reasonable goal can have an immediate impact on productivity 4 . provide promising technology solutions to this problem. Moreover. sharing. a resource planning capability allows your company to compare existing resources against future needs. changing. such as applications enabling Product Lifecycle Management (PLM). and then into products and services—all while discovering. much of this information is still hopelessly trapped on paper. portfolio management. and to accommodate more projects than were possible before. the new collaboration applications also allow partners both inside and outside the company to better coordinate their development efforts. in slideware. or in desktop applications like Excel spreadsheets that can’t be easily shared. raising profitability. and apply resources in blocks. project management. the company was able to reduce the time to process new part requests from over two weeks to one day. In some cases. This exercise helps reveal when it’s time to build or acquire the expertise needed to capture new opportunities. Combined with the right processes. This reduces errors. Consequently. the new-generation enterprise systems. Our research didn’t even address the secondary issue of the wasted effort that goes into creating unneeded parts and components. the new applications have already minimized the manual collection and management of disparate resource.

such as requirements management. and others playing along. product development at most companies now involves some kind of team structure that combines business/market and technical/ product perspectives. RABIN. ready access to integrated product information up and down the lifecycle better aligns development efforts with requirements and increases the cross-functional. multi-disciplinary collaboration that leads to more innovative solutions. Second. people with access to context-based knowledge—information more relevant to the task or problem at hand—can be more effective. share. This approach runs product development as a set of end-to-end 5 . Now. teams of designers representing different customers and suppliers can now collaborate on product design with real-time visualization tools that allow different experts to come together in problem-solving mode to discuss. A more effective approach is to involve all functions from the outset and maintain their involvement and accountability from concept through launch. As a result. look to see how the systems are being used. portfolio management. INC. such as engineering or marketing. and process management? Do the systems also support product development operations. To determine if your company is making full use of this source of innovation productivity. few companies fully leverage the power of cross-functional teams.Innovation and product development are arguably the most knowledgeintensive processes that a company has ingly cross-organizational. innovative aspects of product development. configuration management. or are they enabling some of the changes described above? In short. “Digitization” of product development enables more innovative problemsolving and allows companies to do more modeling and iteration without incurring major costs. for example. First. The third benefit extends this notion even further. 2006 PITTIGLIO. or of other organizational tools that can drive innovation productivity. design tools can feed simulation tools to allow fast iteration and sharing of designs. it frees up time previously used for manual information search. Then. and take action on new ideas. Some companies have systems that address one but not the other. Often companies set up project teams led by one function. Do the systems support product development management. could see pointers to recent market studies or customer feedback instead of having to search for this information. manufacturing partners can model the impact of changes and find the best solution to meet customer requirements. retrieval. Others have separate systems but no enterprise-wide capability as their IT support for product development is often locked up in organizational silos. are you changing your practices and organization to really take advantage of this technology? Harnessing the Power of Cross-Functional Teams The organizational problems of traditional functional silos—with work done sequentially and “thrown over the wall”— are well understood. This lead function involves other functions on an as-needed basis as the project moves from concept to launch. check if you have enterprisewide IT systems that integrate and support product development. On the innovation output side. At the same time. Someone working on a market analysis. Companies like Boeing find that far-flung © 2002. Are they automating the way product development has been done in the past. As product design becomes more digital. and management so that people can now focus on the more value-adding. information automation delivers at least three benefits. project management. TODD & MCGRATH. and component management? Both product development management and operations are critical. supplier management. including resource management. The problem is that this approach tends to end up being primarily functional by default— with one function taking responsibility for outcomes. Still. the ability to coordinate efforts among an ever-widening web of participants is critical for the success of collaborative innovation.

The company has been using these programs for years to recognize. Also on the output side. there may still be valuable leverage to tap. Is your company taking full advantage of organizational leverage for innovation productivity? Is your product development process truly cross-functional? Are crossfunctional teams used for projects. and financial realities. and accountability clear and distinct throughout the process? Are all other aspects of organizational design aligned to support innovation productivity? If not. INC. and career paths—have proven very useful in driving and reinforcing a culture of innovation. 2006 PITTIGLIO. For instance. cross-functional teams allow for fast. and other critical functions. A good example is 3M. Make sure your development teams include functions like purchasing and operations (for seamless supply chains). Bringing together diverse perspectives to resolve specific challenges often ignites the spark of innovation. Beyond the benefits of solving downstream problems up front and cutting down on later rework. Companies like Dow Chemical are also finding that they can improve innovativeness by choosing team members with the right mix of creative problem-solving abilities. The results of your audit can help you build a road map to operational excellence—leading to higher innovation productivity and better returns. Organizational leverage—rewards. fund. Some may be fully optimized.434. others may provide promising opportunities. Executive decision teams also influence project teams by modeling collaborative behavior. they can make sure that the solution keeps implementation issues to a minimum— and customers happy. responsibilities. Companies like IBM have found that using cross-functional teams of executives with the authority to make project and portfolio decisions lead to rapid. development teams can better address key product tradeoffs in the context of customer and market needs. Finally. leaving them out can starve a team of creative perspective. customer support and delivery channels (for early responsiveness that accelerates penetration).projects with a “project-to-market” mindset focused on business results. real-time decision-making. the rich sharing of expertise and different perspectives leads to more innovative solutions. Cross-functional teams can also drive innovation output by addressing new market opportunities. CONTACT PRTM Director Mark Deck at mdeck@prtm. market. Though it may seem more efficient to only involve downstream participants when they are needed late in the © 2002. and executive decision-making? Are roles. for major time savings and greater productivity. Keep in mind that the sources of innovation productivity vary with different industries and markets. Take the concept of collaboration even further by including platform or product-line teams as well as new-opportunity attack teams. when people in charge of customer service are part of a product development team. This capability is just as important for improving speed and throughput as having streamlined processes and teams. where innovation output is a key strategic metric. The results are solutions that balance technical and customer concerns with competitive. performance systems. TODD & MCGRATH.1200 6 . Monitor your company’s track record in using these sources. truly cross-functional teams enable concurrent development. Product development teams that include all necessary functions drive cost-effective performance and greater innovation. and reward innovation opportunities. issues are resolved quickly and roadblocks to forward progress are removed.com or +1 781. project lifecycle. When all key functions are at the table. RABIN. platforms. By focusing on projects instead of functions. We recommend conducting a simple audit to assess both the applicability of each source and the extent of its use. high-quality decisions that stick. Companies like Seagate Technology are using cross-functional “market attack teams” that lay out the future road map of potential products and the underlying product platforms that will be needed.