Creating new products is expensive. Ask anyone in the business of delivering new products to the end-user. The R&D budget can quickly become a black hole, where the money goes in, but no successful products come out. Yet, companies feel compelled to have large R&D budgets, because that means they are innovative. And, investors and shareholders prefer innovative companies. What if the correlation between money and innovation is false? What if it isn’t the size of the budget that makes a company an innovator?
According to strategy + business' annual study of innovative companies, no long-term correlation exists between the amount of money a company spends on R&D and its overall financial performance. What makes a difference is how companies use their resources to connect with customers. In fact, a favorable characteristic among the top innovators was their ability to transform their market by creating unique customer experiences based on direct end-user insights.
Customer collaboration is one way to create unique experiences. The collaboration can range from feedback after a product is on the market to input during a product’s development stage. Changes that result after a product is sold cost more than modifications made during the development stage. Yet, the traditional model for product development is to wait until the product is in the final stages of development before requesting customer input.
The traditional approach does not hold true for innovative companies. For those businesses, customer insights have value in the ideation stage of development. Not in the testing stage, but in the design stage. The fastest-growing innovators recognize that R&D always has more to learn from the end-user. Some of the most innovative manufacturers use customer collaboration to drive innovation.
Understanding Customer Challenges
Emerson Electric is tailoring its development process to include customer collaboration. Its focus is on the challenges that their customers face. Emerson’s strategy is to understand their customers’ challenges as a road to new development.
Take the petroleum industry. Companies are facing an increasingly complex work environment at a time when 40% of petroleum workers are nearing retirement, and the available labor force lacks experience. To help solve their customers' challenges, Emerson created a development process that removes some of the complexity of using technology from its products. As a result, new employees can perform better while gaining experience. Emerson is also using its development process to embed specialized knowledge into its products to ease its customers' staffing challenges.
Understanding Customer Needs
Ingersoll Rand collected information from 2,500 customers throughout the world to learn how they used its air compressor. It incorporated the information into its updated versions, released in early 2010. From customer input, Ingersoll learned how their customers used their products to solve problems and create value for their customers. Ingersoll is looking to implement this same process on other projects where customer input is a vital part of understanding the customer’s needs.
Understanding Customer Behavior
Colgate's product development process is part science and part insight. Colgate has a diverse group of scientists, dentists, and other subject matter specialists who look at the science. These same people visit customers’ homes to gain insight into their behavior. From their home observations, these researchers learned that most people do not brush their teeth correctly. Rather than ignore the behavior, Colgate recognized an opportunity for a product that could deliver quality dental care despite improper brushing.
Research and Development
Customer collaboration can help create a more meaningful buying experience. It can even lead to an increase in brand loyalty, which can improve sales. But, what does it do for R&D? Does co-creation provide product development with any tangible benefits?
As a leading manufacturer of power tools, DeWalt has a well-established customer base. It leverages this diverse group of professional and home users into its Insight Community, where customers collaborate on each phase of the development cycle. These customer insights have helped improve DeWalt’s products, but they have also saved the company about $6 million in research costs.
If any company embodies innovation, it’s LEGO. Yet, LEGO found itself facing financial challenges at the start of the 21st century. When new leadership arrived in 2004, the company looked at opening a platform for receiving product suggestions from its customer base. Since that time, the company has received suggestions from over 1 million people. LEGO’s commitment to its co-creation communities has helped it rise above its financial challenges.
Procter & Gamble
Since 2001, Procter & Gamble has integrated outsiders into its R&D process. Using its co-creation platform, P&G has added dozens of products and boosted product development through the insights of its co-creators. The process has effectively doubled the number of employees without adding payroll costs.
Return on Investment
Customer collaboration or co-creation is a crucial part of today's business reality. It's the first step in creating a positive customer experience, but it can also reduce costs and drive innovation.
- According to a Salesforce study, 72% of B2B purchasers want a personalized buying experience similar to that of the consumer. The more engaged people are in the buying experience, the more likely they are to purchase. What better way to engage a company or a customer than by giving them a voice in the product design?
- Reducing R&D costs results in a more cost-effective product. Involving the customer in the research and development can reduce its R&D costs. Exactly how much depends on the company, its strategies, and its processes. Not everyone may realize DeWalt's $6 million savings, but effective customer collaboration can impact a company's bottom line.
- Innovative companies, such as Emerson and Ingersoll, have shown how customer collaboration helped them stay competitive. Without an innovative strategy that includes co-creation, companies will go the route of Polaroid. Despite their market leadership, Polaroid was unprepared for the digital camera. Its lack of innovation resulted in bankruptcy within ten years of the appearance of the digital camera.
Incorporating customer collaboration into your business strategy isn't about the ROI of R&D. It is about survival. Polaroid is not the only company that failed because of a lack of innovation. Kodak, Blockbuster, Borders, Xerox. For an innovative strategy to be successful, an organization needs a platform for sharing ideas. A knowledge management platform can store information for sharing with collaborators as well as provide a vehicle for a real-time exchange of ideas. To learn more about how a platform like this can facilitate collaboration and sustain growth, contact us.