new product development – Silverton Consulting

Newton & iPad by mac_ivan (cc) (from Flickr)

A recent post by Mark Lewis on innovation in large companies (see Episode 105: Innovation – a process problem?) brought to mind some ideas that have been intriguing me for quite awhile now. While Mark’s post is only the start of his discussion on the management of innovation, I think the problem goes far beyond what he has outlined there.

Outside of Apple and a few select others, there doesn’t appear to be many large corporate organization that continually succeed at technology innovation. On the other hand there are a number of large organizations which spend $Millions, if not $Billions on R&D with at best, mediocre return on such investments.

Why do startups innovate so well and corporations do so poorly.

Most startup cost is sweat equity and not money, at least until business success is more assured. Well run companies have a gate review process which provide more resources as new ideas mature over time, but the cost of “fully burdened” resources applied to any project is much higher and more monetary right from the start. As such, corporate innovation costs, for the exact same product/project, are higher at every stage in the process, hurting ROI.
Most successful startups engage with customers very early in the development of a product. Alpha testing is the life blood of technical startups. Find a customer that has (hopefully, a hard) problem you want to solve and take small, incremental steps to solve it, giving the customer everything you have, the moment you have it, so they can determine if it helped and where to go next. If their problem is shared by enough other customers you have a business. Large companies cannot readily perform alpha tests or in some cases even beta tests in real customer environments. Falling down and taking the many missteps that alpha testing would require might have significant brand repercussions. So large companies end up funding test labs to do this activity. Naturally, such testing increases the real and virtual costs of corporate innovation projects versus a startup with alpha testing. Also, any “simulated testing” may be far removed from real customer experience, often leading corporate projects down unproductive development paths, increasing development time and costs.
Many startups fail, hopefully before monetary investment has been significant. Large corporate innovation activities also fail often but typically much later in the development process and only after encountering higher real and virtual monetary costs. Thus, the motivation for continuing innovation in major corporations typically diminishes after every failure, as does the ROI on R&D in general. On the other hand, startup failures, as they generally cost little actual money, typically induce participants to re-examine customer concerns to better target future innovations. Such failures often lead to an even higher motivation in startup personnel to successfully innovate.

There are probably many other problems with innovation in large corporate organizations but these seem most significant to me. Solutions to such issues within large corporations are not difficult to imagine, but the cultural changes that may be needed to go along with such solutions may represent the truly harder problem to solve.

Comments?

Photograph of Women Working at a Bell System Telephone Switchboard by US National Archives (cc) (from flickr)

Oracle buys Sun, EMC buys Data Domain, Cisco buys Tandberg, it seems like every month another major billion dollar acquisition occurs. Part of this is because of the recent economic troubles, which now values many companies at the lowest they have been for many years and thus, making it cheaper to acquire good (and/or failing) companies. But one has to wonder is this the only way to grow?

I don’t think so.

Corporate growth can be purely internally driven or organic just as well as from acquisition. But it’s definitely harder to do internally. Why?

Companies are focused on current revenue producing products – Revolutionary products rarely make it into development in today’s corporations because they take resources away from other (revenue producing) products.
Companies are focused on their current customer base – Products that serve other customers rarely make out into the market from today’s corporations because such markets are foreign to the companies current marketing channels.
Company personnel understand current customer problems – To be successful, any new product must address it’s customer pain points and offer some sort of a unique, differentiated solution to those issues and because this takes understanding other customer problems, it seldom happens.
New products can sometimes threaten old product revenue streams – It’s a rare new product that doesn’t take market share aware from some old way of doing business. As companies focus on a particular market, any new product development will no doubt focus on those customers as well. Thus, many new internally developed products will often displace (or eat away at) current product revenue. Early on, it’s hard to see how any such product can be justified with respect to current corporate revenue.
New products often take efforts above and beyond current product activities – To develop, market and sell revolutionary products takes enormous, “all-out” efforts to get off the ground. Most corporations are unable to sustain this level of effort for long, as their startup phase was long ago and long forgotten.

We now know how hard it can be but how does Apple do it? The iPod and iPhone were revolutionary products (at least from Apple’s perspective) and yet they both undeniably became great successes and helped to redefine industries in the process. And no one can argue that they haven’t helped Apple to grow significantly in the process. So how can this be done?

It takes strong visionary leadership in the company at the highest level – Such management can make the tough decisions to take resources away from current, revenue producting products and devote time and effort to new ones.
It takes marketing genius – Going after new markets, even if they are adjacent, requires in-depth understanding of new market dynamics and total engagement to be succesful.
It takes development genius – Developing entirely new products, even if based on current technology, takes development expertise above and beyond evolutionary product enhancement.
It takes hard work and a dedicated team – Getting new products off the ground takes a level of effort above and beyond current ongoing product activities.
It takes a willingness to fail – Most new internally developed products and/or startups fail. This fact can be hard to live with and makes justifying future products even harder.

In general, all these items are easier to find in startups rather than an ongoing corporation today. This is why most companies today find it easier and more successful to grow through acquisitions rather than through organic or internal development.

However, it’s not the only way. ATT did it for almost a century in the telecom industry but they owned a monopoly. IBM and HP did it occasionally over the past 60 years or so, but they had strong visionary leadership for much of that time and stumbled miserably, when such leadership was lacking. Apple has done it over the past couple of decades or so but this is mainly due to Steve Jobs. There are others of course, but I would venture to say all had strong leadership at the helm.

But these are the exceptions. Strong visionary leaders usually don’t make it to the top of today’s corporations. Why that’s the case needs to be the subject of a future post…

Tag: new product development

Technology innovation

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