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Published: November 28, 2007

 
 

The Customer Connection: The Global ­­­Innovation 1000

Some of the insights from this process have run counter to conventional wisdom. For example, DeWalt customers are willing to pay more for innovative tools, belying the reputation that contractors have as slow adopters of new products. And although some of the efforts DeWalt pursues involve incremental innovations, the company prefers true breakthrough products, in part because it understands that its customers will always be able to tell the difference. “If all you do is a ‘paint-and-label’ [upgrade], you’re not going to get much in incremental sales,” says Schiech. “It’s only when you come with a breakthrough product that you can really change the game in terms of market share.” At the same time, however, the most popular professional power tools have very long product life cycles — as long as 10 or 15 years, says Schiech. “If word gets around that a certain saw is the one to buy, the last thing customers want you to do is change it, because they rely on it to make their living.” So it’s critical that new products work even better, or last even longer, than the products being replaced. DeWalt thus returns regularly to its customers around the world, to make sure that those who swore by an old product will like its replacement even more.

DeWalt typically has 40 or 50 development projects under way at any one time; the company uses a “stage gate” process (involving synchronized milestones, deliverables, and approvals) to coordinate them efficiently. And although fast prototyping and fast tooling have sped up the process, developers are not allowed to skip steps that improve product reliability and durability, especially if moving faster means having less contact with customers. “You can often talk yourself into a short development schedule,” says Schiech, “only to have problems at the back end, which often take longer to solve than the original schedule would have taken.”

DeWalt also scrupulously analyzes the success of its product development efforts. “We spend a lot of time measuring our ability to hit our development schedules on time, on cost, and on quality,” says Schiech. “And we pay close attention to product vitality, which we define as the percentage of our sales that come from products launched in the prior three years. We’re generally above 30 percent, and sometimes inch up to 40 percent and even 50 percent.”

And the company’s overall results? In 1991, with market share numbers in the low teens, says Schiech, DeWalt was selling about $150 million worth of power tools in the U.S. Since then, sales have grown to more than $2 billion annually, representing a market share of more than 50 percent of the U.S. professional power tool market. Those numbers are a tribute not only to the efficiency of DeWalt’s product development process, but also to just how closely the company understands and works with its customer base.

Market Readers
Companies that fall into the second strategy category, Market Readers, demonstrate an overall sense of caution when approaching the innovation process. They spend less on R&D as a percentage of sales, on average, than Need Seekers do. Market Readers tend to prefer incremental product innovation to the breakthrough product that transforms the market. And as a result, they are apt to bring those incremental product innovations into the market as the second mover, preferring a low-risk approach to product introduction.

The Market Reader strategy is just as customer focused as the Need Seeker approach, and it can be just as successful. We interviewed two Market Reader companies: Parker Hannifin, an industrial components manufacturer, and Plantronics, a maker of headsets and other audio equipment. Both companies qualified as high-leverage innovators in both 2005 and 2006. Their success suggests that Market Readers can foster high ­levels of growth and performance by integrating the R&D process closely with corporate strategy and customer awareness.

 
 
 
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Resources

  1. Kevin Dehoff and John Loehr, “Innovation Agility,” s+b, Summer 2007: How to follow Toyota’s example without copying its specifics, and create your own versatile product development process. Click here.
  2. Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia, “Money Isn’t Everything: The Booz Allen Hamilton Global Innovation 1000,” s+b, Winter 2005, Click here, and “Smart Spenders: The Booz Allen Hamilton Global Innovation 1000,” s+b, Winter 2006, Click here: Predecessors to this year’s study established the importance of quality, not quantity, in innovation investment.
  3. Alexander Kandybin and Martin Kihn, “The Innovator’s Prescription: Raising Your Return on Innovation Investment,” s+b, Summer 2004: Introduces the innovation effectiveness curve, another tool for raising performance throughout the product life cycle. Click here.
  4. W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant (Harvard Business School Press, 2005): Cited by executives interviewed for this article, this book shows how companies can use innovation to lead them to unclaimed “blue oceans” of profits and growth. 
  5. Knowledge @ Wharton and s+b, “How Companies Turn Customers’ Big Ideas into Innovations,” 1/12/05: Practices for customer-conscious product development. Click here.
  6. Eric von Hippel, Democratizing Innovation (MIT Press, 2005): Demonstrates the value of “user-centered innovation” and shows how to incorporate the customer into the innovation process.
  7. For more articles on innovation, sign up for s+b’s RSS feed. Click here.
 
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