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 / Winter 2007 / Issue 49(originally published by Booz & Company)


The Customer Connection: The Global ­­­Innovation 1000

For example, when Parker Hannifin CEO Donald Washkewicz rolled out his “Win” campaign in 2001, he defined a new overall strategy, on a single sheet of paper, for this highly diversified, Cleveland-based company. “Among his top goals was profitable growth,” says Craig Maxwell, vice president of technology and innovation, “and one of the elements of profitable growth is innovative products. I live underneath the banner of profitable growth.”

Soon after he joined the company in 2002, Maxwell realized that some divisions were much better at innovation than others. After looking closely at the differences, he instituted a highly disciplined “stage gate” innovation process throughout every division in the company. “We treat every one of [our] 118 general managers and their staff as venture capitalists who are being asked to invest the company’s money in certain projects. And we developed some very, very rigorous value screens in the process to filter out the good projects from the bad.”

The new process deliberately incorporated the role of the market at every step. When generating new ideas, company engineers show drawings and prototypes to customers; when refining the concept engineers go to the customers’ customers, to see how it works in practice. Among the requirements for getting investment approval is thorough feedback from customers affirming the value of the product under development. “We require an alpha customer, or a lead user, to be on the development team,” says Maxwell. “We consider those people to be the canaries in the coal mine, in part because they have a predisposition for sniffing out value. And if it’s not there, they’ll tell you right away that you’re going off in the wrong direction.”

A similarly conservative, value-oriented approach to innovation can be seen in Plantronics, a less diversified and much smaller company, with $800 million in sales for the year ended March 2007. Plantronics spends 9 percent of sales on R&D, while performing well above its industry average — thanks in part to its insistence that its innovation strategy adheres closely to its corporate strategy. Like Parker Hannifin’s, that overall strategy is put explicitly in financial terms; Barry Margerum, vice president of strategy and business development, defines it as “sustainable long-term earnings-per-share growth.”

Plantronics’ core business, headsets, is divided between the commercial market — headsets for operators, workers in call centers, and the like — and the consumer market. The challenge for the company, says Margerum, is orchestrating the different development “cadences” for these two markets. Consumer tastes change more rapidly than do B2B requirements, and the technology on both sides is changing much more rapidly than it used to, given the rise of such technologies as Bluetooth, Wi-Fi, and voice over IP. That makes it incumbent on Plantronics to stay as close as possible to both markets.

“We are data rich in customer insights, whether it be about the mobile professional or the office worker,” says Margerum. “We do demographic research to determine which customers we want to focus on. Then we perform various types of market research to understand what those customers want. This process provides the insights we need to develop the right products.”

On the business-to-business side, that means creating strategic partnerships with corporate customers to determine their specific needs. It also means sharing research into end-user challenges and the ways that new technology might help them achieve business goals. For consumer products, says Margerum, “we’re more on our own. We certainly talk to our channel partners, and sometimes they’re helpful in terms of ideas. But we also have to go out and do our own market research, usually in the form of focus groups and other types of customer shadowing.”

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  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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