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Published: 1/12/05
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How Companies Turn Customers' Big Ideas into Innovations

3. The engineers stay close to the market. It might seem reasonable that a company with strong R&D roots could afford to overlook the smaller ebbs and flows of customer needs and related market opportunities, and just concentrate on creating exciting new products, but this strategy isn’t efficient. In fact, Booz Allen consultants say that it’s an extremely risky — and expensive — way to operate.

“These companies end up introducing a lot of technology-driven projects and seeing what sticks,” Kandybin says. It’s not that a market-blind strategy never works, according to Kandybin; it is just that being tuned in to the market has much more potential. “If a company’s engineers don’t understand the market from the standpoint of consumer needs, they are usually much less successful at creating markets, even if they have good technology,” he explains.

“European companies plan to significantly increase R&D activity in Eastern Europe and Asia by 2007, according to a Booz Allen survey.”
Kandybin contrasts the successes of Bose, the Framingham, Massachusetts, sound system company, with that of Apple Computer of Cupertino, California. Both companies are technology-driven. Apple, with its exceptional focus on customer insight, has been able to invent great products with great technology, which Bose does too. Apple, however, also creates vast new markets. Witness the way it has transformed the music industry with its hugely popular iPod. Interestingly, Bose has a new sound system specifically made for use with the iPod, and it has dramatically raised its marketing and brand identity push in the last few years.

How do companies maintain both a consumer and a technical focus? The use of cross-functional teams in product development is one way smart firms try to close the gap between technical know-how and customer understanding. At Hewlett-Packard, for instance, the company requires “everybody on the team to go together to a prospective customer and hear the customer themselves,” says Wharton’s George Day.

4. Companies perform R&D around the world. What do you do if your customer is on the other side of the world from the markets you are used to serving? Historically, U.S. companies would often introduce a product domestically first and then introduce the same product with minor modifications into other markets, according to Jerry Wind. Today, they no longer have that luxury. Many companies must introduce a new product simultaneously in many markets, he says, creating huge difficulties for product and service-system designers.

One emerging strategy to address this issue in a global context is to build more research and development operations nearer to companies’ newest markets. Booz Allen’s European innovation survey, for instance, estimates that European companies will increase their research and development expenditures in Eastern Europe and Asia from 16 percent to 31 percent by 2007, largely to get closer to those new customers.

Although labor cost savings are often seen by the media as the driving force behind such cross-border moves, Thomas Goldbrunner, a Booz Allen Hamilton principal based in Munich, Germany, says Booz Allen’s survey of innovation practices found that access to customers’ knowledge was actually a much more important motivator for expansion. Executives surveyed rated “access to customer know-how in new markets” as much more important (3.02 out of a possible 4) than factor cost advantages (2.46 out of 4) or greater proximity to a place of production (2.25 out of 4).

5. Innovative companies seek understanding of customer behavior and motivations. There’s more to incorporating customer insights than simply listening to customers more closely. Often, the best innovators not only understand customer behavior but the reasons behind that behavior. “It’s not just what they do, but why they do it,” Kandybin explains.

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