How Customers Drive Innovation

The annual Booz Allen Hamilton report on the world’s 1000 largest corporate R&D spenders has just been published.  As with previous BAH reports, the surprising finding is that the amount of R&D spending is not correlated with any financial measures of corporate performance.  It’s not how much you spend, it’s how you spend it.  In their analysis, Booz Allen found that the companies that get the most bang for their buck–what they call “high leverage innovators”–are the ones that integrate customers and users deeply in every stage of the innovation process.  These successful innovators involve customers in idea generation, in selecting the best ideas, and in refining and elaborating ideas.

For example, one company they interviewed, Parker Hannifin, reports that they require a lead user to be on every development team.  A second company, DeWitt (maker of professional power tools) has their engineers and marketers spend hours each week at construction job sites.  Once a prototype is ready, they take it straight out into the field, lend the prototype to the workers, and then check back in a week to find out how it worked out.

This finding reflects my own research finding: that companies that build collaborative webs with their customers are the most innovative (see Chapter 10 of my book Group Genius).  As I’ve found, it’s not good enough to simply do market research or focus tests.  Customers have to be deeply involved, participants in the internal conversation.

There’s one finding in the BAH report that conflicts with my own research: after interviewing a smaller subset of the 1000 companies (they don’t say how many, but it’s probably less than 20), they report that all of those companies interviewed used a tightly managed stage-gate process.  At each stage, approval to proceed was based on measurements of a variety of critical factors.  Frankly, to me that sounds like attempts to apply Six Sigma to the innovation process.  These are misguided and almost always kill innovation (see my previous blog posting).  I’d be very surprised if the most innovative companies were all doing this, so I wonder how representative the companies interviewed really are.

Thanks to Booz Allen Hamilton for providing this service each year!

2 thoughts on “How Customers Drive Innovation

  1. I don’t think the stage gate process is necessarily counterproductive to innovation. It all depends on what questions you ask at each gate. This is an area where you can make serious errors.

    For example, the criteria you would apply to ideas for incremental product innovations are completely different to the ones that are relevant to proposed disruptive innovations. There is no reason why the criteria should not include questions such as “Is this idea truly awesome?”

    Perhaps it would be helpful to rephrase the question: “Is it conceivable that Apple had no stage gate process for developing and introducing the iPod or the iPhone?” I for one doubt it.

  2. It depends on the questions and measurements you make – but also on who makes the measurements. Is it a few people from management? Or can you harness group knowledge in judging the ideas – by using for example prediction market software or the likes.

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