R&D Malpractice?

What would you call it if a physician prescribed a treatment plan for a patient without first conducting a thorough diagnosis – medical malpractice? Most people would agree that prescribing treatment before conducting a diagnosis is wrong. There’s a logical sequence to medicine that’s important to follow: first discover the patient’s needs and then prescribe the appropriate treatment. Interestingly, businesses and R&D departments are far less effective or inclined to identify their customers’ needs before developing and commercializing solutions. This is the primary reason why R&D, new products, and marketing fail so frequently. We must distinguish between what we truly know, what we believe, and what we want to believe about our customers’ needs.

The 2014 Global Innovation 1000 Study was recently published by Strategy& (Formerly Booz & Company). This was the 10^th year in which the researchers examined the spending patterns of the top 1000 R&D spenders and surveyed more than 500 innovation leaders across every major region and industry sector to determine why some R&D investments work and others do not. For the 10^th year in a row, they confirmed that:

“There is no statistically significant relationship between sustained financial performance and R&D spending, in terms of either total R&D dollars or R&D as a percentage of revenues.”  (p. 4, The 2014 Global Innovation 1000 Study)

Does anyone else find this disturbing? Approximately $647 billion will be spent globally on R&D in 2014, and yet there is no statistical correlation between R&D spending and financial performance.  Ouch – this is extraordinary. Can you imagine spending that kind of money on medical care and yet having no correlation between spending and good medical outcomes? I think we can assume that the R&D folks are trying their best. So what’s going wrong? Why is R&D success so unpredictable and unmanageable? The authors of the study went on to state:

“We found that companies that directly captured customer insights had three times the growth in operating income and twice the return on assets of industry peers that captured customer insights indirectly, as well as 65 percent higher total shareholder returns.” (p. 8, The 2014 Global Innovation 1000 Study)

“Need Seekers have always seemed to have some distinct advantages…Need Seekers seem to stack the deck in (their) favor. (This approach) is rooted in a deeper and superior understanding of end users which helps you better align with strategy. It allows you to get to market first which allows you to have premium pricing when you are there. And the other interesting thing is that Needs Seekers have a more tightly aligned business and innovation strategy…and those factors help you get to market faster and to be superior in how you execute.”  (Barry Jaruzelski, Co-author, in a video at Strategy&).”

It is now possible to conduct a thorough diagnosis of your customers’ needs before you spend a dime on development and commercialization of a solution to address those needs. There’s no reason for R&D, new product, or marketing malpractice any more.