Dare you play R&D roulette?

As the low-cost economies move up the value chain, the competitive focus has at last moved away from cost. Research by the EEF and BDO shows that over half of UK companies have chosen new paths in response to low-cost competition: "More and more companies have taken steps to improve competitiveness - increasing innovation, focusing on niche markets, and developing service offerings. And increasingly they are competing on the basis of customer service and quality and less on price." Innovation takes many forms: technology, processes, customer services, marketing, logistics... But how do you innovate? Choosing new markets is one way. The Product Innovation Consortium, set up by the Manufacturing Advisory Service West Midlands (MAS WM) to help companies "turn ideas into reality", backed double-glazing company Bromsgrove Glass & Windows when it moved into glass furniture under the name Glassdomain. Or take two more examples from Amina West, European sales director at CAD developer Autodesk: a firm which is exploring other applications for its aviation de-icing equipment; and a shop-fitting company which wants to expand into the upper end of the kitchen-fitting market. There are tools to validate ideas. The Russians invented the Triz theory of inventive problem solving when an analysis of 200,000 patents showed that only 2% were based on real innovation. Since 98% of all new problems can be solved by previous experience, Triz advocates argue, trial-and-error innovation is needless. If you learn the rules you can hasten an innovation along the evolutionary path that destiny has already mapped out for it. But Triz validates an idea. Where does the idea come from? Some companies, like Proctor & Gamble, buy in their innovations, perhaps from universities and start-ups. Others prefer them to well up from within. Christiaan Persoon is technical director for France, UK and Ireland at 3M, an innovator in every field from smart materials to medical equipment, optical projectors to office equipment - think Scotch tape and the Post-it note. For Persoon, innovation comes in two flavours - customer- and technology-driven. If you start with the customer, he says, there are three necessities for successful customer-driven innovation. One is knowing the customer's business so well you can solve a problem they didn't even realise they had. 3M sends teams of engineers into businesses large and small to find out what makes them tick. His example is the automotive aftermarket: "In the UK two years ago we were looking at what we could do to make a UK body shop owner more successful. So we employed engineers in body shops and looked around." The team soon noticed the cleansing process between paint jobs. It took 20 minutes, and several litres of solvent, to cleanse paint guns. 3M devised its disposable paint preparation system to cut the changeover to a few minutes and reduce solvent use by up to 70%. 3M used the same approach to devise its surgical tapes for use in operating theatres and in other markets. The second necessity is technology. Where others outsource or buy in technology from start-ups and the like, 3M chooses to develop its own, "which is not common any more," Persoon concedes. Though 3M works with universities, it prefers to recruit young engineers and students to work in its corporate research labs. The company spends $1bn a year on R&D. "Every company should be doing this," he says. But even companies that do it aren't necessarily innovative. Because the third necessity - "what makes you innovative," says Persoon - is the culture. Roy Pulley agrees. Pulley is manager at MAS WM's Product Innovation Consortium (PIC), which so far has supported 18 of the 53 companies who subjected themselves to its rigorous four-phase 'gate' methodology for new product development. PIC has helped a host of Midlands innovators test the feasibility of their bathroom showers (Airojet), electronic locks (Intelligent Locking Systems), medical recovery equipment (Malvern Orthopaedic) and rugby balls (Webb Ellis). PIC puts its hit rate at over five times the norm for bright ideas: "You need to be filling this funnel up with new, good-quality ideas," says Pulley, but he has little time for suggestion schemes. Coming up with ideas is part of the job: why would you reward people for doing what they should be doing anyway? "You've got to get people thinking, using lateral thinking, Triz and so on." Developing and nurturing an innovative culture, says Pulley, is the only way to make innovation part of the day job. That can only happen in a non-silo organisation where people are encouraged to innovate and where "it becomes second nature to use their grey matter to contribute to the development of the business. That's how you get the best out of people and get them to think creatively." Instead, in most companies, the culture is a barrier, Pulley believes. Companies are unwilling to set time aside for people to be creative, to explore ideas and work in cross-functional teams to develop them. Just spending time with people in parts of the organisation you don't normally meet is almost bound to generate new thinking about current and future problems. But it doesn't happen unless the company facilitates it. Equally, setting time aside for creative thinking is rare, but hardly wild. 3M has a 15% rule - the proportion of working time the company allows every employee "to pursue projects that they feel are important - even if their boss doesn't necessarily agree," says Persoon. At Google the rule is 20%, and Hewlett-Packard and others have a similar approach. With customer-driven innovation there's more than a hint that you will get a sale at the end of it. Technologically-driven innovation, says Persoon, "is much more difficult." 3M's famed Post-it note - a result of the 15% - was an example: "No customer asked for it," says Persoon. Legend has it that Spencer Silver, who was investigating super-strong adhesives for 3M, spent five years trying to convince his bosses in seminars and meetings that the super-weak adhesive he'd hit on in 1968 could be important. Only when Art Fry, a 3M scientist, became annoyed that his hymnal bookmarks kept dropping out at choir practice, did the penny drop. The reusable bookmark followed in 1974 but Post-it was only a success after 3M gave the products away and people started using them. Technology drivers Technology-led innovation, though more difficult, often "results in products that are steps forward in design," says Persoon. And who knows where they lead? The Fresnel lenses 3M developed for overhead projectors led to high-reflectivity jackets and road signs, and other applications in TV and laptop screens. There's plenty of technological help in the development stage. Not only can technology help validate potential products for production engineers, marketing execs and investors before a penny has been committed to prototypes, but it can also save millions in working capital. HTC, a Swedish maker of floor-polishers, used to need five prototypes for each new design at $500,000 a prototype. Now instead it mostly relies on digital prototyping tools from Autodesk. To make its latest model, the 2500 iX, it needed only one physical prototype - and it managed to sell even that, says Autodesk head of northern European marketing Richard Blatcher. CAD is no longer in the geeks' corner. Autodesk reports rising sales to non-engineers, and its sales messages are increasingly about business benefits, not technology. "We have to provide more than the software," says Autodesk's West. "We have to understand how it's being applied, and what problems it's trying to solve. What process are they trying to enhance, change or install?" Reducing the prototype count isn't the only saving. She sees big opportunities to reduce waste and energy consumption as the cost of materials and energy rise, predicting a product's carbon footprint before any metal has been cut. "Costs are a huge driver," says West. What Autodesk's customers want to know, she says, is, "How is this investment going to help me manage or reduce my costs or wastage or manufacturing and reduce my time to market?" The more widely designs are communicated to their stakeholders as the product moves from conceptual design to component manufacturing and assembly, the argument runs, the less likely mistakes will be and the fewer the number of costly engineering change orders. HTC, for example, was able to check whether its machine could go through a particular set of doors. The usual rule is that cost of putting a problem right multiplies by 10 at each succeeding stage of manufacture. The speed advantage seems awesome. HTC's development cycle from concept to selling the first machine used to be two years, says Blatcher. Now the total cost is $70,000 to achieve the same result in 17 weeks. First stop, though, has to be an analysis of the competition the product will face and whether you can sell it at a price that gives you a return on your labours. Having the idea is only the beginning, says Pulley: "You've got to have a good process to be able to continually evaluate development of an idea though the process." The biggest innovation secret is knowing when to pull the plug. The greatest risk, he says, is to continue with a product you've already invested in when you should kill it. Pressure point Newbow Aerospace makes air-pressure gauges for aircraft tyres. Incorrect tyre pressures can lead to bursts; bursts, as in Concorde's case at Paris in 2000, can lead to tragedy. Aircraft maintainers once had to wait until plane tyres had cooled before they could measure tyre pressures, delaying plane departures. Newbow's products measure pressure aircraft tyres when hot and calculate the equivalent ambient-temperature pressure. Newbow's pet project was to offer police a version they could use to check lorry tyre pressures at roadside spot checks. "The technical feasibility was in the bag," says Pulley. But Newbow knew next to nothing about likely demand or the competition for such a product. PIC funded market research which led the company to conclude that moving into road transport would have been an expensive mistake, so it abandoned the product. Pulley says Newbow is delighted. As MD Ron Stilliard puts it: "PIC has saved us a lot of money and effort." The investigation took £2,000. Learning the same lesson the hard way would have cost a lot more. Persoon's advice for innovation wannabes? "You need to start with the customer." Look at life from their standpoint and try to work out what you can do to help them: "Product flows really quickly if you know what the customer wants," and working with the customer, he adds, "drives the culture." The one thing not to do, says Persoon, is to cut back on R&D in a downturn: "It takes years to build it back up."