Two Simple, but Game-Changing R&D Approaches.
Marcel Corstjens, a marketing professor at INSEAD, studied the impact of R&D spending on sales with a couple of colleagues after observing how leadership at a significant CPG (Consumer Packaged Goods) company prioritized marketing to achieve a critical business goal, sidelining the R&D team’s inputs.
The team examined data from over 2,500 companies. After excluding companies with less than $1 Billion in revenue, they investigated the relationship between sales and several variables, including R&D spending. The findings were surprising to some. The study revealed that in the CPG industry, a higher R&D spend did not necessarily translate to increased sales. Some companies with reduced R&D expenditures saw greater returns from innovations than larger companies with considerably higher R&D spending.
In contrast, R&D spending had a more directly proportional relationship in the pharmaceutical industry, where innovation played a more critical role in dictating market success.
The team discovered several key factors that determined the success of R&D, rather than merely the amount of money invested. These included:
1. Small Marginal Improvements Over Big Ticket Innovations.
“There are no big problems — there are just a lot of little problems.” — Henry Ford
Researchers found no measurable relation between R&D spending and sales for companies like Proctor and Gamble, despite its two-billion-dollar yearly R&D budget. Ironically, companies with smaller R&D investments did show a correlation. These companies often allocated significant portions of their budgets to innovations that improved existing product offerings, leading to consistent, incremental improvements crucial for success in today’s rapidly changing market. This approach was dubbed the “Lorentzian Strategy,” named after MIT Prof. Edward Lorenz, who described how a minor action could lead to a significant event.
An illustrative example is Tang, an iconic beverage brand at Kraft. When sales plateaued around $700 million in 2007 (outside the United States), they invested in R&D with the explicit goal of improving the Tang offering. The team innovated not just in products but also in supply chain and packaging, propelling sales to $1 billion in the same period.
2. Collaboration Over Isolation.
Perhaps the single most critical factor that dictates the success or failure of an innovation is whether the R&D team works in isolation or in collaboration with the rest of the business. At many traditional CPG companies, R&D doesn’t receive the respect it does in the pharmaceutical or tech sectors. However, the most successful companies, in terms of R&D return on investment, have teams that work collaboratively, ensuring R&D projects align with business goals.
“Don’t find customers for your products, find products for your customers.” — Seth Godin
A top standout in the arena of effective R&D collaboration is Dyson. Widely known for its vacuum cleaners, the company decided to venture into the realm of hair care with products like hair dryers and stylers. Dyson’s decision wasn’t just on a whim; it was a calculated R&D strategy.
Drawing from their expertise in airflow from their vacuum cleaner technology, Dyson’s R&D team collaborated closely with the design and marketing departments. The outcome? The Dyson Supersonic hair dryer. Unlike traditional hair dryers, the Supersonic boasts a digital motor placed in the handle rather than the head, providing better balance, preventing extreme heat damage, and ensuring faster drying times.
Though skeptics questioned the high price point, consumers quickly saw the value in a device that offered a significantly improved experience with tangible benefits. The success of the Supersonic underlines the importance of leveraging core technological competencies (Dyson’s digital motor) and innovatively applying them in new categories (haircare), all while ensuring tight-knit collaboration across company functions.
By rooting their R&D in the principles of incremental improvements and cross-departmental collaboration, Dyson successfully expanded into a new market segment while reinforcing its image as a leader in innovative design and technology. It’s a testament to how a well-coordinated and collaborative approach can turn existing technologies into groundbreaking products, even in entirely different market segments.
Companies with the highest returns on innovations, such as Apple or Google, have leadership obsessed with R&D. This focus does not negate the importance of marketing or sales. The most significant returns occur when various company functions work towards a shared objective.
In conclusion, effective R&D teams strike a balance between consistent improvements and substantial innovations. They integrate with other business functions and prioritize shared goals.
