Inventoritis Exposed: The Missing Bridge Between Marketing and Engineering
By Peter P. Roosen & Tatsuya Nakagawa
An often misunderstood and poorly managed industrial process is the industrial process itself, particularly how products are conceived, developed and brought into production and onto the market successfully. Professionals working in the venture capital, technology transfer and R&D management fields are weary of having to deal with inventors and innovators who usually bring considerable amounts of psychological baggage with them along with their ideas and inventions. A word that does not appear in any English language dictionary yet resonates with these industry veterans and captures the essence of the problem is ?inventoritis?.
Why do we need to deal with it? How big an issue is it? How do we identify it? Is there a cure? There is no cure but inventoritis in a company can be managed by building solid bridges between marketing and engineering with marketing defined as the process of anticipating, identifying and satisfying customer requirements profitably.
By exposing inventoritis in innovation, the industrial process can be more effectively managed and resources can be applied in a more rational way. Ultimately, this should lead to greater and more predictable returns on innovation activities. Over 90,000 new products are launched every year, but only 10% of the products are around 2 years later. Companies that can increase their success rate even a little bit will be able to capture greater market share from their competitors while being able to apply R&D spending more rationally than most do presently. This is the main reason for dealing with inventoritis issues.
Development and testing activities have been modeled on Thomas Edison?s famed Menlo Park laboratory example and on the premise that by establishing systems and processes toward the objective of coming up with winning products through technical research and development activities (R&D), the company would gain a competitive advantage. Vast amounts of money are spent in this area and many companies still pride themselves on the money they spend each year on these activities, usually expressed as a percentage of sales, typically in the 1 to 15% range. An endless series of winning products is not the normal result.
A 2005 Booz Allen Hamilton study of the global top 1000 R&D spenders found no direct correlation between R&D spending and sales growth, operating profit or shareholder return. This is the most comprehensive study to date to assess the correlation of R&D investment to corporate performance. The main conclusion was striking, dispelling the old myth that higher R&D spending translates to a competitive advantage. They found a high concentration of R&D spending with over a quarter or US$110 billion of the $380 billion spent in 2004 by the Global 1000 represented by the top 20 companies and the top 100 representing 2/3 of the total. The biggest spenders are in the technology, health and automotive fields. They estimate the Global 1000 list captures between 80 and 90% of all global corporate R&D spending and 60% of total global R&D including that conducted by governments.
Clearly, inventoritis is a big issue where such vast R&D spending is involved with unreliable results. Obtaining more predictable and better results from these substantial R&D investments would lead to competitive advantages.
An industry metric first introduced in 1992 called the M/E or Grabowski ratio can be used as a measure or at least an indicator of the extent to which organizations are likely exhibit collective inventoritis.
The M/E ratio was developed by MIT-trained engineer turned marketing consultant Ralph E. Grabowski and is the ?marketing/engineering investment ratio?. The main component of the marketing investment is the often undervalued discipline of ?front-end marketing? that includes conducting market research, gathering competitive intelligence, building the business model and analyzing the payback. It does not include sales and promotion expense.
Grabowski found that the most successful companies had ratios greater than 1.0, spending more in front-end marketing than in engineering. Failures had ratios often less than 0.1 with copier manufacturer Xerox having had a ratio of 0.1 and large computer companies Digital and Wang that were impacted by the advent of the personal computer having ratios of 0.004 and 0.001 respectively. Personal computer maker Dell and software company Intuit had ratios of 1.5 for his comparison. Grabowski found that companies with low ratios tended to have inwardly focused engineering cultures.
The classic scenario is one in which someone who has invented something and has managed to obtain an issued patent subsequently fails to recover the costs that went into the development and patenting process. This is widespread and occurs in the case of the vast majority of patents issued to individuals who were not performing the work on behalf of a corporate or institutional research and development activity.
These individuals often lack expertise in marketing, sales and business in general while having unreasonably high expectations of the value of their product or idea while grossly underestimating what it takes to get to a successful commercial outcome. The typical result is the product or idea does not reach the market and the often impoverished inventor casts the blame upon others including engineers, lawyers, financiers, managers or any other professionals who would challenge or question the assumption the product or idea is an excellent one.
For corporate or institutional inventions and the people behind them, the above classic scenario for the individual inventor also applies. Companies fall in love with their products and ideas much like individuals do. Most scientists and engineers who are involved lack sufficient expertise in the marketing, sales and other key business activities to kill the bad ones early while bringing the good ones to market successfully. Engineering-driven companies often focus inwardly and develop products, processes or other innovations for which there is no need and therefore no customer or sale.
Although not nearly as often as in the case of patents granted to individuals, at least half of all corporate or institutional patents never develop sufficient sales of the patented subject matter to return the costs that went into the patenting process. For individual inventors, this is the case for at least 95% of the granted patents.
Inventoritis, a largely psychological disorder, is a root cause of the vast amounts of money spent on innovation R&D leading to no direct correlation between R&D spending and sales growth, operating profit or shareholder return among the top 1000 global R&D spenders. It is important to ensure that anyone with inventoritis be treated of this condition and be kept out of the leadership of the innovation process.
Building solid bridges between the marketing and engineering areas and ensuring the R&D activities are led from within the marketing strategy area will limit the influence of inventoritis and help companies achieve better returns on their important investments in innovation.
As a result of being able to apply R&D spending more rationally, a higher percentage of innovations being successfully deployed is expected.
About the Authors
Peter Paul Roosen has an engineering background and founded numerous companies including firms involved in locomotive and plastics manufacturing, computer software and marketing.
Tatsuya Nakagawa is president and CEO of Atomica Creative Group Ltd., a strategic product marketing company based in Vancouver Canada. He has assisted numerous companies in diverse industries with their early stage deployments and product launches in North America, Europe and Asia.
Atomica Creative Group is a specialized strategic product marketing firm. Through leading edge insight and research, sound strategic planning and effective project management, Atomica helps companies achieve greater success in bringing new products to market and in improving their existing businesses. Clients engage experts on an advisory, consultative or collaborative basis to support their product marketing initiatives.