Discoveries

Volume 7, 
#3, 
April, 2009

Tags: 

Finding the Courage to Invest
What Kind of Statistic Will You Become?

by 

Sheila Mello

Statistics can yield great insight into the behaviors of large groups of people or companies. Numbers are often less helpful in explaining individual behavior. But two sets of statistics, one from a recent Frost & Sullivan survey and one discussed in a New Yorker magazine column, give R&D executives some appreciation of why they feel and act as they do.

The Frost & Sullivan survey asked 150 innovation and product development executives about their top priorities and challenges. Top priority: increasing need for product/service innovation (48%). Top challenge: Generating and maintaining a pipeline of commercially viable innovations (21%). This says that, even while trimming costs and reprioritizing investments, companies recognize that innovation remains -- or should remain -- at the top of the list for attention and dollars.

The New Yorker column, by James Surowiecki, drew on data about Depression-era (that's the 1930s, not today's) spending and company behavior. Using the example of the two major cereal producers of the time, Post and Kellogg, Surowiecki noted that the company that invested heavily in advertising during the downturn (Kellogg) not only came out ahead as the economy improved, but remained dominant for decades. While he acknowledges that hunkering down is an understandable human response to adversity, he also points out that "numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts."

So, while recognizing that investing during a downturn is a good thing, few companies do it. What separates those who do from those who don't? In part, it helps to have been something of a contrarian all along. Take, for example, the tech companies highlighted in a recent BusinessWeek article. In addition to aggressively managing inventory, Cisco, Apple, Microsoft, Google, and a handful of others "hoarded cash for years, even in the face of investor complaints," and now have billions to invest while competitors count their pennies.

Can your organization find the courage to invest -- even in the absence of an excess of cash? I believe you can, if you concentrate on answering three basic questions:

1) What products or features will delight your customers? You'll know the answer to this question if you conduct customer research using a combination of open-ended voice-of-the-customer methods and statistically based methods such as Kano surveys. The former will reveal the out-of-the-box opportunities that fuel true innovation; the latter will offer the statistical certainty you need to go to your boss and say, "We should spend $X on Y -- now."

2) How should you allocate investments in your product portfolio to minimize risk and maximize return? You can use the same research methods you use for individual products described above, but apply them across the entire portfolio rather than for a single product. James Surowiecki concludes his column by differentiating between the risk of "'sinking the boat' (wrecking the company by making a bad bet) or 'missing the boat' (letting a great opportunity pass). Today, most companies are far more worried about sinking the boat than about missing it." This fact means that companies willing to invest have both greater opportunity and greater anxiety about doing so. Solid customer research is one way to reduce that anxiety.

3) How does innovation relate to your gross margin? Many companies have little or no insight into how design decisions affect the bottom line. An approach like Heads-Up Design puts information directly in the hands of designers about how their approaches will affect profitability. That's a powerful connection that can go a long way toward giving you the ammunition you need to invest where return is the greatest.

Nobody wants to become the kind of statistic implied by the colloquial phrase "become a statistic," which usually refers to being the victim of a car crash or some other gruesome accident. But if you make smart decisions about investing in advertising, marketing, and R&D when others are not, you can become a much pleasanter kind of statistic -- the kind representing companies that dominate the market long after the scariness of current uncertainties is over. That's the kind of statistic we all would like to become.

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