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How to Waste Millions of Dollars

OK… the title of this blog is a bit misleading. Most companies don’t need to learn how to waste millions of dollars. They already know how. In fact they are already doing it. The average Fortune 500 company squanders at least half of the tens-to-hundreds of millions of dollars that they pour into new product research and development. (Studies show that 50-75% of R&D expenditures are invested in products that flop when launched.)

They just don’t know which half they are wasting. Well, actually they do… but not until it is too late and the product has been launched. Can you think of any other function within a corporation where this level of waste is tolerated? What if half of your production was out of specification, or half of your financial statements were wrong? Would your company accept this and happily tolerate this failure rate year after year?

So why does this happen? Is it because the product development teams at these companies have too many incompetent engineers, scientists and designers? That doesn’t seem right: these ranks are often filled with our schools’ best and brightest. How about this: Maybe it’s not that these experts can’t find the right answers… perhaps they are being asked the wrong questions.

Here’s one way a company falls into this trap: One of their sales reps visits a customer who is having an obvious, near-term problem. The sales person latches onto this problem like a drowning man grabbing a life-preserver… failing to fully understand the implications of the problem or uncover more important but less obvious needs. Other suppliers are "invited" to solve the same obvious problem… leading to a solution that either a) fails to address the root customer needs or b) is quickly commoditized by multiple suppliers.

Sometimes it’s even uglier than that. In many cases, suppliers gather their employees around conference room tables and decide what they think their customers would like them to work on. These same companies seem quite surprised when their customers don’t eagerly embrace their new products when launched.

So how does a company avoid spending millions of dollars answering questions that the customer never asked? For B2B suppliers, the answer lies in tapping into the enormous knowledge their business customers already have. This comes from the discipline to begin with customers’ desired outcomes… and not the supplier’s desired solutions. And it comes from developing new listening, probing and interviewing skills to uncover the critical—but often non-obvious—needs that those customers have.

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  • Dan Adams

    I agree... In June, 2007, a Business Week article reported on the battle between efficiency and creativity at 3M... after several years of intense six sigma practice under ex-GE CEO, McNerny. 3M had long been known for giving its employees great freedom (and funding) in the early stages of product development. When this was removed in favor of a rigid review process, serious problems arose.

    I'm not critical of either six sigma or phase review processes. I just believe a) six sigma tools have to be applied with great care outside the arena of operational improvement, and b) any stage and gate type of process should be VERY relaxed in the early phases... when teams "don't know what they don't know."

    Your point on having 'free time to put up their feet and think' is a good one. The Situational Outlook Questionnaire measures an organization's climate for change... and innovative organizations score much higher than stagnant ones in quantity of "idea time."

    I love to see employees have significant "informed idea time" as new product concepts are in the early shaping stage. By this I mean they should be exposed (through in-depth interviews) to the truly significant needs of their customers. Far too many suppliers waste time developing answers to questions their customers never asked! Thanks for you comments.

  • Allen Laudenslager

    Intuitively I agree with your analysis. It leads me to ask the question - does innovation and growth take place in the band of wastage? By that I mean, if you lean your process out beyond a certain point do you loose creativity? How much innovation and growth is a result of your people having free time to put their feet up and think, “What if...?”

    It also leads me to ask the question is the crash of the economy a result of cutting the salaries of the producers or was the stagnation of salaries a by product of the economic slow down.