Whose Innovation Is It, Anyway?

One can’t pick up a trade magazine, economic development plan, company strategic plan or economic policy white paper without seeing “innovation” cited as the key to future success. The problem is that no one seems to have the same definition of “innovation.”

To a policymaker, innovation is often viewed as the transfer of technology from our laboratories and universities. Viewed in this light, the solution to America’s economic challenge is simple: Increase investment in research and development and deploy groups to disseminate these technology opportunities to our companies or entrepreneurs. These firms will develop the technology into high-growth businesses that will create wealth and jobs. This approach to innovation has resulted in some notable spin-offs and even the creation of entire industries, such as nanotechnology and the Internet.

Unfortunately, this supply-side ‘innovation’ approach doesn’t apply for most of America’s small and mid-size manufacturers. These companies simply do not have the time, processes, or financial or human resources to take advantage of technologies that are developed in federal or university labs. For the vast majority of American manufacturers, innovation is simply the ability to anticipate customer needs and then deliver products, services, and solutions to meet those needs…profitably, rapidly, continuously.

This demand-driven approach to innovation—or what we call customer-focused innovation—is what has led TLX Technologies, in Waukesha, Wisconsin, to realize growth of 25 percent in the toughest economic recession of the past 30 years. This 25-person firm drives innovation by:

1. Staying close to customers – even collaborating directly with customers on engineering solutions for new product development.
2. Routinely exceeding customer needs. If the specification calls for 100,000 cycles of use, they will engineer it to exceed 1.5 million cycles. They consistently make their solenoids and actuators smaller and better than competitive offerings – lower volume, weight, higher tolerances, etc. They can do this because they constantly recruit the best engineering talent they can to feed their innovation pipeline.

Or consider Northwoods Paper Converting in Beaver Dam, Wisconsin. Northwoods’ co-owners spend most of their time with customers to gather intelligence about new problems and future needs. The owners use that their knowledge of the industry to drive rapid development of specialized paper products. They can charge higher margin on the niche, specialty products and create them quickly due to their expert knowledge of the processes and their ongoing investment in new equipment and technology. This customer-focused innovation strategy has powered growth at an average of 100 percent a year for the last seven years.

Both firms succeed with a simple-to-understand but difficult-to-execute strategy: Identify your customers’ needs and then provide a solution that exceeds their expectations.

The awareness of customer-focused innovation is not a problem for American manufacturers. In the Next Generation Manufacturing Study 84.6 percent of manufacturing executives said that customer-focused innovation was ‘important’ or ‘highly important’ to their organization’s success over the next five years. The problem is that not enough are succeeding at putting in place the internal mechanisms to drive rapid, profitable, ongoing solution development. Three-quarters of American manufacturers realize less than 25 percent of sales from products introduced in the past three years, according to the NGM Study; and two-thirds of American manufacturers are investing less than 5 percent of sales in new product development/R&D.

Too few manufacturers have sophisticated marketing or customer engagement efforts in place to anticipate emerging needs. Too few have invested internally in the equipment, technology, or people necessary to meet these rapidly changing customer needs. In this accelerated global economy – where niche products become commodities in the space of months – this pace of innovation doesn’t cut it.

The solution to this problem is not realized by increasing the supply of new research. It is realized by helping America’s small and mid-size manufacturers make the changes within their companies.

One positive step in this direction is that the MEP Centers of the country are expanding services beyond their traditional core of continuous improvement, and increasing assistance in the area of customer-focused innovation. By offering help in areas such as market research, and product development process deployment, MEPs can better support those next generation manufacturing firms that are looking to carve out a profitable niche as an innovative solution provider.

It is clear that the nation’s investment in research and technology provides a competitive advantage and drives industry growth. But it is equally true that doubling the pace of customer-focused innovation for thousands of small and mid-size American manufacturers will produce a national competitive advantage and drive quality job growth throughout the country.

Mike Klonsinski is executive director of the Wisconsin Manufacturing Extension Partnership (WMEP) and chairman of the American Small Manufacturers Coalition (ASMC).