Product optimization planning tools can help high-tech companies boost return on investment

By Thomas Maurer EETimes Supply Network (05/20/2009 8:33 PM EST)

High tech and electronics companies are under constant pressure to increase the number of new products they bring to market while minimizing development costs.

Analysts and consultants agree that innovation is the key to creating sustainable growth for high tech companies. The challenge for these companies is figuring out how to maximize their investment in innovation and increase the probability for success in the new product introduction process.

Booz & Co., in a research report titled The Customer Connection: The Global Innovation 1000, noted that high tech companies outspend other industries on R&D by a factor of two to one. Yet, the amount spent on innovation by the world's largest corporate R&D spenders across a variety of industry categories, did not translate directly into increased revenue.

"In the end, the key to innovation success has nothing to do with how much money you spend," wrote authors Barry Jaruzelski and Kevin Dehoff, "It is directly related to the effort expended to align innovation with strategy and your customers, and to manage the entire process with discipline and transparency."

It's obvious why high tech companies spend so much on R&D. Being first to market with a new product can mean a huge market share advantage and 20 percent higher gross margins. Also, there's a very short window in which to turn a profit due to the rapid changes in technology. By that, we mean the ability to manage both the creativity and the complexity involved in successful innovation.

Managing creativity means capturing, categorizing and harvesting ideas that come in from all sorts of sources so that only the best ideas become products (build the right products).

Managing complexity means communicating those ideas to all members of the value chain who can then validate and add value, and ultimately evolve these ideas into successful goods (build the products right).

In the high tech sector, best-practice companies derive nearly 50 percent of their revenues from products introduced in the previous five years. In contrast, typical companies derive only 25 percent of their sales from products developed within the prior five years.

In light of the industry's huge financial commitment to R&D and imperative for innovation, it's obvious that companies must find a way to manage the frequently messy innovation process so that the result is something that customers want to buy and companies can efficiently deliver.

The shorthand at Siemens PLM for describing this challenge is "build the right products, build the products right."

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