Manufacturers & Distributors ARTICLE -
For Manufacturers, Success is Spelled R&D
Target Audience: Manufacturing and Distributing Companies, M&D Industry Employees, Manufacturing Distributors
Manufacturers told researchers last year that launching new products is the No. 1 driver of revenue growth for their companies, but that supporting research and development (R&D) for new products isn't a top priority.
In a Deloitte & Touche benchmarking study completed in 2004, responses from about 650 manufacturers demonstrated that those attempting to hold the line on costs in highly competitive markets aren't eager to increase spending on R&D. In fact, they rated R&D as one of their least important priorities.
Although the reluctance may be understandable in light of the study's finding that between 50% and 70% of new product launches fail, it also may be shortsighted - particularly when the R&D tax credit has been extended 11 times since it was implemented in 1981. The credit gives manufacturers a tax break of up to 10% of their R&D spending as an encouragement for new product development. It expires again on Dec. 31, 2005, but strong industry lobbying efforts remain under way to convince Congress to make the credit permanent - or at least give it a 12th life.
Unleash creativity
Rather than continuing to curb R&D spending and hiring in an effort to cut costs, focus on understanding what your customers want and improving your strategies for providing it. Why? Those who don't rethink their approaches to innovation may not survive in fast-paced global markets, where 70% of today's products will be obsolete in six years or less, according to Deloitte & Touche.
Analysts at the Battelle Memorial Institute in Columbus, Ohio, say manufacturers may be missing opportunities in several areas that could become the megatrends of the not-too-distant future. Among them are:
- Materials technology that brings new classes of high-performance materials for medical implants and other sophisticated requirements,
- Medical diagnostic imaging to provide faster, less expensive and less invasive diagnostic capabilities,
- Information technology to offer new techniques to gather and analyze data quickly and effectively,
- Environmental management tools to speed progress in areas such as global warming,
- Energy applications, from nuclear to bioenergy, that increase sources of reliable, renewable or low-waste energy, and
- Antiterrorism technologies to identify and deflect potential dangers to physical, economic and psychological targets.
If your company isn't directly involved in these areas, you should still renew your commitment to innovation. Smaller manufacturers, in particular, must increasingly compete on value rather than on cost, and that means finding innovative methods and products to help their companies grow.
In addition, look beyond the next quarter's costs and even outside your company to develop truly effective R&D programs. If you'd rather keep your internal researchers focused on their primary lines, consider collaborating with suppliers, outsourced designers and customers to develop new lines.
Even if you don't consult outsiders to come up with new ideas, ask your customers, suppliers and others in the value chain to implement those ideas to the best advantage of all concerned. If it's to prosper, innovation must equally involve product, customer and supply-chain operations.
New outlooks for new profits
The time when manufacturers could safely rely on cost-cutting measures and short-term business outlooks to see them through rough patches is over, analysts say. The manufacturing success stories of tomorrow will be written with creativity and a view to the long run, or they won't be written at all.
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