SATISFY CUSTOMERS WHILE SPEEDING R&D AND STAYING PROFITABLE

Ongoing research confirms that Quality Function Deployment and Stage-Gate Tracking are two of the most effective management practices for meeting these objectives. OVERVIEW: Studies of innovation management effectiveness pinpoint specific practices that will allow companies to increase customer satisfaction and pursue a strategy of speedy R&D-without compromising profitability. The two practices that accomplish this end, when used moderately (although not universally), are Quality Function Deployment for project selection and Stage-Gate Tracking for controlling development. Companies that use Internal Rate of Return as a criterion for project selection have also been found to be more profitable. In three earlier articles, we discussed results of 1993 and 1994 innovation management practices studies (1-3). These studies showed that focusing on customer satisfaction was the way to maximize the benefits of speeding the innovation management process. The studies suggested that some speeding practices (incrementalism, for example) may be less effective than others (2). Incrementalism can result in greater speed-to-market, but also in products with shorter useful lives and lower profit margins. Our studies found that the key to maximizing the benefit of speedy R&D was to define speed in the eye of the customer-not the innovator. This article updates the earlier studies with 1995 and 1996 findings (see "How the Follow-on Studies Were Done," next page). These findings not only confirmed the earlier findings regarding use of a customer satisfaction index, but also the value of two practices that when used some or moderately have positive impacts on customer satisfaction, neutral impacts on speed-to-market and positive relationships with financial performance. These practices are Quality Function Deployment (5, ) and Stage-Gate Tracking (7). Satisfying Customers Using a customer satisfaction index-rather than a single metric-was a practice found in 1994 to be, in and of itself, positively correlated with speed-to-market, which may be considered a contributing cause (see "Inferring Causation," next page). By also focusing on three sub-metrics of customer satisfaction-product quality/reliability, timeliness of deliverables and responsiveness-R&D management further enhanced overall customer satisfaction, speed-to-market and financial performance. Each year, the survey questionnaire asks respondents, first, whether and to what extent they use a customer satisfaction index (i.e., a multiple measurement as opposed to a single one). Then, the survey asks respondents to rate themselves on a 5-step scale, on which 1 = best and 5 = worst, against their top competitors along multiple dimensions of customer satisfaction. Two dimensions (customer satisfaction with overall performance as a contractor and with cost) were considered outcome measures of customer satisfaction, while seven others were considered as contributing factors to overall satisfaction. These were customer satisfaction with: Product quality/reliability. Timeliness of deliverables. Responsiveness. Quality of proposals. Communications. Technology. Program/contract management. More specifically, with respect to the components of a customer satisfaction index, a finding of the 1994 survey was that a positive relationship existed between the first three on the list and various innovation process outcome measures. In the 1996 survey, earnings before interest and taxes (EBIT) and customer satisfaction with timeliness were positively associated with speed-to-market. Because the latter occurred prior to its assumed effect (customer satisfaction), it can be considered a contributing cause (see "Inferring Causation," below). For a group of 44 companies, each step higher (25 percent) in the customer satisfaction rating with timeliness was a contributing cause to a 2. …