Articles
Managing the innovation pipeline is one of the most critical and most risky aspects of running many engineering businesses. Get it right and you have a seamless flow of profitable new products. Get it wrong and margins will slip away as products that were once exciting and differentiated become old and commoditised.
With the huge R&D investments and long timescales needed for drug development, you’d think the big pharmaceutical companies would be at the mercy of this cycle. But their relative stability shows they have found a way to mitigate the risks that is more robust than simply milking the benefits of being first to market with a protected product.
The more dynamic players in the IT industry are employing a similar innovation, helping Google, Facebook and others to diversify and strengthen their market positions at a remarkable rate while many of the traditional giants wither. What can engineering leaders learn from these high-value companies?
One of the most significant lessons is the way in which they manage their innovation pipeline. For many years, ‘Big Pharma’ has welcomed relationships with small innovation companies which supply them with technologies that are through the early stages of validation. This encourages innovation, as private equity is willing to back entrepreneurial innovators if they know there is a receptive market. It also allocates resources in the most efficient way: small, lean, agile companies focus on the early-stage work where intellectual creativity is paramount, while the big corporates focus on the later stages of clinical trials, production, marketing and distribution, where scale and huge resources are required.
Critically, this approach gives the corporations – whether in the pharmaceutical or IT sectors – access to additional, often brilliant, new products without having to apply their own costly R&D assets.
So why doesn’t the automotive industry do the same? Pleasingly, there is already some evidence of this, with small innovative companies coming out of Motorsport Valley, rich with race-tested ideas which dare to tread where OEM R&D departments cannot. If welcomed with an open door, these proof-of-concept stage technologies can offer a less capital-intensive route for the large manufacturers, and an opportunity to temper raw engineering inspiration with the regulatory and supply-chain requirements of volume manufacture.
Better still, the licensing of individual technologies or intellectual property, rather than wholesale purchase of the innovator, allows the small and agile problem-solver to remain just that – fertile and well-funded for future developments.
Since joining the board of Torotrak roughly a year ago when it purchased Flybrid, an innovation company that I founded with Doug Cross, I’ve become a strong believer in the licensing model. Torotrak has innovative products based on synergistic core technologies and the ability to develop and validate these for a wide range of applications. We don’t have the capability to manufacture in high volume and wouldn’t want to. That’s not our area of expertise; it’s what the big tier-one suppliers do. The challenge for us, and for other new product specialists, is closing the gap between innovation and production.
There are two stages to the solution. The first is that we have extended our development capability right up to the point where low-volume products can be launched. By bringing products to market in low-volume, high-value, highly demanding applications such as buses and excavators we are building a database of quality and reliability information that makes adoption in higher volume less risky.
The second stage is more challenging. We have to overcome a combination of ‘not invented here’ and general resistance to change that still infects many Western industries. Engineering businesses, and particularly the automotive industry, must learn to integrate relationships with smaller innovation specialists within their technology strategy. This is a new way of thinking, but it must happen.
Those that embrace it will find they have more competitive products that are faster to market and delivered with less R&D investment and a lot less risk.