Redefining Innovation to Reduce Product Costs

Too often innovation is perceived as a practice that increases the costs of goods.  Contrary to popular opinion, research and experience  demonstrates that innovation might be the most effective tool for reducing costs. After completing some significant projects focused on reducing costs and improving the Return on Investment of innovation, I wanted to further support  Newlogic’s work in this area with any 3rd party references I could find.  At Newlogic we developed an approach that regularly drives a 10 times return on investment for our customers.  As part of this work we’re constantly on the look out for other methods we can support with our  toolset of knowledge platforms, portfolio management and innovation harvesting, both our services and software, to deliver cost reductions.

What I found was a 2006  Bain & Co report on some of their work around complexity reduction and innovation – right up our path. From their posting; Cutting Through Complexity:

It’s a dilemma faced by even the most successful companies. Customers are crying out for innovation. Yet if you create too many offerings, costs spiral out of control; create too few and you miss profitable sales. Because traditional accounting systems do not capture the full costs of complexity, we have found that most companies tip the balance toward too much. Companies that find the right balance-their “innovation fulcrum”-can often dramatically improve their performance, with cost reductions of as much as 35%, along with up to 40% increases in sales.

“The problem is where to start. According to Bain & Company’s survey of more than 900 global executives, nearly 70% admit that complexity is hurting profits. But many miss its origins in the product line. The usual response-an incremental cut of the least profitable SKU’s or a “lean operations” program-falls short because it cannot get at the root causes.”

complexity_chart

The online report focuses on the ‘Innovation Fulcrum’ as a way of looking at innovating to reduce costs and maintain customer satisfaction. The report also has links to an audio discussion of the topic. Definitely worth reading.

Cutting Through Complexity, Bain & Co. Insights

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