Commercialization gap, part 4: R&D specific strategies

The commercialization gap is not a problem exclusive to the academic field. Every leading corporation in the world faces similar challenges in innovation. According to “Smart Spenders: The Global Innovation 1000â€? by Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia from Booz Allen Hamilton:

Researchers who study innovation estimate that 70-80% of the final unit cost of a product (the cost reflected in gross margin) is driven by R&D-based design decisions — for example, product specifications, the number and complexity of features in a device, the choice of standardized or customized parts, or the selection of manufacturing processes.

This correlation of R&D spending and gross margin shows that in many companies, the R&D silo has succeeded in its narrow goal: creating a lower-cost offering that thus yields a wider margin, or a more differentiated offering for which a higher price can be charged. Unfortunately, for most companies — and for the Global Innovation 1000 overall — the financial value of fatter gross margins is not ultimately captured, presumably because it is eroded in the marketing, sales, operational, and administrative work required to bring the product to market. Success thus requires a cross-functional strategic approach to innovation: building a value chain that integrates R&D more effectively with marketing, sales, operations, and cost management.â€?

In the final section in this series, I will discuss several tactics for shrinking the commercialization gap.

About this series: For a week, I’ll discuss the “Commercialization Gapâ€? in Canada. This is certainly a complex issue that results from a variety of factors. By no means is this an authoritative and all encompassing look at the issue, but I do hope to shed some light and spark some discussion on this topic. The content draws heavily from a recent article by our own Veronika Litinski in the February 2007 edition of BioBEAT. Be sure to stay tuned as we dig deeper into this issue faced by many of the great Canadian researchers doing ground-breaking work.