January 15, 2007

Why Good Products Fail

By Robert Weisman, The Boston Globe

Jan. 14--Raytheon Co. reapplied its radar technology after World War II to invent the microwave oven. But the original model was a clunker -- a 670-pound behemoth that was too bulky to find a market.

That story of missing a market, or failing to adapt as a market changed, is a staple of Massachusetts business history.

"We've had a lot of technology gems that were business failures," said Andover marketing consultant Ralph E. Grabowski, ticking off familiar names: Polaroid, Wang, Digital Equipment.

Each of these companies capitalized on their innovations to enjoy a temporary competitive advantage they couldn't sustain.

What they all had in common, Grabowski said, was that they were engineering companies that neglected "front-end marketing," a much-undervalued discipline that, by his definition, includes not sales and promotion but market research, competitive intelligence, business-model building, and payback analysis. In other words, they were more focused on what technology could do than on what customers would buy.

Grabowski, himself an engineer by training, began collecting market data about business investment in the early 1990s and later developed a "marketing/engineering investment ratio" to measure a company's relative outlays in both areas.

His conclusion: The most successful businesses had ratios of greater than 1, meaning they invested more than a dollar in front-end marketing for every dollar budgeted for engineering. Failures had ratios of 0.1 or lower.

Personal computer maker Dell and financial software maker Intuit had ratios of 1.5, for example, while copier manufacturer Xerox had a ratio of 0.1. Minicomputer stalwarts Digital and Wang, blindsided by personal computers, had ratios of 0.004 and 0.001 respectively.

The arcane ratio, also called the M/E ratio or the Grabowski ratio, has been a subject of interest in engineering and marketing circles since Grabowski introduced it at a meeting of the MIT Enterprise Forum in 1992.

"They needed an equation, it's MIT," explained Grabowski, a Cleveland native who graduated from the Massachusetts Institute for Technology and taught there for years.

But more recently, the metric has bubbled up on the agenda of managers seeking a framework for setting strategy.

At a conference of the Product Development and Management Association in San Diego last month, Grabowski spoke of the ratio's potential as a tool for lobbying boards of directors to invest in front-end market research.

"Many boards, and many people, think that if you have new technology or you launch new products, you will have growth," Grabowski said. "The problem with that is that if you have technology for which there is no need, you will sell nothing."

Raytheon's microwave oven is only one example. Waltham's Thinking Machines built technologically superior supercomputers in the 1980s but couldn't find enough buyers. Its engineering culture was so inwardly focused that its motto was "we're building a machine that will be proud of us."

Early in his career, Grabowski himself worked for Varian Associates on solid state microwave oscillators for which the company neglected to identify a market. When it couldn't sell the product, Grabowski and his entire team was laid off, an experience that sparked his interest in the field of understanding customers and markets.

Grabowski, an engineer who has come to distrust engineering for its own sake, is not always popular with his former colleagues, many of whom grouse that businesses are disinvesting in engineering.

"I'm not sure we're putting enough money into engineering," argued Tom Vaughan, founder and owner of GSC Engineering, a Stoughton firm that helps automate biotechnology and pharmaceutical companies.

"Engineering is getting shortchanged by companies that are putting too much money into whiz-bang sales. A lot of companies feel they have to have a new bell or whistle to introduce at the next trade show whether their product really needs it or not."

Vaughan conceded Grabowski's point, however, that engineering needs to be smarter and more focused on customers.

Barry Unger, a professor of innovation and technology management at Boston University and a former senior adviser for science and technology in the Carter administration, said Grabowski's "upstream analysis" of markets and customer need is a viable way of framing the central issue facing companies working to innovate.

"His general notion is correct: It's easy to lose money in undirected innovation," said Unger, who has invited Grabowski to speak to his classes at BU. "There are so many technologies out there that knowing you're targeting the right application, the right embodiment of the idea, is probably the most important thing you can do. History bears out that success comes by targeting your innovation correctly."

Grabowski -- whose original paper on the subject was titled "Who Is Going To Buy the Darn Thing?" -- continues to update his research. He hopes to expand his thesis into a book.

"Neither technology, nor radical technology, nor breakthrough technology matters, although you must have innovation," Grabowski told the product managers in San Diego. "The only thing that matters is decisive investment in front-end marketing."


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