Innovation is not a simple action, but a multistage process. Every innovation must rest on some combination of technical feasibility and economic demand The first step in specifying a successful functional design is demand recognition Some future condition (a new technology or product) must be perceived as better suited to satisfying a specified demand than the status quo.

Demand recognition is not need recognition. Everyone needs something more than he or she has, demand represents the choices that such persons make, given limited resources There must be a willingness to pay money to meet a given need, and this willingness translates need into demand. A critical factor in the commercial success of new technology is the recognition of demands that are not being satisfied by technology currently in use

The other requirement is the recognition of technical feasibility— the discovery that available technical information can be applied to provide a new technical capability. This does not indicate that a potential use (that is, demand recognition) has been identified Recognition of technical feasibility may lead to the funding of an inventive effort without a perceived economic demand for the expected results. In the same fashion, demand recognition may be acted upon in the hope that a technical breakthrough will follow. But successful innovation for new products and processes is most likely when recognition of a demand and its feasible technical solution are fused, and a satisfactory response to a market demand becomes available. This fusion process⁸ is illustrated in Exhibit 1

The question of which of these two factors is the more important in technical innovation has been the subject of considerable research. The results of eight separate studies of the innovation process provide a remarkable consensus (see Exhibit 2). They report that three out of four successful innovations originated from demand recognition. The conclusion must be that the technical component, while necessary, is not the critical—or scarce—factor in innovation This is not to say that basic research in industry is a waste of effort. The leading edge of the technically feasible must be extended But it is likely that innovative performance in industrial organizations depends primarily on the demand recognition process.

In other words, R&D performance rests not so much on the technical competence of the R&D scientists and engineers as on the input from non-R&D functions in the firm. R&D must interface with non-R&D personnel to obtain information on the external factors that support the demand pull theory. It follows, then, that poor communications between R&D and other corporate functions will retard the process of innovation. This hypothesis was confirmed in a study done by myself, Otto Poenssgen, and Frits Prakke ⁹

The investigation was sparked by a workshop in an executive-level course in R&D management at the MIT Sloan School of Management. One of the participants, Dr. Gerald D Laubach (then vice president for research at Pfizer Laboratories and now president of Pfizer, Inc prepared a questionnaire. Dr Laubach summarized his survey of executives as follows:

We extended the Laubach survey by sending questionnaires to 660 firms; 158 companies responded. Many of the larger firms requested additional copies, and in all 270 R&D executives answered the questionnaire. It consisted of 283 separate questions covering organizational structure, R&D budgeting and planning, communications, the R&D director’s function, evaluation of the R&D effort, and accounting practices. An index of total R&D performance was calculated, and this index was used to rank the companies and R&D laboratories. The ranking identified the R&D executives in the companies and research laboratories with R&D performance above the median.

The survey results show significant differences in the quality of communications between R&D and the various functional groups in any given company (see Exhibit 3). The indices for quality of communication with marketing, manufacturing, finance, and engineering are each dramatically higher for the companies with more successful R&D. The survey also found that high-performance R&D executives consistently report greater understanding by top management, better coordination, and greater receptivity to R&D ideas than do low-performance R&D executives.

Productive R&D functions have better communication with each of the other corporate groups. Successful firms are those that have worked harder at integrating R&D with other corporate functions, and whose management has committed time and resources to that end. The literature on R&D management has concentrated on what happens within the R&D organization. In this report, we argue that the critical determinant of R&D performance is the quality of management at the interface of R&D with senior corporate executives and with the executives in other functions, particularly marketing and manufacturing.

⁸"Research on the Human Factor in the Transfer of Technology," In Factors in the Transfer of TechnoIogy, W. Gruber and D. Marquis, editors (Cambridge MIT Press), 1969

⁹’The Isolation of R&D from Corporate Management" Research Management, November 1973

¹⁰W. H. Gruber, O. H. Poensyen, F. Prakke, "Research on the Interface Factor in the Development and Utilization New Technology," R&D Management, June 1974, p. 158.

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