I often see sales people offer highly valuable expert services from an R&D division to a customer for free in order to make a product sale, even when the customer would likely have been happy to pay.
For example, sales people at a chemical company I know had often used R&D scientists to advise customers on formulation of a highly competitive product the customer wishes to make in order to sell a commodity ingredient that the chemical company offers. The company had charged only a moderate price for the product sale. The highly valuable formulation expertise had been needlessly given away for free. Another business I know that produces an innovative non-human personal care product safety testing kit had charged a moderate price for the kit while giving away the highly valuable expert advice on how to construct the experiments for which the testing kit is used.
When R&D resources are devoted to helping make a single sale to a customer, which rarely has a long-term benefit for the business, those resources are not being used for innovating new products and technology, which do have a long-term benefit for the business and can even result in dominating an industry. Giving away expert technical and scientific advice not only results in lost revenue opportunity for the business, it squanders the return on investment of an R&D operation. Using R&D for sales promotion in the extreme is the corporate equivalent to eating your young.
The misuse of R&D is not entirely the fault of sales people. Sales people use whatever resources are available to help them make an immediate sale, even though they may be damaging their own interests in the long-term. I often hear sales people complain that there are not enough innovative products coming out of R&D. Some of the blame must also be shared by people in R&D who are complicit, and the leaders who oversee sales, R&D, and/or both and tolerate if not enable the practice.Why is misuse of R&D so common? There are a number of causes, here are five. Click To Tweet
- Sales divisions often bear no cost for R&D services used in making a sale. There is no economic motivator for them not to use the services, which they view as free, and not to charge for it, as they are primarily rewarded for sale of products, not services.
- Innovation in an R&D division is a long process, whose results for the business may not be visible for years, if at all. Rates of failure are high. From the outside, it can appear that R&D is contributing little to the business. Providing immediate services to make a sale is a way of rapidly demonstrating worth, even though in the long-term it is folly.
- Leaders who oversee both sales and R&D in the business are constantly pulled between the need to make immediate sales in the present and preparing for the future with innovation. The immediate payoff in making a sale can often appear more attractive than an uncertain benefit from innovation sometime in the future.
- Innovation in R&D is hard. It requires discipline, patience, and comfort with failure. Supporting a sale is fast, easy, frequently successful, and provides an immediate emotional reward. Why wouldn’t someone be attracted to the latter?
- Sales are urgent, whereas innovation can be put off until tomorrow. I often hear R&D people claim that there is constant demand for their time by sales people who are in a rush, limiting time for innovation to interstitial time in their day, damaging continuity of effort.
As a leader, what can you do about misuse of R&D in your organization? Below are a few suggestions.
- Charge the sales division appropriately for the services of R&D. When something has a price, people think twice. Let the economics guide sales people in deciding whether or not the services are worth it to them, or to the customer, whom they might charge more.
- Separate R&D resources into two teams: one that responds to sales requests, and the other that is devoted entirely to innovation. That way you guarantee that innovation continues, while also servicing sales people and customers.
- Establish guidance for sales people on how to price the service component of an offer, or how to price product when the service is included.
- Make it clear that service is never free, for either you or a customer.
What are you experiencing in your organization? Want to ask me question? Contact me.