Noel Davies: Customer key to successful innovative development

The customer, or lead-user, gets the early advantage of the innovation and the company gains a customer-ready solution to take to market. Photo / Thinkstock

As nations struggle to pull themselves out of the economic malaise created by the global financial crisis, innovation appears to be an enduring theme.

Innovation is, according to the dictionary, "the introduction of something new", and it is easy to see why countries would be focusing on something new in an effort to stimulate economic growth.

There are of course many different aspects to innovation, but the most compelling is "lead-user" innovation.

This is where a company works with a customer to provide an innovative solution.

Arguably, the transition from concept to commercialisation is a daunting phase for any innovation.

The attraction of the lead-user model is its promise of smoothing this process - the commercial need has already been identified and the technology development can focus on a real-life, clearly defined customer need.

It's a win-win situation - the customer, or lead-user, gets the early advantage of the innovation and the company gains a customer-ready solution to take to market.

Indeed, lead-user innovation is an especially suitable tool where government funding is constrained, as it is often not the government that invests directly but the lead organisations under the government's direction.

In the New Zealand context, state-owned enterprises, government departments like defence or city councils, are among the largest procuring entities in the country and offer huge opportunities for New Zealand industry.

The New Zealand Government's procurement spend alone is approximately $30 billion per year.

As a result, public sector procurers have a major influence on the procurement chain, the follow-up operational cost and the total cost to the taxpayer.

Importantly, the procurer's influence extends to local industry development through their investment decisions, for instance, driving innovation by being lead-users.

Internationally, the United States Government helps to drive research and development (R&D) procurement and stimulate innovation in smaller companies through its Small Business Innovation Research (SBIR) programme.

Launched in 1982, the SBIR programme is the world's largest seed capital programme for science and technology businesses - it makes more than 4000 awards to small US businesses annually, totalling over US$2 billion.

It has converted billions of dollars of taxpayer-funded research into highly valuable goods and services for the benefit of society and the economy.

Back home in New Zealand, one example of government-led lead-user innovation is the ANZAC Ship Project where the Ministry of Defence promoted local industry participation.

One such local company was electrical control specialist Electropar, which recognised the commercial opportunity.

The company formed new local partnerships and designed and manufactured a new set of military-quality castings to house the fragile electronic componentry.

Electropar's successful delivery for the project ensured ongoing defence opportunities, most recently the supply of naval defence-quality products for the three Air Warfare Defence Destroyers for the Royal Australian Navy.

Developing sustainable, profitable industries to increase employment and the general wealth of New Zealand is accepted government policy.

There is no reason that we cannot perfect the art of lead-user innovation, all it takes is the leadership to say that's what we are going to do.

Noel Davies is chairman of Metals New Zealand.