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In theory, marketing should work in harmony with research and development (R&D). But all too often an imbalance of power or lack of understanding between the functions results in discord - and it is innovation that suffers.

Creating the ideal conditions for innovation is no easy feat. In today's business climate, there are numerous potential obstacles to innovative new product development (NPD), and many companies struggle to make the relationship between their marketing and R&D teams fruitful. The Chartered Institute of Marketing (CIM) last week acknowledged the extent of the problem by releasing a report on the subject, entitled 'The Creative Dilemma'.

James Dyson, founder and chairman of the eponymous vacuum-cleaner company, admits there can be 'tensions' between marketers and engineers in determining new products. The solution, he asserts, is to make sure marketers have a genuine understanding of the engineering challenges. 'It's very easy if you're in marketing to see the problems,' he says. 'But it is difficult to attach engineering value to them.'

Marketers' strong focus on consumer desires can have drawbacks. For example, insisting on as many consumer-pleasing features as possible can lead to unwieldy products. As Dyson puts it: 'A product can't do everything - it ends up too heavy with too many bits.'

Dick Powell, director of product design agency Seymour Powell, says that one of the major problems he encounters is marketers with a poor understanding of technical issues, as this can lead to inefficiencies in the NPD process.

He argues that many client companies go wrong by hiring consultancies to teach marketers how to innovate in short, intensive bursts. Powell calls this the 'sheep-dip' approach and believes that it is almost certain to fail.

If marketers have a superficial knowledge of technical and engineering issues, huge amounts of money can be squandered on developing unfeasible products. Equally, if the R&D team is too powerful, products may be developed that work well but fail because they do not meet a consumer need. 'The key is to have someone running the project who has a reasonable understanding of both sides,' believes Powell. 'If one party is too strong it goes wrong.'

Improving relations

Over the past five years Coors Brewers has run an internal change-management programme called 'Ideas and impact'. Its aim has been to improve the working relationship between marketing and the company's 80-strong technical centre.

According to Steve Price, Coors' head of product development, the functions are tightly integrated. He spent 18 months on secondment in the company's NPD division four years ago. All projects are led by marketing people, and about 70% of product development comes directly from an understanding of consumer behaviour, wants and needs.

Whenever possible, says Price, technical staff attend consumer focus groups in person rather than wait for an edited debrief. Recent developments such as Carling Extra Cold and Carling Fast Dispense - served in five seconds and currently being tested - have emerged through marketing and technical staff focusing on the consumer.

It is not always the most obvious consumer insights that lead to the best breakthroughs. 'Innovation requires the organisation to be brave,' says Price. 'You have to take chances. You have to allow the people you want to innovate to fail.'

Some companies are poor at innovation because they get their market research wrong. Understanding consumers is vital, but asking them what they want in terms of innovation can be pointless - ground-breaking products are not devised by focus groups. 'You have to be careful with market research,' argues Dyson. 'Merely giving people what they want isn't always enough. People want to be surprised; they want something that's better than they imagined, something that stretches them in what they like.'

Dyson points to his seminal bagless vacuum cleaner. Consumers didn't ask for the product because they had no idea it might be technically possible.

And retailers took a lot of convincing that customers would be happy to see the dirt collected in the product's clear bin. However, Dyson stuck to his guns and was proved right. 'I gave customers something they hadn't thought they could have to improve performance,' he says.

Dyson's company continues to believe it should do more than just respond to customer feedback. Its engineers regularly critique existing products, and as a result they are now working on lighter and quieter vacuum cleaners.

Similarly, widespread scepticism greeted the launch of the Sony Walkman.

Critics argued that consumers would not want a cassette player without a record function. They were, of course, proved resoundingly wrong, as the ease of portability met a strong consumer desire for music on the go - a need that Apple's iPod, this year's must-have gadget, has also exploited.

At drinks group Diageo, the marketing innovation and R&D functions report to director of global brand innovation Steve Wilson. A team of innovation marketers has the job of turning ideas into concepts. According to Wilson, the majority of ideas come from the marketplace, through understanding consumers, the trade and the way products are used. Every project sees R&D people working alongside the marketing team - even during early consumer research. 'We want the technical guys to understand the compromises consumers make,' says Wilson. 'You might miss opportunities if you don't have technical guys close to the idea creation process.'

Decades of innovation

Diageo, in all its incarnations, has been strong on innovation for decades, and was rewarded with turnover figures reaching £847m in the six months to December 2003 in Great Britain alone. In the 70s, the company spent two years developing its cream-based liqueur Baileys until it perfected a means of producing the beverage so that it would have an acceptable shelf life and not curdle. More recently, it took about nine months to create sub-brand Baileys Glide, designed to meet consumer demand for a longer drink by diluting the alcohol content from the parent brand's 14% to 7%.

Wilson is the first to admit that innovation is far from straightforward.

He says companies miss a big opportunity if they fail to build in technical innovation that allows them to differentiate their product, patent it and protect it. But he adds: 'The biggest howler you can make is where you are technology-led and you have a technology looking for a home. That's where it goes horribly wrong.'

Not every idea requires a technological leap. Cost is also a factor. Sometimes the technology works but cannot be delivered at a cost that makes it viable in the marketplace. A good example is self-heating and self-cooling cans. According to Wilson, these have been too expensive to work on an FMCG scale. Yet Diageo has used them for small promotions - to sample Baileys with coffee at ski resorts, for instance.

Sportswear company Puma is another firm focused on innovation. According to UK and Ireland marketing director David Learmonth, innovative performance and design is crucial to the health and development of the brand, and has been central to its recent growth in desirability.

'Innovation is managed within product marketing at Puma and is based centrally so that expertise and investment can be maximised,' he says.

'The product marketing team works closely with consumer marketing to fine-tune innovations, making them workable within the marketplace. Launches are handled by product, marketing and sales working together. Consumer communication is managed by marketing.'

Continual research

In the motor business, with its long development lead times, as soon as one product hits the market, customer research for its successor begins.

Toyota's product-planning process is broken down into four stages: plan, do, check, action. Customers are first consulted about designs at the 'check' stage.

At this point, there can be up to five design variations, and the only thing they usually have in common is overall length. Front ends, body shape and so on can vary from one model to another. Respondents are shown images and asked to choose from a range of headlamps or door shapes. Results feed into the 'action' stage, during which three complete models are developed for further research as entire concepts rather than interchangeable parts.

'Marketing gets involved before pen hits paper, defining new segments to explore,' says Toyota brand strategy and market research manager Rachel Rollason. 'When designs are first being generated, customer insight into use, attitudes and motivations is key not only to informing long-term design milestones such as body style or shape, but also shorter-term considerations such as interior trim and equipment.'

Senior designers visit key markets in teams of about 12, who ask local Toyota centres and customers about the designs they have drawn up. The main purpose of these trips is to experience local markets and see how people live. In the early stages of planning the Corolla Verso, Toyota GB arranged convoys of seven-seater Previas. Engineering teams were taken to places frequented by people with young families - retail parks, schools and supermarkets, for example.

For the Prius, Toyota's petrol-electric hybrid vehicle, the final prototype of the product was shown to customers about two years before it launched.

More than 500 people visited a large hall, where the Prius was displayed alongside five or six key competitors.

These large-hall tests are important for determining pricing, positioning and specification. Issues such as attitude, motivation and use are discussed in focus groups containing between six and eight people.

For companies in other sectors, innovation is more a question of identifying business practices that can be improved rather than investing in developing new products. EasyGroup is one such company - its easy.com website even includes a 'new ideas' section to allow the group to tap into inspiration from members of the public.

'What we are looking for as we extend the brand is large industries that have grown inefficient as new business practices emerge; industries where we can go in, eliminate the frills, reduce our own cost base and offer consumers low prices,' says James Rothnie, easyGroup's director of corporate affairs.

Innovation can take many forms and is difficult to manage well. But the overall aim is simply expressed: creating something customers want at a price they are willing to pay.

MANAGING R&D

The basics

1. Marketers bring an understanding of consumer needs and the marketplace to the innovation process, while the R&D department brings technical knowledge and the ability to turn ideas into reality. Both are essential, and without respect for each other's expertise, successful innovation is hard.

2. Clear communication is crucial. Marketers must relate consumer and marketplace needs clearly. Intense communication is needed to overcome any differences in language, mind-set and perception of what is important.

3. The benefits of closer integration are that improved products can be developed more quickly, with less cost and more profit. Working in the same building or office is one of the most effective means of integration, though social activities, in-company training and project or cross-functional teams are all useful in building greater understanding and shared knowledge.

ESSENTIALS

The creative dilemma

Generating successful innovation in fast-changing markets requires insight and talent. Given that innovation is more critical to business than ever, marketers should be the driving force behind more radical solutions.

The dilemma faced by many marketers is whether to focus on small product improvements that achieve immediate growth but lead to diminishing returns, or to implement more radical, market-shaping innovations that have long-term value but no instant impact. The CIM examines this issue in 'The Creative Dilemma', which is available online at www.shapetheagenda.com and is part of a quarterly series of reports on issues affecting marketers.

High-risk, breakthrough products lead to higher returns in the long term.

But with shareholders focusing on stock price, marketers are under pressure to deliver quick profits and fast growth.

There is consequently little incentive to focus on radical innovation.

The rush for greater quantification in terms of analysis and metrics; the rise of professional procurement managers, who demand to see what they are buying; the fear of failure in a tight jobs market; the lack of structured innovation processes and ownership in most companies - all can dampen creativity and stifle true innovation.

For example, Gillette doubled its share price in two years with the launch of its original Sensor range. Simply by adding an extra piece of wire to reduce blade vibration, it could charge a huge price premium for its 'closer shave'. Meanwhile, companies such as Wal-Mart, easyJet, first direct and Starbucks have achieved success through innovative business models.

An example of radical product innovation is Apple's iPod. Its success lies in its functionality, design, pricing and hype. Yet there is more to the story than the superiority of the product. Apple changed its entire business model, recognising that no matter how good its product, users would not abandon Windows for the sake of an MP3 player. Its bravery has been rewarded - iPod sales in the US have been so strong that Apple has had to delay its European launch.