JOURNAL

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NEW PRODUCTS MANAGEMENT

Merle Crawford

Anthony Di Benedetto

11th Edition

McGraw-Hill/Irwin, © 2015

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PART ONE

OVERVIEW AND OPPORTUNITY IDENTIFICATION/SELECTION

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The Basic New Product Process

Phase 1: Opportunity Identification/Selection

Phase 2: Concept Generation

Phase 3: Concept/Project Evaluation

Phase 4: Development

Phase 5: Launch

Figure 1.4

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Opportunity Identification and Selection

Figure I.1

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The expansion of Phase 1.

Note that new product opportunities can come from anywhere. While companies with a formal new products development program try to quantify and create a standard process, it remains largely open-ended.

Incremental product improvements are primarily driven by internal stakeholders such as marketing, corporate planning, new products development staff. Some improvements may be driven externally – most often by competitors with improved products introduced into the marketplace.

The rest of this chart is primarily about “sorting” the ideas. At the end of the process it is advisable to create a PIC (Product Innovation Charter) detailing a strategy for product development of the idea for all parties to be aligned with.

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Chapter 1
The Strategic Elements of Product Development

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Why Study New Products?

  • It is big business – billions of dollars annually on technical development alone.
  • The challenge of creating radical innovation (totally new product categories) is viewed by business consultant Gary Hamel as “the most important business issue of our time.”
  • Accelerating innovation and business growth through innovation are the top business challenges - the Industrial Research Institute.

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The New Products Process is Difficult!

Studies supported by research says 40% of new products fail

— somewhat higher for consumer products, somewhat

lower for business-to-business products.

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New Products Success Rate

  • For every 100 ideas:
  • Fewer than 70 make it though initial screening
  • Fewer than 50 pass concept evaluation and testing
  • A little more than 30 make it through development
  • About 30 make it through testing
  • About 25 are commercialized
  • 15 are successful.
  • Success rate is lower in consumer goods (13) and slightly higher in healthcare (16).

Source: Comparative Performance Assessment Study, PDMA, 2003.

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Best New Product Firms vs. the Rest

  • Top new product firms average about 49% of company sales and profits from products introduced in the last five years.
  • Other firms average about 21%.
  • It pays to invest in new product development!

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Globalization and New Product Development

  • Top firms deploy over 50% of their R&D spending in foreign countries.
  • Global product teams leverage new product skills across subsidiaries.
  • Design, R&D, and manufacturing may occur in different subsidiaries around the world.
  • Difficulties: coordinating across multiple countries to launch a successful new product.
  • Having a global innovation culture is important to success – being aware of differences in business and cultural environments, and open to global markets.

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The more technology-driven industries maintain a rapid new product development pace. Companies must commit to a new products development strategy – e.g., lead the industry, or copy the leaders. Sometimes, leadership of new product development means a part of the focus has to be on global technology drivers, not necessarily specific to the industry itself, creating that global innovation culture in the company and industry.

Remember photo copiers in the 1960s? The fax machine in the 1970s-80s? The mobile phone development? The internet in the 1990s? The skip technology to smart phones, bypassing laptop computers going on today? What are the disruptive technologies that are affecting, and will affect, what happens in our business? Sometimes governments influence technology development and implementation in the civilian sector. Remember the heydays of NASA? Computers, digital systems, advanced satellite communications, space exploration all resulted in business technology advances sooner than expected.

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Firms With a Global Innovation Culture

  • Procter & Gamble products are developed globally in 22 research centers in 13 countries. Market research and testing of Swiffer occurred in the U.S. and France.
  • Apple did iPod product design and customer requirement definition in the U.S. and Japan.
  • IKEA identifies unmet customer needs, and commissions in-house and outsource designers to compete for the design. Worldwide partners compete for the manufacturing. IKEA has excellent global logistics for product delivery to stores and customers.

Source: Loida Rosario, “Borderless Innovation: The Impact of Globalization on NPD Planning in Three Industries,” Visions, June 2006.

Figure 1.1

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P&G tripled its innovation success rate, largely by outsourcing in 2000, and focusing on transformational sustaining innovations from existing product categories. Today, P&G spends $2 billion per year on R&D and another $400 million in consumer research. About a third of new product ideas come from outsourcing.

Apple focuses on major product and system improvements with engineering, design, and intuitive user interfaces. Arguably, the iPhone was a major improvement. But iTunes was a disruptive breakthrough in music distribution, killing off traditional retail music stores. They were among the first to provide a major tablet breakthrough with iPad too.

IKEA’s rockly start in the home furnishings business was driven by Ingvar Kamprad - the IK in their name - being shut out by competitors from using their manufacturers and suppliers – forcing him to develop their own unique and more cost efficient logistics chain, focusing on better design, self-assembly, and low prices targeted towards first time young buyers. The EA in the name is his family farm, Elmtaryd near the village of Agunnaryd.

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The New Products Process is About Teams

  • The new products team is cross-functional, from marketing, R&D, engineering, manufacturing, production, design, and other areas.
  • All members contribute to the new products process
  • Success depends on how well members interact, and avoiding narrow functional viewpoints.

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Not All New Products Are Planned

  • Microwave ovens
  • Aspartame (NutraSweet)
  • ScotchGard fabric protector
  • Teflon
  • Penicillin
  • X-rays
  • Dynamite

In most cases, an accidental discovery — but someone knew

they had something when they saw it!

Figure 1.2

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The advent of the first microwave oven – the Radarange from Raytheon and Tappan, followed by the Amana Corp. came from WWII radar installations in Britain.

Aspartame (Searle), Teflon (Dupoint), and Penicillin were discovered by accident. X-rays and Dynamite were systematically discovered by individuals.

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Types of New Products

  • 10% of new products are inventions that create a whole new market. E.g., Polaroid camera, Sony Walkman, Palm Pilot, Rollerblade skates, P&G Febreze and Dryel.
  • 20% are new-to-the-firm products - products that take a firm into a new category. E.g., P&G brand shampoo or coffee, Hallmark gift items, AT&T Universal credit card, Canon laser printer.
  • 26% are additions to existing product lines - line extensions and flankers that flesh out the product line in current markets. Ex.: Tide Liquid, Bud Light, Apple’s iMac, HP LaserJet 7P.
  • 26% are improvements and revisions to existing products - current products made better. E.g., P&G’s continuing improvements to Tide detergent, Ivory soap.
  • 7% are repositionings – products retargeted for a new use or application. This may include retargeting to new users or new target markets. E.g., Arm & Hammer baking soda as a refrigerator deodorant; aspirin repositioned to help prevent heart attacks; Marlboro as a man’s cigarette.
  • 11% are cost reductions - products that provide the customer similar performance at a lower cost. This may be a new design or production process.

Figure 1.3

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The Strategic Elements of Product Development

  • The New Products Process (Chapter 1 and 2)
  • A phased process that takes the new product idea through concept development, evaluation, development, launch, and post-launch.
  • The PIC - Product Innovation Charter (Chapter 3)
  • A strategy for new products that ensures that the team develops products in line with firm objectives and marketplace opportunities.
  • The Product Portfolio (Chapter 3)
  • Deciding which new products are best, given strategic objectives and financial constraints.

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The Basic New Product Process

Phase 1: Opportunity Identification/Selection

Phase 2: Concept Generation

Phase 3: Concept/Project Evaluation

Phase 4: Development

Phase 5: Launch

Figure 1.4

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Issues in the New Products Process

  • Between each phase are evaluation tasks or decision points, where Go/No Go is decided.
  • Pressure to accelerate time to market may result in overlapping phases - cross-functional teams are used to accomplish this.
  • Fuzzy gates are commonly used: this is a “conditional Go” while analysis continues, which may incur additional costs and time/resources.
  • Hollow gates are when the Go decision is made but no financial support is provided, often delaying or denying implementation.

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Third-Generation New Products Process

  • Some firms use what is called a Third-Generation process.
  • This is a flexible interpretation of the basic process, which allows overlapping phases and fuzzy gates.
  • This flexibility is particularly important in the development of new-to-the-world, breakthrough products.

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The New Products Process Interacts With the Other Strategic Elements

  • The firm’s attempts at product development will be unfocused without a Product Innovation Charter. The PIC helps the team identify strategic opportunities.
  • Product Portfolio considerations help the firm decide whether a new product opportunity adds financially and strategically to the current line and avoids spreading scarce financial and human resources too thin.

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So, Does All Of This Actually Work?

  • The best product developers in the business win the Outstanding Corporate Innovator award, selected by the Product Development & Management Association
  • Recent winners: Hewlett-Packard, Dow Chemical, Maytag, Harley-Davidson, Corning, Royal DSM, Bausch & Lomb.
  • All have had a sustained commitment to innovation, with remarkable results in terms of new products.

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Percent of Products that Fail