Chapter 1 - The Strategic Elements of Product Development

Innovation

something specific, brand new to the market, consumers don’t even know they had the need, broad concept of introducing new ideas, concepts or solutions

Radical Innovaton

dramatically changes the landscape of the category, creation of a new category

Incremental Innovation

improving a product a little bit (making iphone waterproof)

New Product Development

specific, structured process of taking an idea and transforming it into something tangible, marketable product

Marketing recap

• marketing is focused more on creativity instead of data analysis (it’s a combination of science and art)

• marketing is about choosing the right product with the right price, creating the right promotion strategy, at the right place

• difference between marketing and sales: marketing is about planning, sales is about execution

• STP: segmentation, target, positioning

• Strategic plan: long-term

• Tactic plan: short-term

The 5 phases of the New Product Process

1. Opportunity Identification and Selection

2. Concept Generation

3. Concept/Project Evaluation

4. Development

5. Launch

Opportunity Identification and Selection

• inputs from marketing planning

• inputs from corporate planning

• special opportunity audits

• audits of markets and resources

→

• exploit underutilized resources

• exploit new resources

• respond to external mandates (customer, competition, etc.)

• respond to internal mandates (owner or top management plans etc,)

→

• Develop pool of validated new product opportunities

• reject those that conflict with innovation strategy

• reject those that are not economically or technically viable

→

• give each opportunity a product innovation charter (PIC)

The importance of new products

• Innovation is a key driving force for a firm’s growth

• Radical innovation, creating totally new product categories, is critical to future growth and the survival of the firm

• Accelerating innovation and business growth through innovation are the top business challenges, according to the Industrial Research Institute

• The reason firms invest so much in new products is that they hold the answer to most firms’ biggest problems.

• A successful new product does more good for a firm than anything else

Why study new products?

• the very reason for a firm’s existence is the value its operations provide to others, and for which they pay

• The new products process is exceedingly difficult

  • Several people may be involved in creating a new product, representing different departments (sales, engineering, manufacturing, and so on) with different agendas

  • Leading companies are not immune to failure which can lead to huge negative publicity

Do most new products fail?

Research evidence suggests that new product fail at about 40%, not the commonly cited 90%, for both goods and services

Reasons for new product failure

• does not understand the customer

• underfunds the required R&D

• does not do the required homework before beginning development

• does not pay enough attention to quality

• lacks senior management support

• chases a moving target

Should the new product failure rate be zero?

• risk aversion to failure might mean playing it too safe (sticking with close-to-home innovations, missing out on risky breakthroughs)

• the goal is to minimize dollar losses on failures and learn from them

• keep in mind that the amount at stake and risk of failure are high in new product development

the best firms achieve superior NPD results

lesson: firms that maintain their commitment to new products are rewarded with sales and profits

best practices studies findings

the best are more likely than the rest to:

• have an effective new products process with phases and evaluation tasks, use an agile, iterative new products process, and achieve faster cycle times while prioritizing quality

• rely on portfolio analysis for product selection

• involve senior management in decision-making

• use cross-functional teams effectively

The best firms use market research tools like:

• creativity sessions

• trade-off analysis

• concept tests

• voice of the customer analysis

• alpha and beta testing

• test markets

• have global market and operations strategies

• use social media and online communities for information gathering

• use formal processes for idea generation and concept selection

• adopt an open-innovation approach

• use design and engineering tools

• use team support tools and team incentives effectively

In short, the concepts presented here are extensively used by top innovating companies who achieve superior results from their new products

Globalization and new product development

• top firms deploy over 50% of their R&D spending in foreign countries

• Global product teams allow firms to leverage their new product skills across their subsidiaries

• Design, R&D, and manufacturing may occur in different subsidiaries around the world

• Challenge: coordinating the efforts across multiple countries to launch a successful new product

• Having a global innovation culture — being aware of differences in business and cultural environments, and being open to global markets — is important to success

Firms with a global innovation culture - Procter & Gamble

• P&G products are developed globally in the firm’s 22 research centers located in 13 countries

  • Market research and testing of the Swiffer occurred in the U.S. and France

Firms with a global innovation culture - Apple

• In the development of the iPod, Apple worked with about 10 different firms and independent contractors worldwide and did product design and customer requirement definition in both the United States and Japan

Firms with a global innovation culture - Ikea

• Ikea identifies unmet customer needs and commissions in-house and outsourced designers to compete for the design

  • Worldwide manufacturing partners compete for manufacturing rights

  • The firm also has excellent global logistics for product delivery to stores and customers

Firms with a global innovation culture - Ford

Ford has moved to a Global Product Development System, in which different groups are assigned the engineering task for one car system and this is shared globally.

• One group does the exhaust system for all cars sold globally, and one does the steering system, and so on.

• This efficient method has slashed time to market by 25 to 40 percent and cut engineering costs by 60 percent in the first few years of operation

The new products process is all about teams

• the new products team is a cross-functional team with personnel from marketing, R&D, engineering, manufacturing, production, design, and other areas

• all members of the team make a contribution to the new products process and the success of the team depends on how well they interact

• try to avoid narrow functional viewpoints and stereotypes

new products teams work under intense pressure

Amazon fire phone: developed to draw share of smartphone market and drive customers to Amazon’s online store

• phone was competitive in terms of key product attributes (screen size, memory)

• but the phone needed to be better than adequate to gain traction in market dominated by Apple and Android phones

• The phone failed despite huge investment in financial and human resources

Not all new products are planned

• microwave ovens

• aspartame (NutraSweet)

• ScotchGard fabric protector

• Teflon

• Penicillin

• X-rays

• Dynamite

in each case, an accidental discovery — but someone knew they had something when they saw it

What is a new product - New-to-the-world or really-new products

inventions that create a whole new market

• examples: Polaroid camera, smartphones, iPad, HP laser printer, Rollerblade inline skates, P&G Tide Pods

What is a new product - new-to-the-firm or new product lines

products that take a firm into a new category

• examples: P&G’s first shampoo or coffee, Hallmark gift items, Virgin Atlantic Airlines, Virgin Mobile phone service, Canon laser printer

What is a new product - Additions to existing product lines

line extensions and flankers that flesh out the product line in current markets

• examples: dove men+care, Tide Pods with Downy, Special K line extensions (drinks, snack bars, crystals)

What is a new product - improvements and revisions to existing products

current products made better

• examples: P&G’s continuing improvements to Tide detergent and Ivory soap

What is a new product - repositioned products

products that are retargeted fora new use of application, or to new users or target markets

• examples: Arm & Hammer baking soda as a refrigerator deodorant; aspirin repositioned as a safeguard against heart attacks

What is a new product - cost reductions

new products that provide the customer with similar performance but at a lower cost

• may be more of a “new product” in terms of design or production

Easier said than done?

top innovators such as Intel and Gillette stay focused and committed to innovation as a long-term strategic goal

• without such focus, firms can fall back to “tweaking” existing products and relying on minor product improvements, instead of true product innovation that results in new-to-the -world or really new product lines

• The best new product firms do not give in to this temptation but continue to commit to innovative products

the biggest factor contributing to success is having a unique, superior product that adds value for the customer

Jobs in the new market field

Functional representative on a team:

• represents several teams or just one

• examples: a market researcher or a product planner

Project manager or team leader:

• leader of a team of people representing the functions that will be required

New products process manager:

• Responsible for helping project managers develop and use good new product processes

Career tips for the new products manager

• be multifunctional; have expertise across all functions

• think like a general manager in order to lead a new products team

• develop your creative skills, for new product concepts and new ways of doing things

• de a risk taker; be willing to do whatever is necessary to bring a product to market

• be a combination of optimist and realist; aggressor and team player; leader and follower

• be comfortable in chaos and confusion and be able to work with all kinds of team members

the strategic elements of product development - The new products process

a phased process that takes the new product idea through concept development, evaluation, development, launch, and post-launch

the strategic elements of product development - the product innovation charter (PIC)

a strategy for new products that ensures that the team develops products in line with the firm’s objectives and marketplace opportunities

the strategic elements of product development - the product portfolio

a way to assess which new products would be the best ones to add to the existing line, given financial and strategic objectives

the basic new product process

• phase 1: opportunity identification and selection

• phase 2: concept generation

• phase 3: concept/project evaluation

  • phase 1-3 is the predevelopment

• phase 4: development (includes both technical and marketing tasks)

  • product development is multifunctional

• phase 5: launch

the goal of the new products process

• reduce risk and uncertainty as the project moves from idea generation to launch

• the best ideas are refined into concepts; only the best concepts are moved forward to development

• refinement of the product continues through the development phase and the product can still be halted before launch

  • the process improves the likelihood of product success

• each additional phase means greater financial and human resources investment

new products process benefits

• improvement in product teamwork

• less rework

• greater success rates with new products

• earlier identification of failures

• improved product launch

• shorter cycle times (up to 30% reduction)

principles and issues in the new products process

• between the phases of the process are evaluation tasks or decision points, where hard Go/No Go decisions are taken

• firms face pressure to speed up time-to-market, and effective communication among cross-functional team members is crucial for successfully overlapping development phases

• Fuzzy gates, evaluation tasks that include conditional Go decisions, are commonly used to speed up the process

  • the team must take a firm decision once the necessary information is obtained

• Hollow gates: the Go decision is made, but no resource is provided (approve products without providing the necessary financial resources)

third-generation new products process

• flexible interpretation of the basic process, which allows overlapping phases, fuzzy gates, and flexibility

• the flexibility is particularly important in the development of new-to-the-world, breakthrough products

the new products process interacts with the other strategic elements

• without the strategic directon provided by the Product Innovation Charter (PIC), the firm’s attempts at product development will be unfocused. The PIC helps the team identify opportunities and focus efforts

• 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

so, does all of this actually work?

• check the efforts of the top product developers recognized as Outstanding Corporate Innovator award winners by the Product Development & Management Association (PDMA)

• recent winners: Corning, Royal DSM, Merck, Hewlett-Packard, Sherwin-Williams, Maytag, Beckton-Dickinson, NovoZymes, Harley-Davidson

• All have had a sustained commitment to innovation, with remarkable results in terms of new products