Contents

FOREWORD Albert L. Page

ix

INTRODUCTION xiii

ABOUT THE PDMA xi

PART ONE BEFORE YOU GET STARTED 1

l. New Products: What Separates the Winners from the Losers 3 Robert G. Cooper

2. Seven Steps to Strategic New Product Development 19 Bob Gill, -Beebe Nelson, and Steve Spring

3. Market AnaIysis and Segmentation Issues for New Consumer Products 35 Robert E. Davis

4. Market Analysis and Segmentation Issues for New Business-to-Business Products 51 Edith Wilson

5. Optimizing Product Development Through Pipeline Management 63 John R. Harris and Jonathan c. McKay

v

vi

6. Choosing a Development Process Thafs Right for Your Company 77 Miltan D. Rosenau, Jr.

7. Implementing a Product Development Process 93 Paul J. O'Connor

8. Politica! Behavior in the Product DeveJopment Process 107 Stephen K. Markham and Patricia J. Halaban

9. Factors Affecting Multifunctional Team Effectiveness 119 Patricia J. Holaban and Stephen K. Markham

PART NO GEITING STARTED

10. Developing a Strategy and Plan for a New Protluct 139 DougJas G. Boike and ]effrey L. Staley

11. Obtaining Customer Needs for Product Development 153 Abbie Griffin

12. Techniques and Tools to Generate Breakthrough New Product Ideas 167 Gerald Haman

13. Classi6cation of Sources of New Product Ideas 179 Ronald T. Lonsdale. Noel M. Noel, and Stanley F. Stasch

14. Evaluating Ideas and Concepts for New Consumer Products 195 Ned F. Anschuetz

15. Evaluating Ideas and Concepts for New Business-to-Business Products Ronald N. Paul

16. Product Arcrutecture DaVid Cutherell

207

217

17. How Industria! Design Fits into Product Development 237 Walter Herbst

lB. 100ls for Quantitative Market Research 253 Steven H. Cohen

vii

PART THREE DOING THE DEVELOPMENT

19. Assembled Product Development 271 Robert Sto)'

20. Nonassembled Product Development 287 Trueman D. Parish and Lou E. Moore

21. Cqnsumer Packaged Goods (Branded Food Goods) 297 WilHam S. Stinson, Jr.

22. Service Development 315 Craig A. Terrill and Arthur G. Middlebrooks

23. Manufactunng Process Planning and Development 333 Philip E. Quigley

24. Accelerating New Product Development 345 Robert J. Meltzer

PART FOUR FINISHING THE JOB

25. Launching a New Business-to-Business Product James D. Stryker

26. Launcmng a New Consumer Product Brian D. Ottum

27. Postlaunch Evaluation for Consumer Goods David Vi/o olson

28. Product Discontinuation Patricia A. Katzfey

29. Process Ownership Karen Graziano

30. Using a Concurrent Team to Reengineer the

363

381

395

413

427

Product Development Process 441 Gary S. Tighe and Broce P. Kraemer

31. Measuring Product Development Success and Failure 455 Erik Jan Hultnik and Hemy S. J. Robben

32. Metrics: A Practical Example 463 LeIand R. Beaumont

vlü

PART FIVE PDMA'S BEST PRACTICES RESEARCH

33. Reviewing Current Practices in Innovation Management and a Surnmary of Best Practices Thomas P. Hustad

Appendix A Roles for Software Greg Erman

Appendix B Glossary

Appendix e Contents of the Journal of Product

489

512

518

Innovation Management (through 1995) 535 Cumulative Index of Ameles Cumulative Index of Abstracts CumuJative lndex of Book Reviews

INDEX 625

PART FlVE

PDMA'SBEST PRACTICES RESEARCH

487

REVIEWING CURRENT PRACTICES IN INNOVATION MANAGEMENT AND A

~~ SUMMARYOF SELECTED ~~ BEST PRACTICES

Thomas P. Hustad

33.1. INI'RODVCTlON

Innovation is one of the most complex of all business practices. For success it requires robust relationships inside fue firm and between the 6rm and its cus­tomers and suppliers. Businesses grow and improve their performance by en­hancing their productivity (increasing market share and enhancing efficiency), expanding their market coverage (extenrung distribution, serving new segments ar markets with current products and extending existing product lines), and in­

novating (adding new products to their business portfolios). As finns try to do more wifu fewer reSOUTces, the first two sets of initiatives have become familiar business strategies.

The need for innovation recomes evident wbenever a firm's performance goals exceed the values that can be supported by its existing busmesses. Without trus recognition it is not parncularly surprising that productivity and expansion programs dominate the thinláng of many managers, for they frequently represent tangible changes. Innovation. on tbe other hand. requires adding something new. It presents tough management challenges. since everything 15 based on unknown outcomes. Do we know our customer well enough? Can we build the technical competencies we require? How will the customer react? Is the need real? Can we compete? Can wesustain production? What about costs? Is tbere profit here? WiU OUT business be incremental to the company or will it cannibalize existing

489

490 PDMA's Best Practices Research

products? \Vhen wiII competition enter the market? \Vhat about the cost of not pursuing the opportunity?

IncreasingIy, we must strive to create customer delight, and this sometimes involves knowing OUT customers' needs better than they know them themselves. Seldom can a customer describe a new product for uso We have to understand their problems and develop effective solutions.

We now have an especially rich opportunity to study how valious companies approach the challenges of effective innovation management. A series of current hest practices has emerged, and these practices have heen identified in a numher of research studies, including two major projects sponsored by the Product De­velopment and Management Association and led, respectivel)', by Albert Page and Ahbie Griffin. These data also allow liS to establish a number of ínteresting benchmarks to gauge current practices.

Innovation is a handmaiden to success, as can be observed in Figure 33.1. Does new product success Iead to industry leadership, or do only Ieaders have the resourees to invest in the development of new products? These data, taken from PDMA's 1990 study. do not help us untangle the cause from the effect, yet it is difficult to fathom how a firm could lead an industry if it did not offer the products that helped define the basis for competitive success. Which comes first matters noto for sustained leadership must be aligned ~>ith innovation. The greater risk is not in developing new products, but in failing to innovate at a pace that matches changing customer needs.

How great is the risk of introdudng new products? ActuaUy, the leve! of new product failure is often overestimated, sometimes greatIy so. The popular

~ 70r-------------------------------------------------~ ::l ..c ".::: e

60

8 J!l 50 ~g ~e 40 ..... 0... r:: 3: 30 2: Q)

:;¡z ~ 1; 20 o

10

"

"",;

,"'" Al! Firms fI"'" ..... ....... .,..,........ ..-

......"..,..-- _ ...... . ,-- .-fI!I#~ •••••••••••

.". ............ . "'" •••••• Low Tech .......

o~--------------~----------------~----------------~ Sottom Third Míddle Third Top Third Most Successful

Self-Reported Position ín Industry

flQURE 33.1 Percentage of current sales contributed by new products developed in the last Ove years by tbe company's self-reported rank io its industry.

33. Reviewlng Current I"ractices in Innovation Management 491

press delights in telling us that most new products faíl. They don't, at 1east not when they come from companies that take their new product work seriously. Companies are discovering that they have more control over the failure level than they realize. If the cost of a failure is high, management can tighten controL Such would be the case for a new, large, cornmercial jet airllner. Ir large com­mercial airlines felt that most new airplanes faíled, they would refuse to buyo Even { 11e crash would be asevere deteITent to early commercial success. On the other hand, when development costs are low and failure has Hule efIect on sales of oth-:;r products made by the company, the need for tight control is lessened. HereÍi" Hes a subtle message. While we can leam certain best practices from other companies, we often need to tune and customize those lessons to meet the re'luirements of OUT own situation.

F or instance, project abandonment and faiIure rates are displayed in Figure 33.2 for both the 1990 and 1995 PDMA studies. Failure is reserved for corn­mercial failure-the failure of a product that has been launched into the market to meet its objectives. Project abandonrnent reHects the decision to cease de­velopment and is a desirabIe outcome for projects that are unlikely to succeed in the rnarketplace. These data show that on average about three of every four products introduced into the market were deerned a success by management, a far el}' from the myth we often hear. In fact. if 80% of new products really failed, it might be impossible to show an economic retum from innovation. Clearly, an infonned management can obtain superior results managing new products, and presumptions about high failure rates should not be a barrier to leaming critical skills. Our learning falls into four categories: process, organization, tools, and performance. \~e explore each in turno

100

0 -1990 .... 80 (.J

:::l --- 1995 ~ e Q..

60 U! lB ~

'O 40 ... c¡¡ .o E 20 :::l

............ ---. z:

o Ideas Tested Launched Success

Milestone

FiGURE 33.2 New product idea mortality curve for PDMA member ftrms in 1990 anel 1995.

492 I'DMA', Best Practices Research

33.2. PR.OCESS

Organizations report many different approaches to new product development. Typically. one of the first steps that a company undertakes once it decides to inecease the emphasis placed on new products is to examine its current practices. Sometimes this can revew numerous opportunities for improvements, since du~ pllcation of tasks is quite cornmOn in compleXo cross-functional processes such as new product development. Tbe larger the company. the more important it becomes lo have a defined process tIlat is broadly undemood by employees. Without documentation of a process, there is little opportunity for performance improvement and organizational learning, Furthermore, people have a harder time understanding their roles and conhibutions. making the process more a~ stract and mysterious than it should appear. Yet, recent PDMA data suggest that nearly 20% of reporting companies either have no formal precess ar one that is only informaDy understood (but not documented) within the companr. Lack of precess hampers involvement and participatian and contrlbutes to the poor un­derstanding of effective new product development practiees found in sorne com­panies. Figure 33.3 shows the frequency with which various forms of stage-gate prooesses are employed by reporting companies. Nearly three·faurths of re­sponding compantes report reliance on sorne variation of stage-gate systems: Tra­ditional stage-gate precesses implemented by a cross-functional team represent nearly 40% of these mentions; the addition of an assigned "process-owning" fa­cilitator and advanced implernentations allowing for overlapping review gates divide the remaining 60%. Although it is too early to detect a trend, more com­pIex projects mar be better served by the latter two variations.

No Standard Appl'oach

functionlSequential

30 Stage-Gate Approacnes % of PDMA Firms Responding

fiQUe 33.3 Nature oC product development process reported by PDMA member linns. 1995.

33. I\eviewlng Current 'Practica in Innovation Management 493

Companies with formal product development processes report tbat, on av­erage, they have been foDowing them for fOUT to five years. Since many of the working relationships are comp1ex. the process places a heavy hurden on eross­functional communication and dialogue with the customer. Success i5 not im­mediate, and there are tnany opportunities to refine the process with experience. Within formal processes are a number of tasks that must be performed. These tasks do not correspond ta gates in a stage-gate system. since the gate typically involves a number of activities pertaining to a certain stage of fue development process. Figure 33.4 indica tes the frequencies of incorporation of general tasks in formally defined processes (6rms with informal or no defined process are not included in tms surnmary). Since sorne tasks may be omitted in certain projects, this figure also shows tbe percentage of projects that complete each Iisted task. Clearly, there is Iots of variation across projects. The tasks themselves are de­scrlbed in Table 33.1. This tab1e also includes the average Dumber of weeks fOT each task reported by responding PDMA firms.

33.3. ORGANZADOn

As companies seek to improve new product performance, they have experi­mented with organization more than any other variable. Whereas new products were frequently controlled by a single function, there are many signs tha! cross· functional teams are becoming a vel)' popular choice. When new products are recognized as special projects, the 1ikelihood of success increases. That is not to say that each project requires a dedicated team, for not aU projects are equally complex or strategically important. Benchmarking data can be very useful during times of change, when new approaches are being tried.

Figure 33.5 displays a series of approaches to new product organization. ranging from the trawtional option5 of functional approach to new product groups. First, notice the wide variety in approaches reported by single companies. Organizations are experimenting and adopting approacbes to the nature of their projects. Yet, when asked to note the dominant organizational approach, com­panies do DOt hesitate to list a most frequent choice. Pemaps the use of prooess owners 1s the newest change to emerge. New product skills become resident in

the hands of professionals who install tbem in teams as demanded by the nature of the work. When new products are controlled by a particular function, engi­neering, R&D, and marketing are the dominant choices. The choice typica1ly depends on fue nature oC the industry.

Leadership of new product projects is still overwhehningly provided by pro­ject managers and champions. Process owners and leaderless teams are used

494 PDMA's Best Practices Research

Product Une Planning •••• ~~----~------~

Project Strategy ~~~----~----~

Development ......

Test ano Vafídation •••••

Manufacturing Development •••••

Commercializaticn •••• l1[li ........ ,

o 20 40 60 80 100

• Process ¡neludes %

CJ Projects Completíng %

mVRE 33 .. .\ Percentage of processes tbat Indude certain lasks as reporte<! by PDMA member ftrms and tite percentage of projects that incorporate these tasks.

much less frequently. These results are displayed in Figure 33.6. The selection of team leaders is handled by management in most cases, as shown in Figure 33.7. In a nnmber of finns, leadership is provided by functional experts who roíate at appropriate phases of the project. NearIy 10 percent of nrms have experimented with team- and peer-selected leaders.

As the use of formally assigned teams becomes less novel, organizations have focused their use on new-to-the-world and new-to-the-firm projects, followed by major revisions to existing products (Figure 33.8). Teams are employed less fre­quently ror repositioning efforts and minor ímprovements. It is possible that the use of teams will decline in time Cor such projects, since their cost may not be justmable compared to the narure of these tasks.

Table 33.2 mo shows the range of financia! and nonfinancial incentives being used in responding companies. Clearly, the use of nonfinancial incentives dwarfs the use of financial ones. AJthongh Dot yet among the most frequent mentions, nonfinancial incentives selected by the team members themselves may be an area to watch. Whenever 6nancial compensation is used, 6rms distinguish 00-tween team leaders 2nd team members as shown in Figure 33.9. Team leaders

33. Reviewing Current Practices in lnnovation Management 495

TABLE 33.1 Speciftc Taso Commonly Incorporated in Formally Deftned f'rodud Development Frocesses

Task

Produet line planning

Projeet strategy development

Ideaí concept generation

Idea screening

Business analysis

Development

Test and validanon

Manufacturing development

Cornmercialization

Scope Analyze the firm's current portfolio

vis-a-vis the competitive arena Delineate the target market,

determine market need, attractiveness

Identify opportunities and initial generatíon of possible soJutions

50rt and rank solutions, eliminate unsuítable and unattractive aptions

Evaluate the concept financiall}~ write business case, prepare protocoll development contraet

Convert cOTlcept into a working product

product use, neld, rnarket, and regulatory testing 1Nith eustomers

Developing and piloting the manufacturing processes

Launching tha new product or serviee into full-scale pmduction and sales

.% Mentions

Average Number ofWeeks Reported.

7

8

8

6

7

32

21

19

18

Single Function ••••••• I;I •• ¡ Permanent N P Staff •• ¡¡¡."i' iiiil

CJ % Most Frequent

SBU Manager •••••••

Process Owners ".ji •••. NP Committee ••••••••

Venture Group

Other.·.

o 10 20 30 40 50

For Single Function: 25% R&D 49% Engineering 14% Marketing

3% Planning

fJGVRE 33.5 New product organizations reported by PDMA member ftrms.

496 PDMA's Best Practices Research

Project Managers

Project Champions

Process Owners

Leaderless

Other

o 10 20 30 40 70 % of POMA Finns Reportlng

fIOVIIE 33 .. 6 Who leads rfFD prctJect5?

are much more likely to parncipate in profit-sharing arrangements than are team members. This is the onIy sharp distinction between leader and member incen­tives reported in the data.

33.4. TOOLS

There has been considerable growth in the variety and power of tools available for support of new product development projects. The survey asked about the

Mana¡ement Appoints

Volunteer

Peers Select

No leader.

Other

o 10 20 30 40 70 % of POMA Firms Responding

HGIJJIE 33.7 How is the team leader selected?

.3.3. Reviewing Current Practices in Innovation Management 497

New-to-World

~~~~~~ New-to-Firm

Major Revision

Cost Reduction

Repositíoning

Minor Improvement

o 20 40 60 80 100 % of POMA Member Firms Responding

fiGURE 33.8 pereentage of projects using multifunctional teams by nature of pro­ject.

TABLE 33.2 Percent of PDMA Member Finns USÍDg Various Incentives for Team Leaders and Team Members

Type of Incentive

Financia! compensation ProJect-based profit sharing Project-based stock or stock options Other nnancial rewards

Nonfinancial compensation Compensation time Recognition in organizatíon

newsletters Recognition at award dinners Plaques, pins. project pbotographs Project cúmpletion celebration

lunches, dinners N onfinancial rewards chosen by the

team (e.g. 1 trips, family dinners) Other nonfinancial awards

Percentage of Companies

Using

4 2

25

15 54

31 43 54

13

6

498 PDMA's Best Practices Research

Stock Optíons '!!!!!;L:~~ •• • Team Leader

O Team Members

Other Financial •

Comp. Time iiiii~ Newsletlers

Award Dinners

Plaques, Pins

Dinners, Lunches

Team Selected

Other Non-Financia!

o 1 2- 3 Non-Financial

Rewards 5, Virtuany Alwaysj 3. 112 !be Time; 1, Hevlr

4

FIGURe 33.9 Frequency of incentive use for team leaders and members.

Veiee of customer~~~~~~~!~~~~~~~~ Customer Site Visits ~

Concept Tests J:!-~~~~§~5~~~~!l221 Focus Groups t Beta Testing ~~~r==7::::;::;::~~~

Conjoint Analysis g~~~~~~!~~r Test Markets

Information Accleration e;~~::;~==;::~~w Pre-Test Markets

~~~~--~~~

o 1 2 3 4

Potential Importance: 5, Essentialj 1, Not Important

FiGURE 33.10 PotentiaJ importance of marketing researcl1 techniques.

5

33. Reviewing Current f'ractices in lnnovaUon Management 499

use and value of three sets of tools: marketing research, engineering design, and organizational development. In Figure 33.10, five marketing research teehniques reeeive average ratings of "important" or higher: voice of the eustomer, eustomer site visits, eoncept tests, foeus groups, and beta testing. The nrst rour tend to involve predevelopment dialogue with customers, as innovators strive to under­stand customers' problems and requirements. Each of these methods is relatively straightforward in implementation and the results can lead to rich ruscussions of passibilities. Beta testing represents limited-use testing, to ascertain customers reactions to actual products. Perhaps broader ReId testing received lower eval­uations, as did more sophisticated procedures.

Only the voice of the customer. customer site visits, and concept tests were employed on at least one-haJf of projects, on average. Yet this represents signif­icant increases in the use of these techniques over the past ten years, since a number of earlier research artieles reported that concept tests and formal site visits rareIy were conducted (see Figure 33.11).

Among the engineering tools, only virtual reality/virtual design fails to re­ceive an average assessment of "important." Highest potential imporlance goes ta rapid prototyping, concurrent engineering, and design for manufacturing and assembly. followed by the specific tooIs of computer-aided design and computer­aided engineering. Figure 33.12 surnmanzes these results. Obviously. the engi­neering tooIs have developed stronger appeal for respondents than the marketing tools, overall. On the other hand, only computer-aided design, concurrent engi­neering, and design fOT rnanufacturing and assemhly appear to be used in at least

Pre.Test Markets

Information Acceleration

Test Markets

Voíce of Customer 6

Customer Site Visits

Concept Tests

Focus Groups

Conjoint Analysis Beta Testing

Degree of Use: 5, virtually always; 3, used on about 1/2 of projeds; 1, never used

Poteníial Importante

Degree of Use

FIGURE 33.11 Potentlal importance of marketing research techniques contrasted with frequency oC USe.

500 FOMA's Best Practiee5 Research

Rapid P(ototyPingl~~~~~~~~~:¡~~~~~~:J Concurrent Engrineering

Deslgn fol' Manufacturing

CAD

CAE

Value Analysis

fMEA

Performance Simulatíon

Virtual Desígn

o 1 2 3 4

1, Not important; 3, important¡ 5, essential

f'lGtJJm 33.12 fotential importance of engineering design tools.

one-half of projects. on average (Figure 33.13). Virtual rea1ity teclmology is not yet used on a regular basis. Perhaps in the future, fue uses of virtual reality will be even more important in early dialogue with customers, since these techruques may become quite usefuI in communícatlng ideas and simulating product use prior lo development.

Rapid Prototyping 6

Concurrent Engl neeri ng

Potential Importance

Degree of Use

Performance Simulation ,.....,-t~~~;.+...++'H"1'"'" Desfgn for Manufacturíng

Value Analysjs CAE

Degree of Use: 5, virtually afways; 3, used on about 1/2 of projects; 1, never used

Note: fMEA = Failure Mode and EHect Analysis

FlQUJ'lE 33.13 f'ote:ntial importance of englneering deslgo tools contrasted with fre­quency of use.

33. Reviewlng Current Practices in Innovatlon Management 501

As with engineering tools, organized tooIs generally received high evalua­tians for potential impartance (Figure 33.14). Only leaderless teams received low

marles. 'nle highest ratings are found for project scheduling tools and the devel­opment of champíons, followed by team-huilding exercises and the training of process owners. Reported average frequency of use measures higblighted the use of project scheduling techniques in nearIy 75 percent of projects t whi1e process owners, champions, and matrix organizations reflected the high level of projec­tization being practiced in many firms today (Figure 33.15). The latter three tools were associated with adeast half of projects overall. Perhaps surprising were the reported low use of QFD and co-location, given the frequency of discussion of these approaches. Clearly. co-Iocation can be both inconvenient and expensive, no doubt greatly restricting use. Companies are sometimes experimenting to find the critica! phases of projects where face-to~face contact with other team mem­hers has the greatest impact on project success.

Overall, the top five tools in average potential importance are the following:

• Voice of tbe custorner (4.2)

• Customer site visits (3.9) • Rapid prototyping (3.9) • Project scheduling tools (3.9) • product champions (3.9)

While this is an arbitrary cutoff, it reReds balance among the three areas in the designation of "very important" tools. This balance is important, reflecting a

CPM, PERT, GANTT

Champions

Process Owner

Team Building Dril! Heavyweight Managers

Self Directed Teams

Matrix Organization ~I=; QFDW

Co-Iocated Teams ~~~~~~~.:...:.......:;;;;..¡~ Leaderless Teams ~

o 1 2 1, Not important; 3, important; 5, essential

FIGURE 33.14 Potential importance of organizational approaches.

5

502 PDMA's Best Practices Researclt

CPM, PERT, GANn 5

Co-Iocated Teams

QFD

Matrix Organization

Self Oirected Teams

Process Owner

Team Building Dril!

Heavyweight Product Managers

Degree of use: 5. virtuaflyalways¡ 3, used on about 1/2 01 projects; 1, never usad

Potential Importance

Frequency of Use

fiGURE 33.15 Potentlal importance of organlzational approaches contrasted with frequency oC use.

broad vision for fue complexity of modem new product development practices, including customer focus. leadership. design. and effective project control.

On tlle other hand, fue five tools scoring highest in frequency of use are the foUovving:

• Project scheduling tools (3.7) • Voice of the customer (3.6) • Customer site visits (3.5) • Computer-aided design (3.4) • Matrix organizations (3.2)

These scores signify that the tools are used in between 75 percent (3.0) and virtually al} (4.0) projects. They are the core of our toolkit. Again, we see high importance on market focus, project control, and productivity. Matrix organi­zation reHects the complexity of approaching a level of projectization. It is an (unloved) n ecessity.

33.5. PERFORMA.NCE

Firms are about evenly ruvided between those that target a specific revenue goal for new products and those that do noto Those that have a target expect an

average of 27 percent of sales to come froro products commercialized vvitrun four

33. Reviewing Current Practtces in lnnovation Management 503

years. Even those firms without a specific target realize the importance of new products, scoring an average of 7.7 on a 9-point scale in response to the following statement: "Our new product program is important to my organization's sales and profits." On the other hand, the average dropped to 5.6 for: "Overall, our new product prograrn is a success." C]early, we are working hard to improve our performance in an area of great strategic importance.

How is success measured? Criterla actually used by companies are many. but they can be ruvided into three categoríes: measures of customer acceptance, financial performance, and technical performance. Respondents were asked to allocate 100 possible points across these three categoríes nve times, each time corresponding to a different type of new product. Average results are presented in Figure 33.16. Reliance on financial crlteria increase markedly for incremental improvements and product repositioning. Customer acceptance remains high throughout, with somewhat Iessened requirements for incremental improve­ments, while technical performance receives lesB support than does either other category.

. How many products succeed? of course, this question can be answered in

many ways. Table 33.3 reports three possihilities. First, did the product meet the organization's definition of success? On average. 55.9 pereent of new pmducts launched did. A somewhat smaller number were successful strictIy in terrns of profitability. Yet given that they were launched, a resounding 74 percent re~ mained on the market, makíng an overall contribution to the performance of the finn. These data are reviewed in Table 33.3.

N ew-to-world

New Prod. Une

Add'n to Une

Next Generatíon

Incremental Imp.

Reposltioning

Cosí Reductions

o 20 40 60 80 100 % of Firma Reporting Changa In Mlx of Products

flOVRB 53.16 Relatlve fmportance of measures of success by level of InnovaUve· nes!.

504 PDMA's Best Practtces Research

TABLE 33.3 New Froduct SUccess Bates

Criterion

Based 00 your organization's deñnition Df a successful new product, about what percentage of rul the new products íntroduced ¡oto the market during the past nve years were successful?

What percentage VIIOuld you estimate were successful in terms of their prontability to !he organization?

What percentage of the products that )'Our QIganization commercialized during the past nve years would you estimate are still on the market?

Success Percentage

55.9

51.7

74.1

Table 33.4 shows thepercentage of sales and profits contributed by new products during the precerung five years. Expectations for the future are sharply higher. Whether or not management will be able to deliver these results remains to be seen, but the escalation reflects the importance of innovation as a driver oE corporate growth and performance. Table 33.5 shows average completion times for various types of new products. The range from modest repositioning to new-to-the-world products is substantial, with the latter taking nearly six times as long to prepare for market launch.

Figure 33.17 displays further infonnation about deve10pment times now relative to typical performance nve )'ears ago. Note that wrule most nrms report shorter development times, this is not universal. Not surprisingly, the greatest push for speed comes with incremental improvements and next-generation and majar reVÍsion projects. These projects are the ones where user needs are most familiar to companies, since existing products and patterns of use can be studied

TABLE 33.4 Estimate of tbe Importan ce of New Product

Criterion

New product sales as a percentage of total sales

l\7ew product proSts as a percelltage of total sales

Percentage of New Product Sales to Total

sales Preceding Five Yean

27.9

25.2

Pereentage of New Product Sales to Total Sajes Next

Fjve lean

37.3

39.1

33. Reviewing CurrentPractices in Innovation Management

TABLE 33.5 Average Reported Lengtb of Product Development Process

Type of New product

New-to-the-world New product lines Major revisions and next-generation

products Minor revisionslincremental

improvements

Average DeveJopment TIme (months)

42 29 18

8

505

in detail. Achleving speed without sacriíicing quality becomes progressively dif­DeuIt as the leveI of ínnovativeness increases.

The study also aIlows us to contrast the rates of new product introductions with the reported levels of expenditures (Figure 33.18). These results are grouped by produet type. Consistent with levels of risk and uncertainty, spending on new-to-the-world products great1y exceeds the proportionate share of intro­ductions When successful, these products can yield higher margins for longer periods of time. New product lines demonstrate this tendency as well, whenever firms select an attractive opportunity for development. The relationship is re­versed, however, for incremental improvements, where success may be more a function of being able to create improvements (the process) repeatedIy than with any single improvement itself.

Looking ahead five years, respondents forecast that more of their activity will,on average, be devoted to major innovations. These are tough ehallenges, and management wiII surely have to work to hone its skills ir these results are to

New-ta.World

New Product Une

Next Generation ~~~~~ Incrementallmprove.

Repositioning p;ili~~

o 20 40 60 80 100 Average share of 100 polnte alloestad to eaen crlterion by product

FIGURE 33.17 Development times now versus Ave years ago.

506 PDl'fA's Best Pradices Research

Cost Reductions

Repositioning

New-to-World 30

20 New Product Une

Addition to Une

Incrementallmprovement Next Generation

% Last 5 yrs. I ntroductions

% last 5 yrs. Expendltures

fIGIJRE 33.18 Comparison of tast ftve years introductions by innovation level with allocation of expenditures.

be attained. Overall, Figure 33.19 reflects more emphasis on new products of all sorts. A more detailed look at fue data will he required to see if sorne companies are becoming more ambitious (reducing work on modest projects, expanrung it on more innovative programs) and other nnns more conservative (downplaying really new products in favor of safer altematives).

33.6. SlJMMARY

These data show that product development practices are in a state of evolution. Managements are experimenting, trying new tools and approaches to improve

New-to-World

New Product Une

Next Generation

Incrementallmprove.

o 20 40 60 80 100

Shorter

Abouttha Sama

Longar

% Reporting Various Changes in Completion Times

flGlJRE 33.19 Projec:ted changes in mix of new products in the next five years.

33. Reviewlng Current Practices in Innovation Management 507

innovation performance. The tasks are becoming more challenging. with height­ened corporate goals and expectations, probably in the face of resource con­straints. Only time will tell if these forecasts wíll be realized. Yet severa! elements are clear. TIle great majority of firms employ stage-gate or related processes. They have learned the importance of developíng a process, learning to use it effectively, and helping employees to understand their roles. The use of teams has increased, hut organizations are becomirig aware that teams are not a uni­versal answer to aIl new product situations. We have not really decided how to develop incentives for new product work. While sorne companies are using fi­nancial incentives, many more believe that recognition and other nonmonetary rewards are sufficient. Although we are aware of many tooIs and are indeed invoIving the customer in OUT work (particularly the fuzzy front end) more than ever before, we remain disappointed that sorne tools do not answer more of our needs.

Looking beyond the snapshots, it is possible to begin to construct a list of important factors for success in new products. This list is not complete. The role of various items will change across industries. Yet sorne of these points touch on best practices as we know them today. A graphical summa!)' of a process is shown in 'Figure 33.20.

l. Understand and document your process. Allow for customization by pro­ject. Prepare to ron tasks in parallel, but try to define groups of tasks that represent critical decision points. Ir a decision is delayed. don>t delay the team. Let it continue. But impress on the team the risk of continuing, especially if sorne of the tasks are delayed.

Firm's Resources

and Strategy

,/ 1 Product Idea Innovation Charaeter

Pre-concept Review: Understand the Opportunity

Competition and Customers

Concept I Prototype r Launch Link Benefit

and Specificatlon

Predevelopment Pre-Iaunch Review: Review and Needs Sereen launeh Economies Sereen Planníng Time Sereen Protocol

fiGURE 33.20 Evaluatlon contlnuum.

508 rDMA's Best rractices Research

2. Open robust dialogue with your customers. Understand their problems. Envision the future scenarios in which they will operate. These will feed your pool of ideas. Build concepts and test them with your cusromers. Your ideas became familiar to you faster than they becorne familiar to your customers. They can help yau translate their needs mto your pro­grams. Experlment with simulations. Graphics too15 now product photo­like images of products that don'f existo Rapid prototyping can prepare tangible objects. Botb of these tools previde customers wifu preproduct information that can help them malee you more efficient in the deveJop­ment work mead. Continue your testing once you have a producto Alpha tests, beta tests, and gamma tests can be made part of a systematic testing programo For many products, you will.have to develop a convincing case that your new product creates an economic advantage for your end user. There is no time like these testing phases to gather these data and obtain customer endorsements.

3. Avoid the trap of being somewhat innovative. When you make an im­proved product you scale the costs to the earning potentiaJ. The sarne holds true ror a new-to..the world product, hut both expenses and earnings may be set at a higher leve!. In the m iddle , costs can be high for devel­oprnent, hut customer deIight may be absent. A product that fails to excite the cuStorner hut has been developed with the hudget of a breakthrough leads to tumover in the new product department. Build the right product-for product superiority and uniqueness remain the most im­portant predictors of new product success.

4. Use teams wisely. In amhitious projects they can be great. Members com­municate and boost each other's enthusiasm. often at critical times. They trust and share. Face-to-face contact breeds respect. which is often absent when professionals seldom meet fuose from other functional departments. Yet sorne of fue power of teams can be achieved in other ways, given improvement in communication. Sorne organizations report fuat teams increase development time. Tbey can do so, particularly when the orga­nization has not yet learned how to couple the team ta an effective pro~ cess. Pick your projects well and malee rertain that fue lessons of teams shape your approach to next-generation projects.

5. Denne your new products strategy-rlght down to the business and pro-­ject leveIs. Organizations are far more successful in denning functional goals than project goaIs. and teams can lose valuable time when they (aíl to really understand their assignment. Try to focus on exploring projects that nt with company skills. Ir a new product requires success with an unfamiliar technology, don't start the product development team running until the technology becomes more certain. When possible. examine

33. Reviewing Current Practices in lnnovation Management 509

trends in your markets and align your projects with the trends that are growing and increasing in a manner that support customers' interest in your producto When you grow by capturing new business, your path can he easier then when you have lo displace an entrenched competitor. Be "on trend": It can help cover sorne imprecision in your demand forecast.

When you do these things. you 'Will find that your tcam understands its role, gets excited by it~ insight into cusromers' needs, and sres how individual contributions can be combined into something really unique. This should lead to meaningful buy-in and participation. Momentum will follow. Capture learning of effective steps for the organization and con­sider installing it in the person ID a process owner. Celebrate project milestones and successes frequently-don't wait for the cod. If the project trajectory is not positive. you need a tearo strong enough to fire a non­performing member, even fue leacler. Altematively, if the people are per­forming, the team needs to assess fue quality of fue opportunity and make a tímely and candid recommendation to the fumo

6. Recall that the project isn't complete until the goals are realized. Don't disband the team too soon, for they may be the only ones who know how to keep fue project going in the faee of unanticipated adversity.

Ir you don't have a proeess, your immediate challenge is to establish one \vith multiple stages. Inelude written evaluation criteria that you wiIl use to judge progress and success. Mue sure that the process 15 communicated, and that your organizatíon understands it. U se it to define potential growth opportunities. de­velop insights into consumer needs and problems. and achieve shared focus on these options leamng to cornmitment and participation. These are not easy steps, but they denne a path to incredible excitement and professional satisfaction for all who become involved.

Innovatíon has been practiced smce the start of commercial business. Yet the challenges facing innovation professionals are greater now than ever before. lncreasingly, our experiences will translate into effective best practices. Right now we are engaged in a series of challenging experiments. Yet, unquestionably, we have begun to leam sorne very important lessons that are belping to reshape many of our organizations and work practices.

ACKNOWLEDGMENTS

This chapter relles on data gathered by Albert Page ¡md Abbie Griffin, principal investi· gators for two best practices sturues oonducted by the PTOduct Development and Man­agement Assoclation in W90 and 1995, respectively. It is not our task hete to discuss fue

510 PbMA's Best Practices Research

research methodoJogy employed in those studies. Far that, the interested reader is te­

ferred to past and future ameles in the Journal of Product Innovation Management. Far the 1995 study. only data obtained from PDMA member firms is reported. In addition, 1 thank the many authors &om JPIM who have contributed to my thinking over the years. These ideas have been presented to a variety of executive aUcUences that have help hone the ideas contained in this chapter. 1 wish to dedicate tbis chapter ta C. Merle Crawford, who has been an inspirationalleader in the new products fie1d throughout his career. 1 can no longer separate rny ideas from those he has given me.

33. RevJewJng Current Practices in Innovation Management 511

Tbomas P. Hustad Indiana University School 01 Business

Hustad has scroed PVMA since its inception. notablyas President in 1981, Sec­retary-Treasurer for TIUlny years, and the founder and editor 01 ita Joumal of Product lnnovation Management He was named a Crawford Fellow and Kosin Professor in 1993. He has cha.ired Indiana Universitys MBA program, roon a firn-place dissertation award from the AMA, held an unsolicited Fulbright Award. and has frequently consulted ro major corporations. He received the first Eli Lilly Teaching Excellence Awani. Business Week cited him as a "Best Bet" teacher. He is Usted in Marquul ''''hos Who of Emerging Leaders in America and Who's Who in the World