Winning at New Products: Pathways to Profitable Innovation

five.is.innovation

Winning at New Products: Pathways to Profitable Innovation

Winning at New Products: Pathways to Profitable Innovation

The Research Behind

this Whitepaper

Most of the findings reported in

this whitepaper are from a recent

and major benchmarking study

undertaken by the author with the

APQC (American Productivity

& Quality Center, Houston).

This study of a large number of

firms looked at the product

development practices that led to

superb performance (see endnote

2). This APQC study is just one

of a long tradition of research

investigations into what leads to

successful performance in product

innovation undertaken by the

author and colleagues (for an

overview of this ongoing research,

see endnote 3). Thus the

conclusions and prescriptions

presented in this whitepaper are

very much fact-based.

Who Are the Best Performers?

Best performing businesses in

new product development (NPD)

were identified in order to uncover

best practices. Best performers are

defined as those that achieve the

highest NPD productivity—they

obtain the greatest output for a

given input. NPD performance

in the APQC study2 was judged

on multiple criteria such as: NPD

profitability for money spent; NPD

profitability versus competitors;

percentage of projects meeting

sales targets; meeting profit

targets; on-time performance;

and the ability to open up new

windows of opportunity.

By: Dr. Robert G. Cooper, Professor Marketing,

McMaster University, Canada, and President,

Product Development Institute Inc.

What Are the Keys to Success in

Product Innovation?

New product success is vital to the growth and prosperity of the modern

corporation. In the U.S., almost half of CEOs rate innovation as “very critical”

to their future business success, according to a recent Cheskin & Fitch

Worldwide study. 1 A 2005 ADL study reveals that “enhanced innovation

abilities” is rated as the number one lever to increase profitability and growth

among European companies, even higher than cost cutting and mergersand-acquisitions.

2

Developing and launching a steady stream of new product successes is no

easy feat, however. Only one product concept out of seven becomes a new

product winner; and 44% of businesses’ product development projects fail to

achieve their profit targets! 3

Some companies, like Procter & Gamble, Johnson & Johnson, Hewlett

Packard, Sony, Kraft Foods and Pfizer, make it seem easy, however —they are

the consistent winners with one big new product winner after another. But

exceptional performance in product development is no accident. Rather, it is

the result of a disciplined, systematic approach based on best practices. 4

What are the secrets to success in new product development (NPD) that

these winning businesses share? This whitepaper highlights the key factors

and drivers that distinguish the best performing businesses in NPD from the

rest. Those factors and drivers that are common across high-productivity,

best performing businesses in NPD were uncovered in a recent and major

APQC study into best practices (and in a number of previous investigations). 5,6

Prescriptions on how to translate these best practices into action in your

business are also outlined in this paper.


The Innovation Diamond

Exhibit 1: The Four Points of Performance in the Innovation Diamond –

the four main factors that drive NPD performance results

Based on a major APQC study

into NPD best practices 2

Climate,

culture, teams

& leadership

Product

Innovation &

Technology

Strategy for the

Business

Business’s

new product

performance

Idea-to-Launch

System:

Stage-Gate ®

Winning at New Products: Pathways to Profitable Innovation

Four major factors or forces drive a business’s new project performance, according

to the studies, and are illustrated as four points of performance in the Innovation

Diamond shown in Exhibit 1. They are:

Resources:

Commitment

& Portfolio

Management

1. A product innovation and technology strategy

for the business

2. Resource commitment and focusing on the

right projects—solid portfolio management

3. An effective, flexible and streamlined idea-tolaunch

process or Stage-Gate ® system

4. The right climate and culture for innovation,

true cross-functional teams, and senior

management commitment to new product

development.

While many investigations have identified different

Stage-Gate facets of new product management as key to success,

the major “aha” of this recent APQC study is that there

is no one key to success in product innovation. Thus

management must step back from looking just at single drivers or even individual

new product projects, and consider the broader picture. For example, having a great

idea-to-launch process is not sufficient—it’s not a standalone driver of positive

performance.

® is a trademark of

Product Development Institute Inc.

The Innovation Diamond in Exhibit 1 highlights the main drivers and practices that

are common to the best performers in NPD. So do what the winners do—emulate

them! This Diamond proves to be a valuable model for helping senior managers

focus their efforts to improve their business’s NPD productivity and performance. For

example, Procter & Gamble models their new product effort at the business unit level

closely on the Innovation Diamond of Exhibit 1. 7

Here now is a more in-depth look at each of the four points of performance, along

with prescriptions for how to make each point work in your business.

1. A Product Innovation and Technology

Strategy for the Business

Best performing businesses put a product innovation and technology strategy in

place, driven by the business leadership team and a strategic vision of the business.

This is the first point of performance in the Innovation Diamond in Exhibit 1. This

product innovation strategy guides the business’s product development direction

and helps to steer resource allocation and project selection. Elements of this product

2


Exhibit 2: Best performing businesses develop a Product

Innovation & Technology Strategy, which includes these elements

Clearly defined NPD goals

34.6%

38.1%

51.7%

Worst Performers

Average Business

Role of NPD in Business

goals

30.8%

46.3%

58.6%

Best Performers

Strategic arenas defined –

53.8%

areas of strategic focus

64.8%

69.0%

Long term commitment

Use strategic buckets

Product roadmap in place

15.4%

19.2%

23.1%

26.9%

27.6%

38.1%

37.9%

Winning at New Products: Pathways to Profitable Innovation

innovation strategy are listed in Exhibit 2, along their impacts—insights into whether

each element separates the best from worst performers.

Strategy begins with the goals for the business’s product innovation effort, and how

these goals tie into the broader business goals. Many businesses lack these goals, as

seen in Exhibit 2; or they are not articulated and communicated well.

Next, strategy delineates the arenas of strategic focus—in which product, market

and technology areas the business will focus its product development efforts. Note

from Exhibit 2 that innovation strategy found in best performing businesses is

more than just a list of this year’s development projects; it has a much longer term

commitment.

A business’s innovation strategy also maps out the attack plans—not only where

the business will focus its R&D efforts, but how it intends to win there. Finally, an

innovation strategy deals with resource allocation via strategic buckets, and mapping

of anticipated major initiatives over a multi-year period to yield the product

roadmap.

41.4%

58.6%

Reads: only 27.6% of businesses on

average develop a Product Roadmap.

Best performers are about twice as

likely to use roadmaps as poor

performers – 37.9% versus 19.2%.

10% 20% 30% 40% 50% 60% 70% 80%

Percentage of Businesses with Each Strategy Element

Businesses that build these elements into their product

innovation strategy perform better than the rest!

Exhibit 2 reveals how each of these strategy elements

is more often found in best performing businesses,

and by contrast, how they are lacking among poorer

performers. For example, from Exhibit 2, note that:

• Twice as many best performing businesses (versus

poor performers) clearly define their goals for

product innovation, and define how product

development fits into their broader businesses

goals.

• Three times as many best performing businesses

take a long term commitment to new product

development. By contrast, poor performers simply

focus on the short term, and think that a list of

this year’s active projects is “their strategy”!

• Three times as many best performing businesses

(versus poor performers) use strategic buckets to

help decide resource allocation.

• Twice as many best performing businesses use

roadmaps to chart their long term development

initiatives, although roadmaps are used by only

one-in-four businesses overall.

3


Exhibit 3: The ABC’s of defining your business’s Product Innovation Strategy

a. Define Goals for

Your NPD Effort

d : Resource Commitment &

Strategic Portfolio Decisions:

Deployment, Strategic Buckets &

the Strategic Product Roadmap

Define:

• Role of NPD in Business

Strategy & Goals

• Your Goals for NPD

b. Select Strategic Arenas –

Areas of Strategic Focus

c. Attack Strategy &

Entry Strategy

e. Tactical Portfolio

Decisions

Pro d uct R oad ma p

Ext en sio n s i nto C he m ica l M i xers

O ri gi n al Ag i tator P l atf o rm - Ex ten si on

Che m i cal M i xer s: B as ic L ine

Pl an Che m i cal M i xer s: Sp eci al I m p el le rs

e xten si o ns

C he mi ca l M ixe r s: H i - Po wer

& ne w

p la tf orm s

Ex ten si on s i nto Pe trol eu m B le n de rs

Pl a tf orm E xte ns io n

Pet r ol eu m Ble nd er s : L ow P ow er R ang e

Pet r ol eum B len de r s : H ig h Pow er

N e w P ro du ct P lat f orm: A era tor s

A e rato r Pl atf o rm

P& P Ae r ato r s: Lin e #1 ( f i xed m o unt )

P & P Aer a t ors : L in e # 2 ( f lo at i ng)

P& P Aer a t or s: H i - Pow er

Ex ten si on s i nto A e rato rs f or C he mi ca l W aste

P la tfo rm Exte n si o n

Ch em i cal Aer a to rs: L in e # 1

C he mi ca l A er at or s: Li ne # 2

Winning at New Products: Pathways to Profitable Innovation

The point is that best performers boast an articulated product innovation strategy,

including the elements outlined above and in Exhibit 2, much more so than do poor

performing businesses. But words of warning: evidence of a comprehensive and

articulated product innovation strategy is missing in the great majority of businesses!

Even the best performers are far from perfect here.

Industry

Analysis

Company

Analysis

Attack Plans

• Innovator

• Fast Follower

• Low-Cost

• Differentiator

• Niche

• Defender

R eso urce C omm itm en t to N PD

• The Str ategic Rol e of Your

Busines s

• S tr ate gy, G oa ls a nd Task

Approach

• Com petitiv e Par ity

• S pending Level Bas ed on

De mand from Active P rojects

Arenas of

Strategic

Focus

Optim um Entry Strategies

T e c h n o lo g i e s e m b o d i e d i n t h e p r o d u c t s

B a s e

Ne w , f a m il ia r N e w , u n f a m ili a r

V e n tu r e c a p ita l Ve n t u re ca p it a l

Ne w , Jo int ve n tu r e s o r Ve n t u re

o r V e n tu r e

un fa m il i ar

N u rt u r in g o r N ur t ur in g or

E d uc a ti o na l Ed u ca tio n a l

a c qu isit io n s a cq u is it io n s

In t er n a l m a r ke t I n te r n a l v e n tu r e s Ve n t u re ca p it a l

Ne w , d e v e lo p m e n t o r o r Ac q u isi tio n s o r o r V e n tu r e

f a m i lia r Ac qu i sit io n s (o r L ice n s in g

n u r tu r in g o r

Jo i nt V e n tu r es )

E d u c at io n a l;a

a cq u is it io n s

Market targeted by the Iproducts n te r na l b a se In te r n a l pr o d u c t Jo i nt V e nt u r e s

Ba s e d e ve l op m e nt s d ev e lo p m e nt o r ( la r g e fi r m w it h

(o r Ac qu i sit io n s ) A cq u is itio n s o r s m a ll f irm )

L ice n s in g

Strategic Buckets

N e w P r o d u c t

P r o j e c t s

Project selection (Go/Kill),

prioritization, & resource allocation

Exhibit 4: The Product-Market Matrix delineates possible Strategic

Arenas on which to focus your NPD or R&D efforts

Small - Home

Office

Medium

Business

Markets

Large

Business

Multinationals

Residential

Products

O th er :

Exten sions, M odifica tions,

Impr ovem ent s, Fixes , C ost Red uctions

Voice Data Internet Wireless Long

Distance

Pl a t f o r m

P r o j e c t s

( ch ang e th e basis of

co mpe tition )

The axes of the diagram are “Products” and “Markets.” Each cell represents a

potential strategic arena.

Arenas are assessed for their potential and the company's business position. Stars

designate top-priority arenas – where new product efforts will be focused.

The message for senior management is that if your

business is one of many that lacks a product innovation

strategy, including the elements in Exhibit 2, then this

deficiency is likely hurting your performance. The time

is ripe to develop and install such a strategy, an effort

that should be led by the business leadership team. To

help in this undertaking, an A-B-C strategy development

framework is outlined in Exhibit 3, which includes the key

elements uncovered in best performing businesses. This

ABC guide serves as a useful starting point to develop

your own product innovation strategy. (Note that a

product innovation and technology strategy is often

developed as part of the business’s overall strategy; if

not, then the innovation strategy should be firmly linked

to the business’s strategy):

a. Goals and role: Begin with your goals! The business’s

product innovation strategy specifies the goals of your business’s total new product

effort, and it indicates the role that product innovation will play in helping your

business achieve its business objectives. It answers the question: how do new products

and product innovation fit into your business’s overall plan? A statement such as

“By the year 2008, 30% of our business’s sales will come from new products” is a

typical goal.

Another key best practice is to ensure that the role of

new products in achieving the business’s overall goals

is clear and communicated to all (also highlighted

in Exhibit 2). The whole point of having goals is so

that everyone involved in the activity has a common

purpose... something to work towards. What we witness

here are very mediocre practices with less than half of

all businesses defining and communicating the role

of product development in achieving their business

goals.

b. Arenas and strategic thrust: Focus is the key to

an effective product innovation strategy. Your product

innovation strategy specifies where you’ll attack, or

perhaps more important, where you won’t attack.

4


Exhibit 5: The Strategic Map – arenas are plotted on two dimensions

10

Good

9

Bets

8

7

Chemical

6

Mixers

5

Petroleum

4 Blenders

Arena 3 Attractiveness

2

Conservative

1

Bets

0

Aerators

for P&P

Petroleum

Aerators

Hydro-Met

Agitators

Home

Base

Aerators

Chemical

Waste

Winning at New Products: Pathways to Profitable Innovation

Thus the concept of strategic arenas is at the heart of a new product strategy—the

markets, industry sectors, applications, product types or technologies on which your

business will focus its new product efforts. The battlefields must be defined!

The specification of these arenas—what’s “in bounds” and what’s “out of bounds”—is

fundamental to spelling out the direction or strategic thrust of the business’s product

development effort. It is the result of identifying and assessing product innovation

opportunities at the strategic level. Without arenas defined, the search for specific

new product ideas or opportunities is unfocused. Over time, the portfolio of new

product projects is likely to contain a lot of unrelated projects, in many different

markets, technologies or product-types—a scatter-gun effort. And the results are

predictable: a not-so-profitable new product effort.

The first task is one of identifying a possible set of arenas—areas that offer the

business some new and profitable opportunities. The product-market matrix shown

in Exhibit 4 is a typical chart that many firms use as they try to define new but

adjacent areas to operate in. Each cell in the diagram represents a potential strategic

arena on which to focus the business’s R&D efforts, and offers a number of new

product opportunities.

Next comes the task of evaluating these arenas—selecting the battlefields! Usually

two dimensions are used for this evaluation:

Each circle represents a possible

strategic arena – a possible area

of focus for NPD

Slurry

Pumps

Chemical

Specialty

Pumps

Aerators

Flotation

Cells

High Risk

Bets

High Density

Stock

Pumps

No

Bets

10 8 6 4 2 0

Business Strength

• Arena attractiveness—how attractive is the arena

to the business. This is an external measure and

captures characteristics such as size and growth of

markets here, intensity of competition and margins

earned, and the potential for developing new

products (for example, the technological maturity

of the area; or where on the technology S-curve the

arena is).

• Business strength—what strengths the business

brings that could be used to advantage in the new

arena. This involves an assessment of the business’s

core competencies and strengths, and asking

whether these could be leveraged if one entered

the new arena.

Usually, a set of 6-10 questions is developed for each

dimension, which senior management then uses to rate the various arenas under

consideration. The result is the strategic map, with each arena plotted; an example

from a process equipment manufacturer is in Exhibit 5. Arenas in the upper left

quadrant—the “good bets”—are designated as the most promising.

c. Attack strategy and entry strategy: The issue of how to attack each strategic

arena should also be part of your business’s product innovation strategy. For example,

5


Exhibit 6: Strategic Portfolio Management practices in best performing

businesses

Formal & systematic portfolio

management system in place

Projects are aligned

with Business’s strategy

Resource breakdown reflects

Business’s strategy

Portfolio has excellent balance

in project types

Sold job of ranking &

prioritizing projects

Portfolio contains high

value projects

Balance – sufficient resources

for number of projects

0.0%

0.0%

3.8%

4.0%

8.0%

12.0%

21.2%

31.0%

19.4%

22.8%

21.5%

26.6%

30.7%

Winning at New Products: Pathways to Profitable Innovation

the strategy may be to be the industry innovator, the first to the market with new

products; or to be a “fast follower”, rapidly copying and improving upon competitive

entries. Other strategies might focus on being low cost versus a differentiator versus

a niche player; or on emphasizing certain strengths, core competencies or product

attributes or advantages. An understanding of your business’s core competencies

(unique strengths that can be leveraged to advantage in the marketplace) coupled

with industry success drivers (what it takes to succeed in this industry, sector or arena)

are key analyses that lead to the selection of the appropriate attack strategy.

Additionally, entry plans for new arenas should be defined. Such a plan might be

to “go it alone” via internal product development. Alternately, more and more firms

are seeking alliances through licensing, partnering and joint venturing as a way to

enhance their product development capabilities and succeed in the marketplace.

d. Deployment—spending commitments, priorities and strategic buckets: Strategy

becomes real when you start spending money! Your product innovation strategy must

deal with how much to spend on product innovation; and it should indicate the

relative emphasis, or strategic priorities, accorded each arena of strategic focus. Thus

an important facet of a product innovation strategy is resource commitment and

allocation. And ear-marking resources (funds or person-days targeted at different

strategic arenas, project types or major development initiatives) helps to ensure the

strategic alignment of product development with your business goals. 8 More on this

topic next in the section on portfolio management.

2. Resource Commitment and Portfolio Management

The second point of performance in the Innovation Diamond in Exhibit 1 is resource

commitment and focusing on the right projects, namely portfolio management.

Portfolio management is about resource allocation

in the business. That is, which new product and

development projects from the many opportunities the

business faces shall it fund? And which ones should

receive top priority and be accelerated to market?

46.2%

57.2%

65.5%

It is also about business strategy, for today’s new

product projects decide tomorrow’s product-market

65.5%

profile of the firm. Finally, it is about balance: about

the optimal investment mix between risk versus return,

maintenance versus growth, and short term versus

41.4%

Worst Performers

Average Business long term new product projects.

31.0%

37.9%

37.9%

Best Performers

0% 10% 20% 30% 40% 50% 60% 70% 80%

Percent of Businesses W here Each

Portfolio Management Practice is in Place

Best performing businesses boast an effective portfolio

management system that helps the leadership team

effectively allocate resources to the right areas and

to the right projects much more so than do poor

performers (although, as Exhibit 6 shows, a portfolio

6


Exhibit 7: The two levels of decision-making in portfolio management

1. Strategic Portfolio

Decisions:

Strategic Buckets &

Strategic Product

Roadmap

2. Tactical

Portfolio

Decisions: Project

Selection (Go/Kill),

Prioritization, &

Resource

Allocation

Strate gic B uck ets

New Produc t

Pr ojects

Other :

Exte nsio ns, Mod ifica tion s,

Imp r ovem en ts, Fixe s, Co st Re duc tion s

Pro duct R oa dma p

Ex ten si on s i nto C h em ic al M i xers

O ri g i nal A gi tato r P l at f orm - Ex ten si on

Ch em i cal M i xe r s: B asi c L in e

Ch em i cal Mi xe rs : Sp eci al I m pel le r s

Pl an

e xte nsi o ns

Che m ica l M i xer s: Hi - Po w er

& ne w

p la tf orm s

E xten si on s i nto P etrol e um B l en de rs

P la tf orm E xt ens io n

Pet r o leu m Bl end er s : L ow P ow e r R an ge

Pet r ol eu m B le nde r s : H ig h Pow e r

Ne w Pro du ct P la tf orm : A er ator s

Ae rat or Pl a tfo rm

P& P Ae r at or s: Li ne #1 (f i xed mo un t )

P& P Ae ra t or s: L in e # 2 ( f l oat i ng )

P& P Ae r at or s: Hi - Po wer

Ex ten si o ns i nto A e ra to rs f or C h emi c al W as te

P la tf orm Exte n si on

Ch em i cal Aer a to r s: L in e #1

Che m i ca l A er at or s: Li ne # 2

Business Strategy &

Product Innovation

Strategy

Winning at New Products: Pathways to Profitable Innovation

Pla tform

Proje cts

( chan ge the ba sis o f

com p etition )

Portfolio Review:

Ø Holistic

Ø All projects in auction

ü Right priorities?

ü Right mix?

ü Alignment?

ü Sufficiency?

ü Resource adequacy?

Ø By senior management

management system is still an elusive goal for almost 80% of businesses). Here are

facets of portfolio management that best performers have in place:

• Development projects in best performers are aligned with their business strategy,

and resource breakdowns in the portfolio mirror the business strategy.

• There is the right balance of projects in the portfolio (for example, between long

term and short term projects; between high risk and low risk; and between major

new products and minor modifications).

• Best performing businesses also do an excellent job of ranking and prioritizing

projects, and their portfolios generally contain high value projects (by contrast,

poor performing businesses have portfolios with too many low value projects!).

• Finally, best performers manage to strike the right balance between resources

available and numbers of projects underway, so that a resource crunch, so typical

in poor performers, is avoided.

Use Exhibit 6, which lists the ingredients of a solid portfolio approach, to benchmark

your own business. If you are typical, your business may be weak on many of these

important items. But note how strongly they are embraced or achieved by the best

performing businesses. This comparison of your practices versus those in Exhibit

6 may convince you that your business is missing one of the key ingredients in

performance, and you may then decide that your business needs more effective

portfolio management. If so, here are some pointers:

a. A hierarchical process: Portfolio management and resource allocation can be

treated as a hierarchical process, with two levels of decision-making (see Exhibit 7): 9

R eso urce C om mitmen t to N PD

• The Str ategic Role of Y our

Busine ss

• Stra tegy, G oals and Task

Appr oac h

• Competitive Pa rity

• Spending Level B ased on

Dem and fr om Ac tive Projec ts

Resource

Commitment to

NPD

Stage-Gate ® Process:

Ø Individual projects

Ø In-depth evaluation

Ø Quality data available

Ø By senior management

Ø Go/Kill decisions

Ø Resources allocated

• Level 1—Strategic portfolio management: Strategic

portfolio decisions answer the question: directionally,

where should your business spend its development

resources (people and funds)? How should you

split your resources across projects types, markets,

technologies or product categories? And on what

major initiatives or new platforms should you

concentrate your resources? Establishing strategic

buckets and defining strategic product roadmaps are

effective tools here (more on these methods below).

• Level 2—Tactical portfolio decisions (individual

project selection): Tactical portfolio decisions focus

on individual projects, but obviously follow from the

strategic decisions. They address the question: what

specific new product projects should you do? Such

decisions are shown at the bottom part of Exhibit

while tools for these tactical decisions are outlined

later in this whitepaper.

7


Exhibit 8: The Strategic Buckets method split resources into different

envelopes or buckets to ensure resource splits mirror strategic priorities

Project

Jeanie

Monty

Kool-Flow

$2 M Pop-Up

Regatta

Slow-Brew

Widget-4

Project

1542

Pop-Redo

Quick-Fit

$3 M 1498-K

Flavor-1

Xmas Pkg

Lite-Pkg

Ran

k

1

2

3

4

5

6

7

1

2

3

4

5

6

7

Rank

Gate

Score

88

85

80

77

75

70

69

Sales/

MD

42.3

37.3

31.2

25.5

24.1

18.0

6.7

Cost

Reductions

New Products = $2 M

=$2 M

Improvements

& Modifications

= $3 M

Winning at New Products: Pathways to Profitable Innovation

b. Strategic buckets: Many best performing companies use the concept of strategic

buckets to help in the resource deployment decision. Strategic buckets simply

define where management desires the development dollars to go, broken down by

project type, by market, by geography, and/or by product area. 10 Strategic buckets

is based on the notion that strategy becomes real when you start spending money,

and thus translating strategy from theory to reality is about making decisions on

where the resources should be spent—strategic buckets. In the example in Exhibit 8,

management begins with the business’s strategy and then makes strategic choices

about resource allocation: how many resources go to each bucket—“new products”

versus “improvements and modifications” versus “cost reductions” versus “salesforce

requests”? (For illustration in Exhibit 8, these allocated are rounded to $2M, $3M,

$2M and $3M respectively). Note that each of these project types compete for the

same resources; further most companies have far too many of the smaller “low

hanging fruit” projects and not nearly enough of bolder and genuine new product

projects. 11

Sales

Requests

= $3 M

4 portfolios, fire-walled

Rank projects until out of

resources in each bucket

Project Rank Savings/

MD

150-C 1

88

97-D 2

85

149-F 3

80

1402 4

77 $2 M

98-DD 5

75

1267 6

70

1230-D 7

69

Project

Walco-43

Mini-Pkg

Asda Refill

Regen-3

Small-Pack

Tesco-Lite

M&S-41

Rank

1

2

3

4

5

6

7

Mktg

Score

79

68

65

61

55

52 $3 M

50

With resources allocation now firmly established and

driven by strategy, projects within each bucket are then

ranked against each other, until one is out of resources

in each bucket. This establishes project priorities. Note

that projects in one bucket—such as “new products”—

do not compete against those in another bucket, such

as “improvements and modifications” or “salesforce

requests”. If they did, in the short term, simple and

inexpensive projects would always win out as they

do in many businesses. Instead, strategic buckets

build firewalls between buckets. Thus, by earmarking

specific amounts to “new products” or to “platform

developments,” the portfolio becomes much more

balanced.

In spite of its intuitive appeal, the use of strategic

buckets is a decidedly weak area overall with only

26.9% of businesses developing strategic buckets, as shown in Exhibit 2. But strategic

buckets is clearly a best practice, with almost three times as many best performers

(41.4%) employing this strategic buckets approach (when compared to worst

performers).

c. The strategic product roadmap: A strategic roadmap is an effective way to map

out a series of major initiatives in an attack plan. A roadmap is simply a management

group’s view of how to get where they want to go or to achieve their desired objective. 12

Although gaining in popularity, especially in high-technology businesses, the use of

roadmaps is a weak area generally, with only 27.6% of businesses developing product

roadmaps (also shown in Exhibit 2). About twice as many best performers (37.9%) use

product roadmaps than worst performers (19.2%).

8


Exhibit 9: The Strategic Product Roadmap lays out the major development

initiatives

Extensions in to Che mical M ixe rs

Origina l Agitator Platform - Extension

Chemical Mixers: Basic Line

Plan Chem ical Mixers: Special Impellers

e xtensions

C hemic al Mixers: Hi-Pow er

& new

pla tform s

Exte nsions into Petroleu m Blenders

P la tform Extension

Petroleum Blenders : Low Pow er Ra nge

Petroleum Ble nders : High Pow er

Timeline

Ne w Platform : Aerators (for P&P Industry)

Aera tor P la tform

P&P A erators: Line # 1 (fixed m ount)

P& P A erators: Line # 2 (floati ng)

P&P Aerators: Hi-Power

Major development

projects are mapped out

for the foreseeable future.

Placemarks for these

projects are established &

resources tentatively set

aside or ear-marked.

Platform Extension: Aerators for Che mi ca l W aste

Pla tform Ex tension

Chemical Aerators: Line # 1

Chemical Aerators: Line # 2

0 12 24 36 48 60

Months

Winning at New Products: Pathways to Profitable Innovation

In use, your business’s senior management maps

out the planned assaults—the major new product

initiatives and their timing—that are required in order

to succeed in a certain market or sector in the form of

a strategic product roadmap. 1 This roadmap may also

specify the platform developments required for these

new products. An illustration of a roadmap (based on

the equipment manufacturer in Exhibit 5) is shown in

Exhibit 9, where major development initiatives are laid

out over time (often as far out as 5-8 years). Placemarks

are established for these development initiatives and

resources tentatively earmarked for them. In this way,

senior management is able to translate its view of the

future and its strategy into resource commitments and

concrete actions. Additionally, the development or

acquisition of new technologies can be mapped out in

the form of a technology roadmap. 2

d. Tactical—project selection: Once these strategic portfolio decisions are made,

management can then deal with the next level of decision making: translating

strategy into reality, namely the tactical decisions. 13 When selecting projects, an

important best practice is to make sure that your new product effort has a long

term thrust and focus—that your portfolio includes some longer term projects (as

opposed to just short term, incremental projects). This is a fairly weak ingredient of

the six elements in Exhibit 2, with only 38.1% of businesses having a longer term

new product strategy. Indeed this short time horizon of businesses’ new product

efforts has been a widely-voiced criticism. Ironically, this one ingredient is one of

the most important of the six strategy elements: a longer term orientation separates

top performers from the worst, with 58.6% of the best (and only 23.1% of the worst)

adopting a longer term approach.

Tactical portfolio decisions focus on projects, and address the questions: which

specific new product and development projects should you do? What are their

relative priorities? And what resources should be allocated to each? Such tactical

decisions are shown at the bottom part of Exhibit 7.

To make effective tactical decisions, best performers use a combination of gates and

portfolio reviews, both working in harmony as shown at the bottom of Exhibit 7. Let’s

look at each:

• Gates: Embedded within your idea-to-launch new product system should be

tough Go/Kill decision-points called “gates”. Gates provide an in-depth review of

individual projects one at a time, and render Go/Kill, prioritization and resource

allocation decisions—hence gates must be part of your portfolio management

system (bottom right of Exhibit 7).

9


Winning at New Products: Pathways to Profitable Innovation

• Portfolio reviews: Doing the right projects is more than simply individual project

selection at gate meetings; rather it’s about the entire mix of projects and

new product or technology investments that your business makes. Thus many

businesses install a second decision process, namely the periodic portfolio review

(bottom left of Exhibit 7). Senior management meets two-to-four times per year

to review the portfolio of all projects. Here, senior management also makes

Go/Kill and prioritization decisions, where all projects and are considered on the

table together, and all or some are up for auction. Key issues and questions are:

✓ Are all projects strategically aligned (fit your business’s strategy)?

✓ Do you have the right priorities among projects?

✓ Are there some project on the active list that you should kill?

✓ Is there the right balance of projects? The right mix?

✓ Are there enough resources to do all these projects?

✓ Do you have sufficiency—if you do these projects, will you achieve your

stated business goals?

e. Project selection tools: Myriad tools exist to select and prioritize development

projects, and often the choice of method depends on the type of project (Note when

using strategic buckets, as in Exhibit 8, multiple portfolios are the result, one for each

project type; and each portfolio or list can thus utilize its own prioritization or Go/Kill

method). Project selection tools include:

Financial: The use of NPV, EVA or payback period are traditional and popular methods

to make Go/Kill decisions at gates, and even to rank projects from best to worst. Note

however that for genuine new products, where there are greater unknowns, financial

tools prove to be the least effective, according to a major

study of portfolio methods and their efficacies. 14 This is

due not so much to the fact that the tool is unsound,

• Take what you are trying to maximize

but rather that the quality of data and projections—

– Example: NPV

expected sales, costs, and time to market—is so poor

• Divide by what the constraining resource is

early in the life of a project at the very time the key

Go/Kill decisions must be made.

Exhibit 10: The Productivity Index – an index used to rank development

projects

– Example: People (expressed as person-days)

– Or Development funds ($000)

• And rank your projects by this index until out of resources

• Example:

Productivity

Index

=

Output

Input

=

NPV

Person-Days

NPV= forecasted NPV of the

project

Person-Days = resources

required to complete the project

Productivity index: A valuable twist on the traditional

NPV and a modification designed to maximize

the productivity of your portfolio is the use of the

productivity index. 15 Here take what you are trying to

maximize—for example, the NPV—and divide by the

constraining resource, for example the person-days

to complete the project, as defined in Exhibit 10. In

practice, the portfolio manager simply calculates the

productivity index for each project—for example

10


Exhibit 11: Determination of Expected Commercial Value of a Project

A model of a two-stage investment decision process: First, invest $D in development, which may yield a

technical success with probability P t . Then invest $C in commercialization, which may result in a commercial

success with probability P cs . If successful, the project yields an income stream whose present value is $PV. More

sophisticated versions of this model would entail more stages than the two shown here, and an array of possible

outcomes from each stage.

$ECV

Development

$D

Technical

Success

Pts

Yes

No

ECV = [(PV * P - C) * P ]- D

cs ts

Launch

$C

Technical

Failure

Commercial

Success

Pcs

Yes

$ECV = Expected Commercial Value of the project

P ts = Probability of Technical Success

P cs = Probability of Commercial Success (given technical success)

$D = Development Costs remaining in the project

$C = Commercialization (Launch) Costs

$PV = Net Present Value of project's future earnings (discounted to today)

Winning at New Products: Pathways to Profitable Innovation

$PV

NPV/person-days to complete the project—and

ranks your projects using this index and until out of

resources. This method yields a higher overall value of

your portfolio—NPV is maximized for a given resource

expenditure—and at the same time, ensures that you

don’t have too many projects in your development

pipeline for the limited resources available.

Real options: Real options (sometime called options

pricing theory or expected commercial value) is a

variant of the financial models, and is designed to

handle risk and uncertainty. Of course, every new

product project has some risk: there is never a 100%

chance of either technical success or commercial

success. Thus, the pundits argue that any method that

fails to accommodate the inherent risk in a financial

analysis is naïve. One approach to real options is to use

decision-tree analysis—breaking the project into a series of steps or stages, each

step with several outcomes, success or failure, as in Exhibit 11. The consequences

of each outcome or tree-branch are determined, and probabilities of each outcome

occurring are estimated. The method is more correct than the straight NPV approach

above, but is a little more complex to use. 16

No

Commercial

Failure

Scorecards: The scorecard method works, according to an IRI portfolio management

study, although it is not the most popular method. 17 The notion here is that qualitative

factors, such as leveraging core competencies and competitive advantage, are much

more important predictors of success than are financial numbers which are often in

error. Many studies have probed new product success factors over the years, and there

now exists a solid body of knowledge about which factors are the best predictors of

new product success and profitability.

In use, scorecards are created that incorporate 6-10 of these key predictive factors.

Here is a typical and proven list of scorecard criteria found to be effective in evaluating

a new product project: 18

1. Strategic fit and importance of the project to the business

2. Competitive and product advantage (is the proposed new product differentiated?

with a compelling value proposition?)

3. Market attractiveness (market size, growth, margins and competitive intensity)

4. Leveraging core competencies (your ability to leverage the business’s strengths

in this project)

5. Technical feasibility (size of technical gap; technical complexity; company track

record and experience technically in similar projects)

11


Winning at New Products: Pathways to Profitable Innovation

6. Risk and reward (size of reward versus the risk: potential financial payoffs,

magnitude of downside risks, and certainty of assumptions).

From this criteria list, an operational scorecard is created. This scorecard is then used at

gate meetings by gatekeepers (senior management) to objectively evaluate and rate

the project in question. The method has the added advantages of engaging senior

management in the decision process in a structured and constructive way, adding

some discipline to a potentially chaotic gate meeting, and ensuring that projects

are objectively evaluated by an outside-the-team group of experienced people.

Scorecards are an excellent method for making early Go/Kill decisions on projects

where financial information is limited and often unreliable, for example at the first

few gates in the case of genuine new product projects and platform developments.

f. Resource allocation: Resource allocation is handled in part by the various project

selection methods outlined above. For example, by ranking projects at a portfolio

review until out of resources using the productivity index, if one is disciplined, the

list of projects is just about right for the available resources. But the question of just

who works on what projects remains a thorny one. Smaller and less sophisticated

businesses handle the issue informally, often letting the project leader propose a

list of candidates (people) to work on his or her project. A step up is to use readily

available and inexpensive software packages. For example, MS-Project ® is used as a

planning tool by most project teams to map out the next steps of their project. But

MS-Project ® can also be used to roll up the resource requirements from individual

projects into resource requirements for the entire portfolio. Leading businesses

increasingly rely on more advanced software also from Microsoft, such as the Microsoft

Office Enterprise Project Management solution (MS-EPM). 19 This software provides

valuable tools to support the execution of the product development process, such as

project scheduling, task-and-resource assignments, and time-and-task-completion

tracking.

3. An Effective, Flexible and Streamlined Idea-to-Launch System

An idea-to-launch system for product innovation is one solution to what ails so

many businesses’ new product efforts. 20 Such a system is also one of the four points

of performance in the Innovation Diamond in Exhibit 1. Facing increased pressure

to reduce the cycle time, yet improve their new product success rates, companies

implement Stage-Gate ® systems to manage, direct, and control their productinnovation

initiatives—see an example of Stage-Gate ® in Exhibit 12. That is, these

businesses have developed a systematic process—a playbook, game plan or

framework—for moving a new product project through the various stages and steps

from idea to launch. But most important, they have built into their framework the

many critical success factors and industry best practices highlighted below in order to

heighten the effectiveness of their idea-to-launch system.

12


Exhibit 12: An Overview of a typical Stage-Gate ® Exhibit 12: An Overview of a typical Stage-Gate idea-to-launch system

® idea-to-launch system

Stage-Gate ® Stage-Gate : A 5-stage, 5-gate framework

for significant new product projects

® : A 5-stage, 5-gate framework

for significant new product projects

Discovery

Idea

Screen

Stage-Gate ® Stage-Gate is a trademark of

Product Development Institute Inc.

® is a trademark of

Product Development Institute Inc.

Exhibit 13: Key elements of an effective idea-to-launch system

Customer focused – voice-of-customer

work; identify customers needs/problems

Front end loaded – an emphasis on

homework prior to Development

Develop products superior to

competitors’ in meeting customer needs

Excellent quality-of-execution:

all activities, idea-to-launch

Tough, rigorous Go/Kill decision

points thru-out the process

NPD project performance metrics

(e.g. NPV, sales, on-time launch)

A Process Manager in place

Worst Performers

Average Business

Best Performers

Driving New Products to Market

Scoping

2nd 2

Screen

nd

Screen

Business

Case

Go to

Dev’mt

Development

15.4%

15.4%

15.4%

18.7%

Go to

Test

23.1%

23.1%

Testing

Winning at New Products: Pathways to Profitable Innovation

Almost every best performing business has

implemented a stage-and-gate system to drive their

new product projects through to commercialization,

according to the APQC benchmarking study; and a

solid idea-to-launch process is the most prevalent best

practice observed among the sample of businesses. 21

The PDMA’s best practices study concurs: “nearly 60%

of the firms surveyed use some form of Stage-Gate ®

process. Over half of the firms which have adopted

Stage-Gate ® processes have moved from a basic

process to more sophisticated versions with formal

process ownership and facilitation (18.5% of the total)

or third generation processes with more flexible gates

and stage structures”. 22

While many companies claim to have an idea-tolaunch

process, the best performers seem to get it

right more often, and build in more best practices

(see Exhibit 13 for sample best practices). Best performing businesses build in a

strong customer focus and rely heavily on voice-of-customer research in the early

days of projects. They front-end load their projects, undertaking appropriate, often

extensive up-front homework prior to Development (by contrast, poor performers

too often rush a poorly defined, poorly investigated project into Development, and

suffer the consequences later!). And best performers

focus on developing differentiated, superior products

that meet customer needs better than competitors’. By

contrast, poor performers tend much more to develop

33.4%

69.0%

undifferentiated, vanilla products with little competitive

38.5%

44.8%

62.1% advantage.

33.3%

30.0%

34.4%

Go to

Launch

Gate

Idea

Stage 2 Gate

Gate Stage 1 2

3 Stage 3 Gate

Gate

Idea

Stage 2 Gate

Gate Stage 1

Stage 4

2

3 Stage 3 Gate

Gate

Stage 4

4

5 Stage 5

Stage 1

38.8%

Launch

44.8%

42.5%

52.5%

51.7%

51.7%

Post-Launch

Review

58.6%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Percentage of Businesses

that Embrace Each Best Practice

In addition, best performers strive for high quality

of execution of all activities from idea through to

launch; they build very tough Go/Kill decision points

in the form of gates into their process (where mediocre

projects really do get killed); and their process includes

new product project metrics built in, metrics such as

NPV, sales and on-time launch, so that performance

results from individual projects can be gauged. Finally,

there is a process manager in place to champion the

process and its proper use and implementation.

Some of these activities and best practices in Exhibit 13 may seem evident and

common sense. The problem is that they’re not as common as one might think!

Indeed, a quick look at Exhibit 13 reveals that only about one-third of companies on

average employ each best practice. So take a hard look at your own idea-to-launch

13


Exhibit 14: An Overview of NexGen Stage-Gate ®

Stage-Gate ® Regular

for major new product

developments

Idea

Stage

Discovery

Idea

Screen

Gate

1

Winning at New Products: Pathways to Profitable Innovation

system, and critically assess whether these seven best practices in Exhibit 13 are really

built in.

Scoping Business Case Development Testing Launch

Stage-Gate ®

XPress for

improvements &

modifications

Accelerating the idea-to-launch process—NexGen Stage-Gate ® : A number of

businesses have moved to next generation or NexGen Stage-Gate ® processes and

have incorporated techniques to render their product development efforts lean,

rapid and profitable. Increased productivity in NPD is the goal! Some worthwhile

enhancements and changes include:

Viewed as a philosophy: Stage-Gate ® is more than a method or process… more than

a set of flow charts, templates and check-lists. The best companies now see their new

product process as a philosophy or culture that fosters new and desired behavior.

Success in product innovation requires many behavioral changes, such as discipline;

deliberate, fact-based and transparent decision-making; responsible, accountable,

effective and true cross-functional teams; continuous improvement and learning

from mistakes; and risk taking and risk awareness. The structure and content of the

Stage-Gate ® process is increasingly viewed as a vehicle for change—for changing the

way people think, act, decide and work together.

An automated process: Progressive companies recognize that automation greatly

enhances the effectiveness of their new product process. For one thing, the process is

much easier to use by everyone from project leaders to executives, thereby enhancing

buy in (cumbersome, hard-to-use processes have been a hindrance to adoption

in some companies in the past). A second benefit of automation is information

management. Everyone from project team member to senior executive has access to

the best view of relevant information—the information

that they need to move their project forward, to

cooperate with other team members globally on vital

tasks, or to help make the Go/Kill decision. Speaking

5

Stage 5

4

of decisions, these automated systems are very much

decision-support systems, with users reporting that

new product decision-making is enhanced.

2nd Screen Go to Develop Go to Test Go to Launch PLR

Gate Stage 2 Gate

Stage 1 Stage 3 Stage 4 Gate

2

3

Gate

Stage-Gate ® Lite

for Salesforce &

Marketing

Requests

Stage

1& 2

Go to Develop Go to Launch PLR

Gate

3

Stage

3 & 4

Scope &

Business Case Development

& Testing

Stage

1& 2

Scope &

Business Case

Decision to

Execute

Gate

3

Gate

5

Stage

3, 4 & 5

Execute:

Development,

Test & Launch

Stage 5

Launch

PLR

As a result, Stage-Gate ® automation software tools,

such as Accolade ® by Sopheon, are increasingly being

adopted by leading businesses. 23 For example, Accolade

integrates strategy, portfolio management, Stage-

Gate ® and idea management—a business decision

support system for making new product investment

decisions more effectively and efficiently.

A scalable process: There is no longer just one

version of Stage-Gate ® . Rather the process

has “morphed” into multiple versions. Exhibit 14 shows some examples:

Stage-Gate ® XPress for projects of moderate risk, such as improvements,

modifications and extensions; Stage-Gate ® Lite for very small projects, such as simple

14


Exhibit 15: Spiral Development: A series of “build-test-feedback-revise”

Iterations move the project team quickly to a fact-based product definition

Gate

2

VoC User

Needs &

Wants Study

Build

Business

Case

Stage 2

Gate

3

Full Prop

Concept

Test

Rapid -

Proto &

Test

Stage 3: Development

1st-

Proto

& Test

Winning at New Products: Pathways to Profitable Innovation

customer requests; and there is even Stage-Gate ® TD for technology development

projects, where the deliverable is new knowledge, new science or a technological

capability. 24

Flexible and adaptable: The notion of a rigid, lock-stepped process is dead! Rather,

today’s fast-paced NexGen Stage-Gate ® system is adaptable and flexible. It allows the

project team considerable latitude in deciding what actions are really needed and

what deliverables are appropriate for each gate; and the system adapts to fluid and

dynamic information.

The concept of spiral development—building in a series of “build test feedback

and revise” loops or spirals from the early days of the project all the way through

to field trials—is one way that fast-paced project teams cope with changing, fluid

information, and at the same time, get their product definition right. Exhibit 15

show a sample series of loops or iterations, beginning early in Stage 2 with voiceof-customer

research followed quickly by a full proposition concept test using, for

example, a virtual prototype and a simulated selling presentation. Similar fast-paced

iterations or spirals continue through the development stage and right up to pre-

Launch.

Further, in a flexible Stage-Gate ® system, activities and stages can overlap, with the

principle of simultaneous execution employed—not waiting for the total completion

of a previous step and 100% perfect information before moving ahead. For example,

one does not wait for formal gate approval to move into some facets of the final

stage (the Launch stage in Exhibit 12). Rather, long

lead-time launch activities—such as salesforce training,

preparation of marketing collaterals, and ordering raw

materials—are moved forward into the previous stage

(Testing in Exhibit 12) in order to accelerate the project,

Testing &

Validation

even though the project may yet be cancelled. Here

the project team weighs the cost of delay versus the

Gate

Stage 4

4

costs incurred by moving activities forward in the event

the project is cancelled (along with the likelihood of

cancellation occurring).

Field

Lean: Management has borrowed the concepts from lean

Next

Proto &

Test

Trial,

Beta

Test

manufacturing and applied them to the new product

process in order to remove waste in the process. Here,

by analyzing a map of the idea-to-launch Value Stream,

all non-value-added items are removed. Every activity,

procedure, template, deliverable and committee in the

current process is scrutinized: is it really needed; and how can it be done faster and

better? Continuous learning and improvement is a key facet of the lean method, with

post-mortems undertaken at the Post Launch Review to provide insights on how to

15


Exhibit 16: The climate & culture for innovation, and the role of senior

management, are keys to success in NPD

Senior management

strongly committed to NPD

NP metrics are part of senior

management’s annual objectives

Business's climate supports

entrepreneurship & innovation

Skunk works & unofficial

projects encouraged

Time-off for creative work;

Friday projects

Senior management provides strong

support & empowerment to teams

NPD team rewards or recognition

for projects

Worst Performers

Average Business

Best Performers

3.8%

0.0%

7.7%

7.7%

7.7%

14.3%

15.6%

21.4%

13.7%

26.9%

27.6%

30.1%

Winning at New Products: Pathways to Profitable Innovation

do projects better and faster (the PLR in Exhibits 12 and 14). The result is a much

more efficient and effective idea-to-launch method.

Partnering and alliances: Since so much of product innovation involves partners,

alliances and out-sourced vendors, increasingly leading firms build in an alliance

sub-process into their traditional new product process. Embedded within in stages

of the NexGen Stage-Gate ® process are key external activities, such as identifying

the need for partners, seeking potential partners, and vetting candidate partners.

Similarly, in addition to the usual gate deliverables, such as results of market and

technical assessments or a financial analysis, are items such as “letters of intent” and

“memoranda of understanding” from potential partners. And gate criteria also build

in partnering issues, for example evaluating a project with and without a partner in

place.

4. A Positive Climate and Environment for Innovation

People, culture and leadership is the fourth point of performance in the Innovation

Diamond in Exhibit 1, and although difficult to measure and even harder to change,

proves to be the strongest driver of businesses’ product innovation performance

results. Senior managers in best performing businesses lead the innovation effort

and they are strongly committed to new product development, as shown in Exhibit

16. An example is at Procter & Gamble, where the CEO, A.G.. Lafley (Chairman of the

Board, President and Chief Executive), makes it clear: “Innovation is a prerequisite for

sustained growth. No other path to profitable growth can be sustained over time.

Without continual innovation, markets stagnate, products become commodities, and

margins shrink.” 25

34.3%

37.1%

40.0%

50.5%

50.0%

55.2%

62.1%

65.5%

79.3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent of Businesses With Each Element of Climate

A significant minority of businesses are now making

product innovation results part of senior management’s

performance metrics, and in some cases tying

variable pay and bonuses to the business’s innovation

performance. For example, at ITT Industries, new

product results (measured by new-product sales as a

percentage of the business’s annual sales revenue) is

now a key performance metric for business unit general

managers, along with meeting profit and cost targets.

Note that while still not widespread, this practice is

seen in best performing companies almost four-times

as often as in poor performers.

Senior management plays a lead role in championing

the innovation effort in best performing businesses,

creating a positive climate and culture for innovation

and entrepreneurship as shown in Exhibit 16, much

more so than in poor performing businesses. For

16


Exhibit 17: How best performing businesses organize their teams for NPD

Team is cross-functional: Technical,

Marketing, Sales, Operations

Projects undertaken by cleared

identified team of players

Team does project from

beginning to end – no hand-offs

Identifiable project team leader

Leader from beginning to end

Team has central & shared

information system, IT based

Team members accountable for

project’s end results

Worst Performers

Average Business

Best Performers

7.7%

23.1%

19.2%

32.4%

Winning at New Products: Pathways to Profitable Innovation

example, they foster creativity and innovation by allowing time off for scouting or

“Friday projects” as in Kraft Foods and W.L. Gore & Associates; they are not overly

risk averse and invest in the occasional high risk project; and they encourage

skunk works—projects and teams working outside the official bureaucracy of the

business. Senior management also nurtures a team culture within best performing

organizations, fosters effective cross-functional NPD teams, and provides strong

support and empowerment to these teams. Finally NPD team rewards and recognition

are provided in best performing businesses.

Many so-called cross-functional teams aren’t very effective at all, according to the

APQC study, being closer to “dysfunctional teams” or simply a disparate group of

representatives from functional departments. But a truly holistic approach to product

innovation, one of the keys to reducing time to market, demands effective cross

functional teams. Best performing businesses rely heavily on effective cross-functional

teams to undertake their significant new product projects, with members seconded

from key functions. Note that each team member is very much a part of the project

team and has an equal stake in it.

Best practices regarding new product project teams are outlined in Exhibit 17. On

exiting each gate, best performing businesses define clearly who is on the team and

who is not, (in some businesses, it’s not clear just who is accountable for the end

result!). They keep the team on the field from end to end—hand-offs to another

team or department are not allowed in best performers’ team cultures. As well, a

project leader is clearly defined for each significant project, remains on the project

from beginning to end, is given some authority over team members, and acts as

a entrepreneur-leader rather than an administrator.

Team performance is improved by the use of a

shared information system based on software such

as Accolade ® 53.8%

72.1%

(mentioned earlier), with almost four

79.3%

times as many best performing businesses having such

38.6%

61.6%

79.3% information systems in place as poor performers, as

48.6%

seen in Exhibit 17.

72.4%

Finally, in return for their empowerment and authority,

project teams are held accountable for project results,

for example, at the Post Launch Review (PLR). At

these PLRs, the results achieved on success criteria

are compared to the results promised at the key gates

on these same success criteria. Exhibit 12 shows that a

PLR is part of the Stage-Gate ® 63.8%

79.6%

58.1%

69.0%

43.8%

65.5%

55.2%

process, but it is missing in

most businesses: 78% of businesses don’t even conduct

a proper Post Launch Review! Note also from Exhibit 17

that less than one-third of businesses hold project teams accountable for the project’s

results, but that this is a clear best practice with best performers endorsing this

approach by an eight-to-one ratio versus poor performers. Be sure to employ success

34.6%

50.0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent of Businesses With Each Organizational Element

17


Winning at New Products: Pathways to Profitable Innovation

criteria at each gate, base the Go/Kill decision on these criteria, and then hold

the team accountable to achieve the result, with the final PLR being the final

accountability review.

5. Winning at Product Innovation

There is no magic to winning at product innovation. Indeed, the APQC study and

others have identified countless success drivers (as shown in Exhibits 2, 6, 13, 16 and

17) and summarized in the Innovation Diamond. The real challenge is making them

work in your business.

The four themes—innovation strategy, a solid idea-to-launch process, portfolio

management, and climate, effective teams and leadership—make up the four points

of performance of the Innovation Diamond and provide a sound framework for

guiding your business’s product innovation efforts. Use the diamond to help structure

your efforts as you move forward to improve your business’s product development

productivity, and then drill down and consider implementing some of the best

practices outlined in this whitepaper—each practice has been shown to work, and to

lead to better results. The diamond works, so work the diamond!

The Author:

Dr. Robert G. Cooper is President of the Product Development Institute Inc., Professor

of Marketing at the DeGroote School of Business, McMaster University in Hamilton,

Ontario Canada, and also ISBM Distinguished Research Fellow at Penn State

University’s Smeal College of Business Administration (email: robertcooper@cogeco.

ca; www.prod-dev.com)

Dr. Cooper is a world expert in the field of new product management, and the father

and developer of the Stage-Gate ® process, now widely used by leading firms around

the world to drive new products to market. Bob is a thought-leader in the field of

product innovation management: he has published 100 articles in leading journals

on new product management, with many award winners; and he has also written

six books on new product management, including the popular, Winning at New

Products: Accelerating the Process from Idea to Launch, with over 160,000 copies sold;

and his just released Product Leadership: Pathways to Profitable Innovation.

About the Microsoft Enterprise Project

Management Solution:

Microsoft’s Enterprise Project Management Solution is used by many of the world’s

best performing product development organizations to support their innovation.

For more information on the Microsoft EPM Solution and companies who use it in

the product development process, and on partners that work with us in new product

development, please visit www.microsoft.com/proddev

18


Winning at New Products: Pathways to Profitable Innovation

Endnotes & References:

(Footnotes)

1 The term “product roadmap” has come to have many meanings in business. Here I mean a strategic

roadmap, which lays out the major initiatives and platforms the business will undertake well into the

future, as opposed to a tactical roadmap, which lists each and every product, extension, modification,

tweak, etc.

2 The term “technology roadmap” also has several different meanings. Here I use the term to denote

your business’s technological developments or technology acquisitions; by contrast, the term

“technology roadmap” is sometimes used to describe what new technologies are anticipated in an

industry—more of an industry technological forecast.

(Endnotes)

1 Fast, Focused, Fertile: The Innovation Evolution, Cheskin and Fitch: Worldwide, 2003.

2 Source of data: Arthur D. Little. How Companies Use Innovation to Improve Profitability and Growth.

Innovation Excellence study, 2005.

3 APQC benchmarking study; see: R.G. Cooper, S.J. Edgett & E.J. Kleinschmidt, New Product

Development Best Practices Study: What Distinguishes the Top Performers, Houston: APQC (American

Productivity & Quality Center), 2002; and: R. G. Cooper, S.J. Edgett & E.J. Kleinschmidt, Best Practices

in Product Innovation: What Distinguishes Top Performers, Product Development Institute, 2003

(www.prod-dev.com).

4 This whitepaper is based on a new book by the author: R.G. Cooper, Product Leadership: Pathways

to Profitable Innovation, 2 nd edition. Reading, MA: Perseus Books, 2005. Also available at: www.stagegate.com

5 APQC study, see endnote 3.

6 A good summary of research conclusions from many studies into what makes for successful product

innovation is found in: R.G. Cooper, Winning at New Products: Accelerating the Process from Idea

to Launch, 3 rd edition. Reading, MA: Perseus Books, 2001, pp 22-112. See also: R.G. Cooper, “New

products: What separates the winners from the losers,” chapter 1 in: The PDMA Handbook of New

Product Development, 2nd Edition. New York, NY John Wiley & Sons, 2004.

7 Procter & Gamble calls their diamond the “Initiatives Diamond”; it was modeled on our results

from an earlier best practices study. See: M. Mills, “Implementing a Stage-Gate TM process at Procter

& Gamble”, Association for Manufacturing Excellence International Conference, “Competing on the

global stage”, Cincinnati, Ohio, October 2004.

8 For an outline of portfolio management methods, including strategic buckets, see: R.G. Cooper,

S.J. Edgett & E.J. Kleinschmidt, Portfolio Management for New Products, 2 nd edition. Reading, MA:

Perseus Books, 2002; also: R.G. Cooper, S.J. Edgett & E.J. Kleinschmidt, “Optimizing the Stage-Gate ®

process: What best practice companies are doing—part II”, Research-Technology Management, 45,

6, Nov-Dec 2002.

9 Parts of this section are taken from an article by the author: R.G. Cooper, “Maximizing the value

of your new product portfolio: Methods, metrics and scorecards”, Current Issues in Technology

Management. Hoboken, N.J.: Stevens Institute of Technology, Stevens Alliance for Technology

Management, 7, 1, Winter 2003, 1.

10 Section taken from: R.G. Cooper, “Your NPD portfolio may be harmful to your business’s health”,

PDMA Visions, XXIX, 2, April 2005, 22-26; see also endnote 8: Portfolio Management for New

Products.

11 See: R.G. Cooper, “Your NPD portfolio may be harmful to your business’s health”, PDMA Visions,

XXIX, 2, April 2005, 22-26.

12 See: R.E. Albright & T.A. Kappel, “Roadmapping in the corporation”, Research-Technology

Management, 46, 2, March-April, 2003, pp. 31-40; also: A. McMillan, “Roadmapping—Agent of

change”, Research-Technology Management, 46, 2, March-April, 2003, 40-47; and: M. H. Myer & A. P.

Lehnerd. The Power of Product Platforms. New York: Free Press, 1997.

13 Parts of this section are taken from an article by the author; see endnote 9.

14 IRI study of portfolio methods used versus results achieved. See: R.G. Cooper, S. J. Edgett & E.J.

Kleinschmidt, “Portfolio management for new product development: Results of an industry practices

study, R&D Management, 31, 4, October 2001, 361-380. See also endnote 8: Portfolio Management

for New Products, pp 163-164.

15 The Productivity Index is illustrated in more detail in endnote 8: Portfolio Management for New

Products, p 40.

16 The real options or expected commercial value method is explained in more detail in endnote 8:

Portfolio Management for New Products, p 42.

17 IRI study; see endnote 14.

18 Source of scorecard criteria is endnote 8: Portfolio Management for New Products, p 54.

19 Tradename of Microsoft Corporation. Microsoft offers different levels of resource management

software, including MS-Project, MS-Project Professional and Enterprise Project Management. See

www.microsoft.com

20 Stage-Gate ® is a registered tradename of the Product Development Institute Inc. This section

describing Stage-Gate ® is based on material from many sources; see for example: R.G. Cooper, “Doing

it right—winning with new products,” Ivey Business Journal, July-August 2000, 54-60; R.G. Cooper,

Winning at New Products: Accelerating the Process from Idea to Launch, 3 rd edition. Reading, MA:

Perseus Books, 2001; R.G. Cooper, “Stage-Gate new product development processes: a game plan

from idea to launch”, in: The Portable MBA in Project Management, ed. by E. Verzuh, Hoboken,

N.J.: John Wiley & Sons, 2003, pp. 309-346. The term “Stage-Gate” was first used in print in early

publications, such as: R.G. Cooper, “The new product process: a decision guide for managers”, Journal

of Marketing Management 3, 3, Spring 1988, 238-255; and: R.G. Cooper, “Stage-gate systems: a new

tool for managing new products”, Business Horizons 33, 3, May-June, 1990.

21 APQC benchmarking study; see endnote 3.

22 Quotation taken from PDMA best practices study; see: A. Griffin, Drivers of NPD Success:

The 1997 PDMA Report: Chicago, Product Development & Management Association, 1997.

23 Accolade ® is a registered tradename of Sopheon Inc. Accolade ® is a Stage-Gate ® automation

software package; see www.sopheon.com

24 See endnote 4: Product Leadership: Pathways to Profitable Innovation, p 233.

25 Source of quotation: M. Mills in endnote 7.

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