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NEW PRODUCT INNOVATION

No. 25 in a Series of Papers

Reference Paper by:

Teresa Jurgens-Kowal

PhD, PE, NPDP

Global NP Solutions

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Success in New Product Development (NPD) is an oft-studied, yet sometimes elusive,

objective of even the most progressive firms. While some firms view success as achieving the

technical goals of an innovation program and others view success as being first to market with a new

idea, most companies view success in terms of profitability.

For example, only slightly more than half of

new products introduced by firms in the previous five

year period were successful. A mortality rate of 10 out

of 11 projects, coupled with an average of three years

to commercialize a new product (1), are facts that

clearly illustrate that most companies have significant

room for improvement in their innovation processes.

About one-third of firms revise and update their NPD

processes every three to five years (1). Furthermore, the

companies that perform the “best” realized a 75%

success rate in new product commercialization as compared to only 54% for the “rest” (1).

Literally reams of case studies are published yearly as examples of success in NPD. But how

do you translate one firm’s success in another industry to innovation in your field of expertise?

In this paper, we present five simple steps to profitable NPD. Each is easy to implement.

These steps can be put into practice by senior management, NPD project leaders, NPD team

members, and/or cross-functional development teams.

1. Create a Process.

2. Keep it Simple.

3. Communicate.

4. Kill Bad Projects.

5. Conduct Post-Launch Reviews.

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NPD is a business process. A series of well-known and well-documented activities and

decision points guide senior management and teams to successful innovation.

The Product Development and Management Association (PDMA) conducts periodic best

practice surveys on innovation across multiple industries. Most recently, survey results showed (1) that:

69% of firms use a formal NPD process,

Only 60% of incremental improvement projects utilize an NPD process owner,

About half of all projects proceed with conditional gate decisions,

55% of firms use a structured Portfolio Management process for innovation, and

Average ROI (Return on Investment) for successful new products is 97% (2).

Clearly, the data indicate that firms utilizing a structured NPD process yield higher success rates than

those with no process in place.

If you are just initiating an NPD process, or for those firms that are revitalizing their NPD

program efforts, you will want to capitalize on the following elements of successful NPD processes.

RISK TOLERANT PROCESS

Most NPD processes are designed to incorporate the fuzzy front end activities, such as

brainstorming, identifying customer needs, and market analysis studies, to the earliest stages in order

to minimize investment risk. Stages are the distinct working periods in the NPD process. These early

stages should include opportunity identification, concept generation, and pre-technical evaluations.

Often, these activities are completed independently in separate stages; read more about effective

early NPD processes here. As milestones and objectives are met for each stage, the gatekeepers

approve the project’s next stage of activity, including any resource commitments.

Normally, the investment in the project progressively becomes greater as each gate is passed.

For instance, the opportunity identification stage is, in large part, a “paper study”. But, as the project

passes from concept evaluation into technical development and commercialization stages, the cost of

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the project in terms of financial investment, workforce effort, and brand commitment becomes

greater and greater.

Thus, the gate reviews are decision points to verify previously agreed-upon project

milestones have been met, the project is strategically worthy to move forward, and the next stage

budget (time, money, people, and equipment) is reasonable to achieve expected outcomes. Projects

are not normally allowed to proceed to the next stage without gatekeeper review (3).

The figure below illustrates a generic NPD process, where work or development stages are

shown as blocks and gate decision points are shown as diamonds. Notice that as each gate is

passed, the risk of missing technical and commercial goals decreases and confidence in the business

success increases.

A CUSTOMER-CENTERED PROCESS

Innovation and New Product Development Professionals (NPDPs) like to differentiate between

inventions and innovations (4). Inventions are typically classified as patentable ideas with, perhaps, a

working prototype. Innovations, on the other hand, are distinguished by the acceptance by a

purchasing market who readily exchanges cash for the new product, service, or program.

Important factors for successful new product development include (2):

A unique, superior product delivering an advantage to the customer;

Defining the new product in concise terms for customer needs, wants, and

preferences; and

Assessment and alignment of the potential market prior to technical development.

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Effective market insights contribute to new product strategy alignment by providing data for

market based innovation decisions, anticipating competitive actions, connecting with networked

customers, and guiding growth efforts (5).

SENIOR MANAGEMENT COMMITMENT

Implementing effective NPD processes is “neither easy nor quick” (3). Implementation requires

initial system design, pilot testing, analysis, training, and on-going support.

Frequently, fixation on short-term Wall Street metrics can lead senior management to expect

unreasonable returns in inordinately compressed time frames. Therefore, it

is incumbent upon the NPD process owner to gain senior management

buy-in prior to undertaking a full-scale NPD process implementation or

overhaul.

Additionally, cross-functional development teams offer the most

diverse and efficient approach to new product development. Senior

management from across all sectors of an organization (R&D, engineering,

sales, marketing, and operations) need to be committed to providing

resources for strategic growth. Realistic expectations of the NPD process (quicker time-to-market,

early selection of outstanding projects, and cross-functional team participation) are minimum

commitments for senior management. Participation by other members of an organization will follow

that of senior management.

Senior management commitment to the NPD process also requires gatekeepers to provide

adequate funding for all active projects and the elimination of those projects with low probability of

success (3). (See also step #4.)

The PDMA Best Practices Study notes that the best firms initiate only four ideas for each

successful market commercialization as compared to the rest, who initiate over nine ideas in order to

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generate one commercial success (1) . We can conclude that the best do not realize more success

simply from sheer numbers of projects, but by being more effective throughout the NPD Process.

How well an organization implements NPD is as important as what they implement.

Processes that are simple and offer flexibility allow the NPD leaders to follow a consistent

framework for innovation, yet don’t handcuff the NPD teams into meaningless activities just for the

sake of the system. “Process for process sake can form a deadly trap for a company’s improvement

efforts (6).”

Many companies find that customizing the NPD framework for each business unit or division

is an effective way to deliver the quality components of the NPD process without hindering the

research or technical advances of the NPD teams. For example, if your manufacturing company has

separate business units for Product Development Technology and for Operations and Manufacturing,

consider whether Voice of Customer market assessments are necessary to implement cost-reduction

steps in the Operations NPD Process. In this instance, a plastics producer should ask whether their

customers can accept the quality of down-gauging films in order to reduce operations and

manufacturing budgets.

Complex processes with too many steps

encourage by-passing of the system. Workers are de-

motivated when they do not see resultant value from their

excessive efforts in feeding the paperwork beast. So why

not apply lean principles to your NPD process? (Read here

about three key principles of lean product development.)

First, ensure there is a customer focus. Each NPD project in the active product portfolio

should solve a customer’s problem better than the competition. “Better” may mean cheaper or faster.

“Better” may mean higher performance or improved quality. Regardless, each NPD team member

should be able to concisely identify the problem being solved for the end-user (7).

Next, the NPD gate and portfolio review systems need to provide rapid feedback.

Gatekeepers are responsible for making consistent and tough project decisions (more on this later).

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Portfolio management will yield those projects of highest value to the company while gate reviews

will identify individual projects for continuation, and these decisions should be made in hours, not

months (6). Additionally, early and rapid feedback on project opportunities leads to the lowest cost of

change for the organization (8).

Finally, eliminate waste. Post-launch reviews (see step #5) are an important gauge for NPD

process effectiveness. Time wasters should be identified and neutralized or eliminated. Poorly

managed projects waste both resources and time, spiraling into future negative NPD behaviors and

missed product launches (9). Too many gate reviews and checkpoints can clog the entire NPD process

with bureaucracy (10).

Some of the most common time wasters in innovation projects include (11):

Incomplete project information,

Interruptions,

Meetings,

Lack of clear priorities, and

Poor communication.

NPD teams that are unaware of gate criteria in terms they can easily understand will likely

“over-deliver” test data (12). This results in a phenomena called “gate creep” with criteria for Stage 1

opportunity identification slowly morphing into fully functional product prototype delivery, typically a

Stage 3 or Stage 4 activity. Clearly, gate creep is costly, in time, money, and foregone opportunities.

3

As the saying goes, “Communicate with everyone, everywhere.” And of course, this is true

for innovation projects as well. Particularly for NPD projects which involve new technologies,

unfamiliar markets, and a high degree of risk (13), communication among project team members,

leaders, and senior management is critical to project success.

Ideas often fail because of poor information sharing between team members and senior

management (14). Especially difficult for NPD teams today is the challenge to overcome

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communication difficulties across geographic boundaries, functions, divisions, and even across

corporate boundaries as open innovation gains strength for new product ideas. Since communication

is critical to NPD team success, a face-to-face kick-off meeting will enhance the team’s long-term

effectiveness (15). This meeting should include senior management responsible for the product line.

Using a document such as the Product Innovation Charter (PIC), the NPD team should

establish and record their common purpose and proposed success metrics. This will help to eliminate

any later confusion as stakeholders’ expectations are clarified and documented in advance.

Communication involves not only technical aspects (sharing of information, task coordination,

and problem-solving), but also involves social

attributes (such as mutual support, trust, and

cohesion) (7; 16). In the PIC, the NPD team should

identify communication tools and protocols (e.g. e-

mail, video conferencing, and voice mail, including

required response times). Senior management that

is actively involved and closely working with the

NPD team can review work in progress, answer

questions as they arise, and provide rapid feedback on how the innovation effort addresses the

business case (8).

Acceptable team collaboration behaviors may include some or all of the following (17):

Open sharing of information,

Efficient task coordination,

Balance of team members’ contribution to problem-solving,

Mutual support,

Team cohesion, and

Team member effort/productivity.

We conclude with the obvious: One of the key tenets of an effective NPD process is cross-

functional communication (3).

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#4 – KILL BAD PROJECTS

Unfortunately, Cooper’s research (2) indicating “too many projects, too few resources,”

continues to be confirmed today. PDMA’s most recent best practices study showed only a 59%

success rate of new products with firms starting, on average, seven new NPD projects for every one

success in the marketplace (1). These results indicate projects are not attractive or fail to align with

the business strategic focus and are not being killed by the gatekeepers at appropriate decision

points.

In fact, NPD team members perceive that about half (four of nine) projects are of low value,

yet they are still not killed (3). Too many firms fail to adequately train gatekeepers to make tough

decisions. Thus, NPD project gate review meetings devolve to technical status updates. Gatekeepers

should be selected, instead, that have the budget authority to approve the next stage of work.

Approvals at gate meetings indicate both a funding and resource commitment to the next stage (12).

Instead of asking whether the NPD project team met the stage milestones and requirements,

gatekeepers need to ask “Are you ready to confidently proceed to the next stage?” (6)

Seider (18) gives a great analogy of declining engineering and R&D effectiveness with too

many assigned projects in NPD relative to rush hour traffic. Initially, the multilane freeways easily

accommodate the traffic. But, as more cars enter at

the same time, progress slows and brake lights flash

on. There are only so many cars that will fit on the

road! In their 2010 benchmarking study, Planview

found that half of organizations report an inability to

accurately forecast resource demand (19).

Resource capacity balancing is a challenge for

most firms, as the Planview benchmark study showed

that only 26% of organizations are good or excellent at accurately managing and forecasting

resource capacity (19).

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IMP, the Mexican Petroleum Institute (the R&D arm of Pemex), found that implementing NPD

processes along with portfolio management brought a cost savings of 33% after just the first NPD

review and resource allocation cycle (20). Project teams should specify not only schedules and cost

estimates, but also include resource requirements at all project gate reviews (21). Every project in the

portfolio should detail the number of full-time equivalent personnel required at each stage, number

of direct staff and outsourced staff, and duration of the NPD assignment (9). These data are reviewed

by the project gatekeepers for individual product advancement as well as at portfolio review

meetings in order to assess resource utilization across the company as a whole.

Like killing bad projects early, conducting post-launch reviews (PLR) will help “clean up” the

entire NPD pipeline.

At some point, the NPD project team must disband in order to focus on the next project

bearing down the pipeline. The “new” product becomes a mainstream product, managed just as

another product in the portfolio. But, this is also the optimum point in time at which the project and

the product’s performance can be reviewed and assessed, especially before any institutional

knowledge is lost during transition. A critical discussion of what went right, what went wrong, and

what can be improved is conducted to provide NPD Process learnings. Latest data on revenues,

costs, expenditures, profits, and timing are compared to

expectations and plans, thus gauging acceptance in the

marketplace. Post-Launch Reviews are therefore a crucial

piece to the NPD puzzle (2).

In PDMA’s benchmark study of over 100

businesses, PLR was shown to have the greatest impact on

NPD performance, yet was one of the weakest overall

areas. Less than a quarter of firms, just 22%, conducted a

formal post-mortem project review (22). Aside from

measuring success of the individual NPD projects, only

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30% of companies surveyed conducted any process evaluation to determine if effective gate

decisions had been made in order to bring the new product to commercialization. Air Products, an

example of one of the best performers for new product development, uses quarterly reviews of

NPD Process metrics in order to get a broad view of the system (22).

So, even though PLR is a clearly demonstrated best practice, 80% of businesses lack the

discipline to follow through with these crucial reviews. Most companies are learning very little from

their experience in development projects (23). Analysis of the NPD Process includes: recording the

learnings in a written report, assessing milestones, measuring whether targets were met, and

assessing that the project delivered superior performance. On the product side of the equation, the

analysis includes: financial and quality data, manufacturing performance, quality measures (such as

on-shelf checks), and determining whether targets were met.

The PLR instills accountability for results and fosters a culture of continuous improvement.

Post-Launch Reviews are an especially important aspect of open innovation for companies that sell or

license-out technology. For these firms, the PLR allows the business to fully articulate the value

proposition both internally and externally to potential customers and/or partners. Finally, PLRs

provide key data when the firm revamps or updates an aging NPD Process, recommended every two

to five years (2).

While implementing an NPD process is not

easy (no change is easy), these five steps allow you to

concentrate on what matters most.

#1 – Create a Process. Any NPD process is

better than none (1). Start with the traditional, five-

stage/five-gate process to identify market and product

opportunities, generate product concepts, evaluate the

best new product ideas, then develop and

commercially launch the new product.

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#2 – Keep it Simple. Make the gate reviews effective by using consistent go/no-go decision

criteria. Ensure that the firm’s innovation strategy is worded with clear and concise goals and

objectives. Eliminate wasteful meetings and superfluous requirements.

#3 – Communicate. In addition to communicating strategy vertically and horizontally,

management must communicate objectives, goals, and targets for the innovation efforts. NPD teams

and leaders need to utilize all forms of communication available to them in order to achieve success

in NPD.

#4 – Kill Bad Projects. Nothing is a bigger drain on an NPD team’s motivation than working

on a bad project. Ensure that gatekeepers are adequately trained to enforce tough decisions on

projects that don’t meet strategic or financial criteria. Soon, your firm will realize higher quality ideas

feed the pipeline, resulting in more profitable commercial products.

#5 – Conduct PLRs. While you may not know where you’re headed if you look in the

rearview mirror, you will certainly know where you’ve been. If it’s good, you’ll want to keep heading

in the same direction. But, more often than not, PLRs reveal opportunities for a mid-course

correction and can slim down overly ambitious innovation portfolios. PLRs help to provide a

framework to yield more realistic estimates of schedules and budgets for future NPD efforts. Use this

feedback wisely.

Finally, many firms find that an NPD process facilitator or champion can streamline

implementation or improvements of the NPD process. A birds’ eye view of all the projects, such as in

a portfolio management tool, can lend consistency, speed, and profitability to NPD implementation

through the five steps described above.

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1. Trends and Drivers of Success in NPD Practices: Results of the 2003 PDMA Best Practices Study. Barczak, Gloria, Griffin, Abbie and Kahn, Kenneth B. 2009, Journal of

Product Innovation Management, Vol. 26, pp. 3-23.

2. Cooper, Robert G. Winning at New Products. 3rd. Cambridge, MA : Perseus Publishing, 2001.

3. Implementing a Stage-Gate Process: A Multi-Company Perspective. O'Connor, Paul. 1994, Journal of Product Innovation Management, Vol. 11, pp. 183-200.

4. Croslin, David. Innovate the Future: A Radical New Approach to IT Innovation. Boston, MA : Prentice Hall, 2010.

5. Day, George S. and Moorman, Christine. Strategy from the Outside In. New York : McGraw Hill, 2010.

6. Product Development Processes: Three Vectors of Improvement. Holmes, Maurice F and Campbell, Jr., Ronald B. s.l. : Industrial Research Institute, Inc., 2004,

Research Technology Management, Vols. July-August, pp. 47-55.

7. Mascitelli, Ronald. Mastering Lean Product Development. Northridge, CA : Technology Perspectives, 2011.

8. Aguanno, Kevin. Introduction. Managing Agile Projects. Lakefield, ON : Multi-Media Publications, Inc., 2005, 1.

9. Durbin, Pat and Doerscher, Terry. Taming Change with Portfolio Management. Austin, TX : Greenleaf Book Group Press, 2010.

10. The New New Product Development Game. Takeuchi, Hirotaka and Nonaka, Ikujiro. Jan-Feb 1986, Harvard Business Review, pp. 187-146.

11. Mackenzie, R. Alec. The Time Trap. New York : Amacom, 1972.

12. How Companies are Reinventing Their Idea to Launch Methodologies. Cooper, Robert G. March/April 2009, Research Technology Management, pp. 47-57.

13. Leadership Differences in New Product Development Teams. Barczak, Gloria and Wilemon, David. 1989, Journal of Product Innovation Management, Vol. 6, pp. 259-

267.

14. Gostick, Adrian and Elton, Chester. The Orange Revolution: How One Great Team Can Transform an Entire Organization. New York : Free Press, 2010.

15. Multinational and Multicultural Distributed Teams. Connaughton, Stacey L. and Shuffler, Marissa. 3, 2007, Small Group Research, Vol. 38, pp. 387-412.

16. Managing Global Design Teams. Monalisa, Mitali, et al. July/August 2008, Research Technology Management, pp. 48-59.

17. Team Member Proximity and Teamwork in Innovative Projects. Hoegl, Martin and Proserpio, Luigi. 2004, Research Policy, Vol. 33, pp. 1153-1165.

18. Optimizing Project Portfolios. Seider, Ross. Sept/Oct 2006, Research Technology Management, pp. 43-48.

19. Planview, Inc. 2nd Annual Benchmark Study: Product Portfolio Management. Austin, TX : www.planview.com, 2011.

20. Portfolio Management at the Mexican Petroleum Institute. Canez, Laura and Garfias, Marisol. July / August 2006, Research Technology Management, pp. 46-55.

21. Overcoming the Crunch in Resources for New Product Development. Cooper, Robert G. and Edgett, Scott J. May/June 2003, Research Technology Management, pp.

48-58.

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22. Benchmarking Best NPD Practices -- III. Cooper, Robert C, Edgett, Scott J and Kleinschmidt, Elko J. s.l. : Industrial Research Institute, Inc., Nov-Dec 2004, Research

Technology Managemetn, pp. 43-55.

23. Wheelwright, Steven C and Clark, Kim B. Revolutionizing Product Development: Quantum Leaps in Speed, Efficiency, and Quality. New York : The Free Press, 1992.

Image of ideas cloud courtesy of telefonica.com.

Image of small plant courtesy of Capita.

Image of student courtesy of Grey Court School.

Image of Lego phone courtesy of Hackedgadgets.

Image of traffic jam courtesy of freefoto.com.

Image of scale courtesy of fitexcellence.

Image of space shuttle courtesy of 12uspost.

Teresa is President of Global NP Solutions, LLC, a strategic innovation provider. She

is an accomplished visionary and results-oriented professional with extensive

industry experience from creative research to effective portfolio management

through stream-lined new product development processes.

Teresa has extensive experience leading successful teams, managing the product

development life cycle, and defining the portfolio strategy. Her deep expertise in

intellectual property management, product and process licensing, portfolio planning, customer service and

various business processes make her an ideal teacher, mentor and trusted advisor who knows both the theory

and practices of New Product Development.

Dr. Jurgens-Kowal earned a B.S. degree in Chemical Engineering from the University of Idaho in Moscow, Idaho

and a Ph.D. in Chemical Engineering from the University of Washington in Seattle, Washington. She is a

licensed Professional Engineer in the State of Louisiana since 1998. Teresa is a certified New Product

Development Professional (NPDP) by the Product Development Management Association (PDMA) and Global

NP Solutions, LLC, is a Registered Education Provider (REP) with PDMA.

Teresa holds chemical process and catalyst patents, and is published in the Journal of the American Chemical

Society and Journal of Physical Chemistry. She has recently been appointed as Book Review Editor for the

Journal of Product Innovation Management.