Contents

FOREWORD
Albert L. Page
ix
INTRODUCTION xiii
ABOUT THE PDMA xi
PART ONE BEFORE YOU GET STARTED 1
l. New Products: What Separates the Winners from
the Losers 3
Robert G. Cooper
2. Seven Steps to Strategic New Product Development 19
Bob Gill, -Beebe Nelson, and Steve Spring
3. Market AnaIysis and Segmentation Issues for New
Consumer Products 35
Robert E. Davis
4. Market Analysis and Segmentation Issues for New
Business-to-Business Products 51
Edith Wilson
5. Optimizing Product Development Through
Pipeline Management 63
John R. Harris and Jonathan c. McKay
v
vi
6. Choosing a Development Process Thafs Right for
Your Company 77
Miltan D. Rosenau, Jr.
7. Implementing a Product Development Process 93
Paul J. O'Connor
8. Politica! Behavior in the Product DeveJopment Process 107
Stephen K. Markham and Patricia J. Halaban
9. Factors Affecting Multifunctional Team Effectiveness 119
Patricia J. Holaban and Stephen K. Markham
PART NO GEITING STARTED
10. Developing a Strategy and Plan for a New Protluct 139
DougJas G. Boike and ]effrey L. Staley
11. Obtaining Customer Needs for Product Development 153
Abbie Griffin
12. Techniques and Tools to Generate Breakthrough
New Product Ideas 167
Gerald Haman
13. Classi6cation of Sources of New Product Ideas 179
Ronald T. Lonsdale. Noel M. Noel, and Stanley F. Stasch
14. Evaluating Ideas and Concepts for New
Consumer Products 195
Ned F. Anschuetz
15. Evaluating Ideas and Concepts for New
Business-to-Business Products
Ronald N. Paul
16. Product Arcrutecture
DaVid Cutherell
207
217
17. How Industria! Design Fits into Product Development 237
Walter Herbst
lB. 100ls for Quantitative Market Research 253
Steven H. Cohen
vii
PART THREE DOING THE DEVELOPMENT
19. Assembled Product Development 271
Robert Sto)'
20. Nonassembled Product Development 287
Trueman D. Parish and Lou E. Moore
21. Cqnsumer Packaged Goods (Branded Food Goods) 297
WilHam S. Stinson, Jr.
22. Service Development 315
Craig A. Terrill and Arthur G. Middlebrooks
23. Manufactunng Process Planning and Development 333
Philip E. Quigley
24. Accelerating New Product Development 345
Robert J. Meltzer
PART FOUR FINISHING THE JOB
25. Launching a New Business-to-Business Product
James D. Stryker
26. Launcmng a New Consumer Product
Brian D. Ottum
27. Postlaunch Evaluation for Consumer Goods
David Vi/o olson
28. Product Discontinuation
Patricia A. Katzfey
29. Process Ownership
Karen Graziano
30. Using a Concurrent Team to Reengineer the
363
381
395
413
427
Product Development Process 441
Gary S. Tighe and Broce P. Kraemer
31. Measuring Product Development Success and Failure 455
Erik Jan Hultnik and Hemy S. J. Robben
32. Metrics: A Practical Example 463
LeIand R. Beaumont
vl
PART FIVE PDMA'S BEST PRACTICES RESEARCH
33. Reviewing Current Practices in Innovation
Management and a Surnmary of
Best Practices
Thomas P. Hustad
Appendix A Roles for Software
Greg Erman
Appendix B Glossary
Appendix e Contents of the Journal of Product
489
512
518
Innovation Management (through 1995) 535
Cumulative Index of Ameles
Cumulative Index of Abstracts
CumuJative lndex of Book Reviews
INDEX
625
PART FlVE
PDMA'SBEST
PRACTICES
RESEARCH
487
REVIEWING CURRENT
PRACTICES IN
INNOVATION
MANAGEMENT AND A
SUMMARYOF SELECTED
BEST PRACTICES
Thomas P. Hustad
33.1. INI'RODVCTlON
Innovation is one of the most complex of all business practices. For success it
requires robust relationships inside fue firm and between the 6rm and its cus-
tomers and suppliers. Businesses grow and improve their performance by en-
hancing their productivity (increasing market share and enhancing efficiency),
expanding their market coverage (extenrung distribution, serving new segments
ar markets with current products and extending existing product lines), and in-
novating (adding new products to their business portfolios). As finns try to do
more wifu fewer reSOUTces, the first two sets of initiatives have become familiar
business strategies.
The need for innovation recomes evident wbenever a firm's performance
goals exceed the values that can be supported by its existing busmesses. Without
trus recognition it is not parncularly surprising that productivity and expansion
programs dominate the thinlng of many managers, for they frequently represent
tangible changes. Innovation. on tbe other hand. requires adding something new.
It presents tough management challenges. since everything 15 based on unknown
outcomes. Do we know our customer well enough? Can we build the technical
competencies we require? How will the customer react? Is the need real? Can
we compete? Can wesustain production? What about costs? Is tbere profit here?
WiU OUT business be incremental to the company or will it cannibalize existing
489
490
PDMA's Best Practices Research
products? \Vhen wiII competition enter the market? \Vhat about the cost of not
pursuing the opportunity?
IncreasingIy, we must strive to create customer delight, and this sometimes
involves knowing OUT customers' needs better than they know them themselves.
Seldom can a customer describe a new product for uso We have to understand
their problems and develop effective solutions.
We now have an especially rich opportunity to study how valious companies
approach the challenges of effective innovation management. A series of current
hest practices has emerged, and these practices have heen identified in a numher
of research studies, including two major projects sponsored by the Product De-
velopment and Management Association and led, respectivel)', by Albert Page
and Ahbie Griffin. These data also allow liS to establish a number of nteresting
benchmarks to gauge current practices.
Innovation is a handmaiden to success, as can be observed in Figure 33.1.
Does new product success Iead to industry leadership, or do only Ieaders have
the resourees to invest in the development of new products? These data, taken
from PDMA's 1990 study. do not help us untangle the cause from the effect, yet
it is difficult to fathom how a firm could lead an industry if it did not offer the
products that helped define the basis for competitive success. Which comes first
matters noto for sustained leadership must be aligned innovation. The
greater risk is not in developing new products, but in failing to innovate at a pace
that matches changing customer needs.
How great is the risk of introdudng new products? ActuaUy, the leve! of
new product failure is often overestimated, sometimes greatIy so. The popular


::l
..c
".:::
e
60
8 J!l 50

40
..... 0...
r:: 3: 30
2: Q)
:;z
1; 20
o
10
"
"",;
,"'"
Al! Firms fI"'" .....
....... .,..,........ ..-
......"..,..-- _ ...... .
,-- .-

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

Sottom Third Mddle Third Top Third Most Successful
Self-Reported Position n Industry
flQURE 33.1 Percentage of current sales contributed by new products developed
in the last Ove years by tbe company's self-reported rank io its industry.
33. Reviewlng Current I"ractices in Innovation Management 491
press delights in telling us that most new products fal. They don't, at 1east not
when they come from companies that take their new product work seriously.
Companies are discovering that they have more control over the failure level
than they realize. If the cost of a failure is high, management can tighten controL
Such would be the case for a new, large, cornmercial jet airllner. Ir large com-
mercial airlines felt that most new airplanes faled, they would refuse to buyo
Even { 11e crash would be asevere deteITent to early commercial success. On the
other hand, when development costs are low and failure has Hule efIect on sales
of oth-:;r products made by the company, the need for tight control is lessened.
Herei" Hes a subtle message. While we can leam certain best practices from
other companies, we often need to tune and customize those lessons to meet
the re'luirements of OUT own situation.
F or instance, project abandonment and faiIure rates are displayed in Figure
33.2 for both the 1990 and 1995 PDMA studies. Failure is reserved for corn-
mercial failure-the failure of a product that has been launched into the market
to meet its objectives. Project abandonrnent reHects the decision to cease de-
velopment and is a desirabIe outcome for projects that are unlikely to succeed
in the rnarketplace. These data show that on average about three of every four
products introduced into the market were deerned a success by management, a
far el}' from the myth we often hear. In fact. if 80% of new products really failed,
it might be impossible to show an economic retum from innovation. Clearly, an
infonned management can obtain superior results managing new products, and
presumptions about high failure rates should not be a barrier to leaming critical
skills. Our learning falls into four categories: process, organization, tools, and
performance. ~ e explore each in turno
100
0
-1990
....
80
(.J
:::l
--- 1995
~
e
Q..
60 U!
lB
~
'O
40
...
c
.o
E
20
:::l
............ ---.
z:
o
Ideas Tested Launched Success
Milestone
FiGURE 33.2 New product idea mortality curve for PDMA member ftrms in 1990 anel
1995.
492
I'DMA', Best Practices Research
33.2. PR.OCESS
Organizations report many different approaches to new product development.
Typically. one of the first steps that a company undertakes once it decides to
inecease the emphasis placed on new products is to examine its current practices.
Sometimes this can revew numerous opportunities for improvements, since d u ~
pllcation of tasks is quite cornmOn in compleXo cross-functional processes such
as new product development. Tbe larger the company. the more important it
becomes lo have a defined process tIlat is broadly undemood by employees.
Without documentation of a process, there is little opportunity for performance
improvement and organizational learning, Furthermore, people have a harder
time understanding their roles and conhibutions. making the process more ~
stract and mysterious than it should appear. Yet, recent PDMA data suggest that
nearly 20% of reporting companies either have no formal precess ar one that is
only informaDy understood (but not documented) within the companr. Lack of
precess hampers involvement and participatian and contrlbutes to the poor un-
derstanding of effective new product development practiees found in sorne com-
panies. Figure 33.3 shows the frequency with which various forms of stage-gate
prooesses are employed by reporting companies. Nearly threefaurths of re-
sponding compantes report reliance on sorne variation of stage-gate systems: Tra-
ditional stage-gate precesses implemented by a cross-functional team represent
nearly 40% of these mentions; the addition of an assigned "process-owning" fa-
cilitator and advanced implernentations allowing for overlapping review gates
divide the remaining 60%. Although it is too early to detect a trend, more com-
pIex projects mar be better served by the latter two variations.
No Standard Appl'oach
functionlSequential
30
Stage-Gate Approacnes
% of PDMA Firms Responding
fiQUe 33.3 Nature oC product development process reported by PDMA member
linns. 1995.
33. I\eviewlng Current 'Practica in Innovation Management 493
Companies with formal product development processes report tbat, on av-
erage, they have been foDowing them for fOUT to five years. Since many of the
working relationships are comp1ex. the process places a heavy hurden on eross-
functional communication and dialogue with the customer. Success i5 not im-
mediate, and there are tnany opportunities to refine the process with experience.
Within formal processes are a number of tasks that must be performed. These
tasks do not correspond ta gates in a stage-gate system. since the gate typically
involves a number of activities pertaining to a certain stage of fue development
process. Figure 33.4 indica tes the frequencies of incorporation of general tasks
in formally defined processes (6rms with informal or no defined process are not
included in tms surnmary). Since sorne tasks may be omitted in certain projects,
this figure also shows tbe percentage of projects that complete each Iisted task.
Clearly, there is Iots of variation across projects. The tasks themselves are de-
scrlbed in Table 33.1. This tab1e also includes the average Dumber of weeks fOT
each task reported by responding PDMA firms.
33.3. ORGANZADOn
As companies seek to improve new product performance, they have experi-
mented with organization more than any other variable. Whereas new products
were frequently controlled by a single function, there are many signs tha! cross
functional teams are becoming a vel)' popular choice. When new products are
recognized as special projects, the 1ikelihood of success increases. That is not to
say that each project requires a dedicated team, for not aU projects are equally
complex or strategically important. Benchmarking data can be very useful during
times of change, when new approaches are being tried.
Figure 33.5 displays a series of approaches to new product organization.
ranging from the trawtional option5 of functional approach to new product
groups. First, notice the wide variety in approaches reported by single companies.
Organizations are experimenting and adopting approacbes to the nature of their
projects. Yet, when asked to note the dominant organizational approach, com-
panies do DOt hesitate to list a most frequent choice. Pemaps the use of prooess
owners 1s the newest change to emerge. New product skills become resident in
the hands of professionals who install tbem in teams as demanded by the nature
of the work. When new products are controlled by a particular function, engi-
neering, R&D, and marketing are the dominant choices. The choice typica1ly
depends on fue nature oC the industry.
Leadership of new product projects is still overwhehningly provided by pro-
ject managers and champions. Process owners and leaderless teams are used
494
PDMA's Best Practices Research
Product Une Planning
~ ~ ~ ~
Project Strategy
~ ~ ~ ~ ~
Development ......
Test ano Vafdation
Manufacturing Development
Commercializaticn l1[li ........ ,
o 20 40 60 80 100
Process neludes %
CJ Projects Completng %
mVRE 33 .. .\ Percentage of processes tbat Indude certain lasks as reporte<! by
PDMA member ftrms and tite percentage of projects that incorporate these tasks.
much less frequently. These results are displayed in Figure 33.6. The selection
of team leaders is handled by management in most cases, as shown in Figure
33.7. In a nnmber of finns, leadership is provided by functional experts who
roate at appropriate phases of the project. NearIy 10 percent of nrms have
experimented with team- and peer-selected leaders.
As the use of formally assigned teams becomes less novel, organizations have
focused their use on new-to-the-world and new-to-the-firm projects, followed by
major revisions to existing products (Figure 33.8). Teams are employed less fre-
quently ror repositioning efforts and minor mprovements. It is possible that the
use of teams will decline in time Cor such projects, since their cost may not be
justmable compared to the narure of these tasks.
Table 33.2 mo shows the range of financia! and nonfinancial incentives being
used in responding companies. Clearly, the use of nonfinancial incentives dwarfs
the use of financial ones. AJthongh Dot yet among the most frequent mentions,
nonfinancial incentives selected by the team members themselves may be an
area to watch. Whenever 6nancial compensation is used, 6rms distinguish 00-
tween team leaders 2nd team members as shown in Figure 33.9. Team leaders
33. Reviewing Current Practices in lnnovation Management 495
TABLE 33.1 Speciftc Taso Commonly Incorporated in Formally
Deftned f'rodud Development Frocesses
Task
Produet line planning
Projeet strategy development
Idea concept generation
Idea screening
Business analysis
Development
Test and validanon
Manufacturing development
Cornmercialization
Scope
Analyze the firm's current portfolio
vis-a-vis the competitive arena
Delineate the target market,
determine market need,
attractiveness
Identify opportunities and initial
generaton of possible soJutions
50rt and rank solutions, eliminate
unsutable and unattractive aptions
Evaluate the concept
write business case, prepare
protocoll development contraet
Convert cOTlcept into a working
product
product use, neld, rnarket, and
regulatory testing 1Nith eustomers
Developing and piloting the
manufacturing processes
Launching tha new product or
serviee into full-scale pmduction
and sales
.% Mentions
Average
Number
ofWeeks
Reported.
7
8
8
6
7
32
21
19
18
Single Function I;I
Permanent N P Staff ."i' iiiil
CJ % Most Frequent
SBU Manager
Process Owners ".ji .
NP Committee
Venture Group
Other..
o 10 20 30 40 50
For Single
Function:
25% R&D
49% Engineering
14% Marketing
3% Planning
fJGVRE 33.5 New product organizations reported by PDMA member ftrms.
496 PDMA's Best Practices Research
Project Managers
Project Champions
Process Owners
Leaderless
Other
o 10 20 30 40 70
% of POMA Finns Reportlng
fIOVIIE 33 .. 6 Who leads rfFD prctJect5?
are much more likely to parncipate in profit-sharing arrangements than are team
members. This is the onIy sharp distinction between leader and member incen-
tives reported in the data.
33.4. TOOLS
There has been considerable growth in the variety and power of tools available
for support of new product development projects. The survey asked about the
Manaement Appoints
Volunteer
Peers Select
No leader.
Other
o 10 20 30 40 70
% of POMA Firms Responding
HGIJJIE 33.7 How is the team leader selected?
.3.3. Reviewing Current Practices in Innovation Management 497
New-to-World

New-to-Firm
Major Revision
Cost Reduction
Repositoning
Minor Improvement
o 20 40 60 80 100
% of POMA Member Firms Responding
fiGURE 33.8 pereentage of projects using multifunctional teams by nature of pro-
ject.
TABLE 33.2 Percent of PDMA Member Finns USDg
Various Incentives for Team Leaders
and Team Members
Type of Incentive
Financia! compensation
ProJect-based profit sharing
Project-based stock or stock options
Other nnancial rewards
Nonfinancial compensation
Compensation time
Recognition in organizaton
newsletters
Recognition at award dinners
Plaques, pins. project pbotographs
Project cmpletion celebration
lunches, dinners
N onfinancial rewards chosen by the
team (e.g.
1
trips, family dinners)
Other nonfinancial awards
Percentage of
Companies
Using
4
2
25
15
54
31
43
54
13
6
498
PDMA's Best Practices Research
Stock Optons
Team Leader
O Team Members
Other Financial
Comp. Time
Newsletlers
Award Dinners
Plaques, Pins
Dinners, Lunches
Team Selected
Other Non-Financia!
o 1 2- 3
Non-Financial
Rewards
5, Virtuany Alwaysj 3. 112 !be Time; 1, Hevlr
4
FIGURe 33.9 Frequency of incentive use for team leaders and members.
Veiee of
Customer Site Visits
Concept Tests J:!-
Focus Groups t
Beta Testing
Conjoint Analysis
Test Markets
Information Accleration
Pre-Test Markets

o 1 2 3 4
Potential Importance: 5, Essentialj 1, Not Important
FiGURE 33.10 PotentiaJ importance of marketing researcl1 techniques.
5
33. Reviewing Current f'ractices in lnnovaUon Management 499
use and value of three sets of tools: marketing research, engineering design, and
organizational development. In Figure 33.10, five marketing research teehniques
reeeive average ratings of "important" or higher: voice of the eustomer, eustomer
site visits, eoncept tests, foeus groups, and beta testing. The nrst rour tend to
involve predevelopment dialogue with customers, as innovators strive to under-
stand customers' problems and requirements. Each of these methods is relatively
straightforward in implementation and the results can lead to rich ruscussions of
passibilities. Beta testing represents limited-use testing, to ascertain customers
reactions to actual products. Perhaps broader ReId testing received lower eval-
uations, as did more sophisticated procedures.
Only the voice of the customer. customer site visits, and concept tests were
employed on at least one-haJf of projects, on average. Yet this represents signif-
icant increases in the use of these techniques over the past ten years, since a
number of earlier research artieles reported that concept tests and formal site
visits rareIy were conducted (see Figure 33.11).
Among the engineering tools, only virtual reality/virtual design fails to re-
ceive an average assessment of "important." Highest potential imporlance goes
ta rapid prototyping, concurrent engineering, and design for manufacturing and
assembly. followed by the specific tooIs of computer-aided design and computer-
aided engineering. Figure 33.12 surnmanzes these results. Obviously. the engi-
neering tooIs have developed stronger appeal for respondents than the marketing
tools, overall. On the other hand, only computer-aided design, concurrent engi-
neering, and design fOT rnanufacturing and assemhly appear to be used in at least
Pre.Test Markets
Information Acceleration
Test Markets
Voce of Customer
6
Customer Site Visits
Concept Tests
Focus Groups
Conjoint Analysis Beta Testing
Degree of Use: 5, virtually always; 3, used
on about 1/2 of projeds; 1, never used
Potenial
Importante
Degree of
Use
FIGURE 33.11 Potentlal importance of marketing research techniques contrasted
with frequency oC USe.
500 FOMA's Best Practiee5 Research
Rapid
Concurrent Engrineering
Deslgn fol' Manufacturing
CAD
CAE
Value Analysis
fMEA
Performance Simulaton
Virtual Desgn
o 1 2 3 4
1, Not important; 3, important 5, essential
f'lGtJJm 33.12 fotential importance of engineering design tools.
one-half of projects. on average (Figure 33.13). Virtual rea1ity teclmology is not
yet used on a regular basis. Perhaps in the future, fue uses of virtual reality will
be even more important in early dialogue with customers, since these techruques
may become quite usefuI in communcatlng ideas and simulating product use
prior lo development.
Rapid Prototyping
6
Concurrent Engl neeri ng
Potential
Importance
Degree of
Use
Performance Simulation Desfgn for Manufacturng
Value Analysjs
CAE
Degree of Use: 5, virtually afways; 3, used
on about 1/2 of projects; 1, never used
Note: fMEA =
Failure Mode
and EHect
Analysis
FlQUJ'lE 33.13 f'ote:ntial importance of englneering deslgo tools contrasted with fre-
quency of use.
33. Reviewlng Current Practices in Innovatlon Management 501
As with engineering tools, organized tooIs generally received high evalua-
tians for potential impartance (Figure 33.14). Only leaderless teams received low
marles. 'nle highest ratings are found for project scheduling tools and the devel-
opment of champons, followed by team-huilding exercises and the training of
process owners. Reported average frequency of use measures higblighted the use
of project scheduling techniques in nearIy 75 percent of projects
t
whi1e process
owners, champions, and matrix organizations reflected the high level of projec-
tization being practiced in many firms today (Figure 33.15). The latter three tools
were associated with adeast half of projects overall. Perhaps surprising were the
reported low use of QFD and co-location, given the frequency of discussion of
these approaches. Clearly. co-Iocation can be both inconvenient and expensive,
no doubt greatly restricting use. Companies are sometimes experimenting to find
the critica! phases of projects where contact with other team mem-
hers has the greatest impact on project success.
Overall, the top five tools in average potential importance are the following:
Voice of tbe custorner (4.2)
Customer site visits (3.9)
Rapid prototyping (3.9)
Project scheduling tools (3.9)
product champions (3.9)
While this is an arbitrary cutoff, it reReds balance among the three areas in the
designation of "very important" tools. This balance is important, reflecting a
CPM, PERT, GANTT
Champions
Process Owner
Team Building Dril!
Heavyweight Managers
Self Directed Teams
Matrix Organization
QFDW
Co-Iocated Teams
Leaderless Teams
o
1 2
1, Not important; 3, important; 5, essential
FIGURE 33.14 Potential importance of organizational approaches.
5
502
PDMA's Best Practices Researclt
CPM, PERT, GANn
5
Co-Iocated Teams
QFD
Matrix Organization
Self Oirected Teams
Process Owner
Team Building Dril!
Heavyweight
Product Managers
Degree of use: 5. virtuaflyalways 3, used
on about 1/2 01 projects; 1, never usad
Potential
Importance
Frequency
of Use
fiGURE 33.15 Potentlal importance of organlzational approaches contrasted with
frequency oC use.
broad vision for fue complexity of modem new product development practices,
including customer focus. leadership. design. and effective project control.
On tlle other hand, fue five tools scoring highest in frequency of use are
the foUovving:
Project scheduling tools (3.7)
Voice of the customer (3.6)
Customer site visits (3.5)
Computer-aided design (3.4)
Matrix organizations (3.2)
These scores signify that the tools are used in between 75 percent (3.0) and
virtually al} (4.0) projects. They are the core of our toolkit. Again, we see high
importance on market focus, project control, and productivity. Matrix organi-
zation reHects the complexity of approaching a level of projectization. It is an
(unloved) n ecessity.
33.5. PERFORMA.NCE
Firms are about evenly ruvided between those that target a specific revenue goal
for new products and those that do noto Those that have a target expect an
average of 27 percent of sales to come froro products commercialized vvitrun four
33. Reviewing Current Practtces in lnnovation Management 503
years. Even those firms without a specific target realize the importance of new
products, scoring an average of 7.7 on a 9-point scale in response to the following
statement: "Our new product program is important to my organization's sales and
profits." On the other hand, the average dropped to 5.6 for: "Overall, our new
product prograrn is a success." C]early, we are working hard to improve our
performance in an area of great strategic importance.
How is success measured? Criterla actually used by companies are many.
but they can be ruvided into three categores: measures of customer acceptance,
financial performance, and technical performance. Respondents were asked to
allocate 100 possible points across these three categores nve times, each time
corresponding to a different type of new product. Average results are presented
in Figure 33.16. Reliance on financial crlteria increase markedly for incremental
improvements and product repositioning. Customer acceptance remains high
throughout, with somewhat Iessened requirements for incremental improve-
ments, while technical performance receives lesB support than does either other
category.
. How many products succeed? of course, this question can be answered in
many ways. Table 33.3 reports three possihilities. First, did the product meet the
organization's definition of success? On average. 55.9 pereent of new pmducts
launched did. A somewhat smaller number were successful strictIy in terrns of
profitability. Yet given that they were launched, a resounding 74 percent r ~
mained on the market, makng an overall contribution to the performance of the
finn. These data are reviewed in Table 33.3.
N ew-to-world
New Prod. Une
Add'n to Une
Next Generaton
Incremental Imp.
Reposltioning
Cos Reductions
o 20 40 60 80 100
% of Firma Reporting Changa In Mlx of Products
flOVRB 53.16 Relatlve fmportance of measures of success by level of InnovaUve
nes!.
504
PDMA's Best Practtces Research
TABLE 33.3 New Froduct SUccess Bates
Criterion
Based 00 your organization's denition
Df a successful new product, about
what percentage of rul the new
products ntroduced oto the market
during the past nve years were
successful?
What percentage VIIOuld you estimate
were successful in terms of their
prontability to !he organization?
What percentage of the products that
)'Our QIganization commercialized
during the past nve years would you
estimate are still on the market?
Success Percentage
55.9
51.7
74.1
Table 33.4 shows thepercentage of sales and profits contributed by new
products during the precerung five years. Expectations for the future are sharply
higher. Whether or not management will be able to deliver these results remains
to be seen, but the escalation reflects the importance of innovation as a driver
oE corporate growth and performance. Table 33.5 shows average completion
times for various types of new products. The range from modest repositioning
to new-to-the-world products is substantial, with the latter taking nearly six times
as long to prepare for market launch.
Figure 33.17 displays further infonnation about deve10pment times now
relative to typical performance nve )'ears ago. Note that wrule most nrms report
shorter development times, this is not universal. Not surprisingly, the greatest
push for speed comes with incremental improvements and next-generation and
majar reVsion projects. These projects are the ones where user needs are most
familiar to companies, since existing products and patterns of use can be studied
TABLE 33.4 Estimate of tbe Importan ce of New Product
Criterion
New product sales as a
percentage of total
sales
l\7ew product proSts as
a percelltage of total
sales
Percentage of
New Product
Sales to Total
sales Preceding
Five Yean
27.9
25.2
Pereentage of New Product
Sales to Total Sajes Next
Fjve lean
37.3
39.1
33. Reviewing CurrentPractices in Innovation Management
TABLE 33.5 Average Reported Lengtb of Product
Development Process
Type of New product
New-to-the-world
New product lines
Major revisions and next-generation
products
Minor revisionslincremental
improvements
Average DeveJopment TIme
(months)
42
29
18
8
505
in detail. Achleving speed without sacriicing quality becomes progressively dif-
DeuIt as the leveI of nnovativeness increases.
The study also aIlows us to contrast the rates of new product introductions
with the reported levels of expenditures (Figure 33.18). These results are
grouped by produet type. Consistent with levels of risk and uncertainty, spending
on new-to-the-world products great1y exceeds the proportionate share of intro-
ductions When successful, these products can yield higher margins for longer
periods of time. New product lines demonstrate this tendency as well, whenever
firms select an attractive opportunity for development. The relationship is re-
versed, however, for incremental improvements, where success may be more a
function of being able to create improvements (the process) repeatedIy than with
any single improvement itself.
Looking ahead five years, respondents forecast that more of their activity
will,on average, be devoted to major innovations. These are tough ehallenges,
and management wiII surely have to work to hone its skills ir these results are to
New-ta.World
New Product Une
Next Generation ~ ~ ~ ~ ~
Incrementallmprove.
Repositioning p i l i ~ ~
o 20 40 60 80 100
Average share of 100 polnte alloestad to eaen crlterion by product
FIGURE 33.17 Development times now versus Ave years ago.
506
PDl'fA's Best Pradices Research
Cost Reductions
Repositioning
New-to-World
30
20
New Product Une
Addition to Une
Incrementallmprovement Next Generation
% Last 5 yrs.
I ntroductions
% last 5 yrs.
Expendltures
fIGIJRE 33.18 Comparison of tast ftve years introductions by innovation level with
allocation of expenditures.
be attained. Overall, Figure 33.19 reflects more emphasis on new products of all
sorts. A more detailed look at fue data will he required to see if sorne companies
are becoming more ambitious (reducing work on modest projects, expanrung it
on more innovative programs) and other nnns more conservative (downplaying
really new products in favor of safer altematives).
33.6. SlJMMARY
These data show that product development practices are in a state of evolution.
Managements are experimenting, trying new tools and approaches to improve
New-to-World
New Product Une
Next Generation
Incrementallmprove.
o 20 40 60 80 100
Shorter
Abouttha
Sama
Longar
% Reporting Various Changes in Completion Times
flGlJRE 33.19 Projec:ted changes in mix of new products in the next five years.
33. Reviewlng Current Practices in Innovation Management 507
innovation performance. The tasks are becoming more challenging. with height-
ened corporate goals and expectations, probably in the face of resource con-
straints. Only time will tell if these forecasts wll be realized. Yet severa! elements
are clear. TIle great majority of firms employ stage-gate or related processes.
They have learned the importance of developng a process, learning to use it
effectively, and helping employees to understand their roles. The use of teams
has increased, hut organizations are becomirig aware that teams are not a uni-
versal answer to aIl new product situations. We have not really decided how to
develop incentives for new product work. While sorne companies are using fi-
nancial incentives, many more believe that recognition and other nonmonetary
rewards are sufficient. Although we are aware of many tooIs and are indeed
invoIving the customer in OUT work (particularly the fuzzy front end) more than
ever before, we remain disappointed that sorne tools do not answer more of our
needs.
Looking beyond the snapshots, it is possible to begin to construct a list of
important factors for success in new products. This list is not complete. The role
of various items will change across industries. Yet sorne of these points touch on
best practices as we know them today. A graphical summa!)' of a process is shown
in 'Figure 33.20.
l. Understand and document your process. Allow for customization by pro-
ject. Prepare to ron tasks in parallel, but try to define groups of tasks that
represent critical decision points. Ir a decision is delayed. don>t delay the
team. Let it continue. But impress on the team the risk of continuing,
especially if sorne of the tasks are delayed.
Firm's
Resources
and Strategy
,/ 1
Product Idea
Innovation
Charaeter
Pre-concept
Review:
Understand
the Opportunity
Competition
and Customers
Concept I Prototype r Launch
Link Benefit
and Specificatlon
Predevelopment Pre-Iaunch
Review: Review and
Needs Sereen launeh
Economies Sereen Plannng
Time Sereen
Protocol
fiGURE 33.20 Evaluatlon contlnuum.
508
rDMA's Best rractices Research
2. Open robust dialogue with your customers. Understand their problems.
Envision the future scenarios in which they will operate. These will feed
your pool of ideas. Build concepts and test them with your cusromers.
Your ideas became familiar to you faster than they becorne familiar to
your customers. They can help yau translate their needs mto your pro-
grams. Experlment with simulations. Graphics too15 now product photo-
like images of products that don'f existo Rapid prototyping can prepare
tangible objects. Botb of these tools previde customers wifu preproduct
information that can help them malee you more efficient in the deveJop-
ment work mead. Continue your testing once you have a producto Alpha
tests, beta tests, and gamma tests can be made part of a systematic testing
programo For many products, you will.have to develop a convincing case
that your new product creates an economic advantage for your end user.
There is no time like these testing phases to gather these data and obtain
customer endorsements.
3. Avoid the trap of being somewhat innovative. When you make an im-
proved product you scale the costs to the earning potentiaJ. The sarne
holds true ror a new-to..the world product, hut both expenses and earnings
may be set at a higher leve!. In the m iddle , costs can be high for devel-
oprnent, hut customer deIight may be absent. A product that fails to excite
the cuStorner hut has been developed with the hudget of a breakthrough
leads to tumover in the new product department. Build the right
product-for product superiority and uniqueness remain the most im-
portant predictors of new product success.
4. Use teams wisely. In amhitious projects they can be great. Members com-
municate and boost each other's enthusiasm. often at critical times. They
trust and share. Face-to-face contact breeds respect. which is often absent
when professionals seldom meet fuose from other functional departments.
Yet sorne of fue power of teams can be achieved in other ways, given
improvement in communication. Sorne organizations report fuat teams
increase development time. Tbey can do so, particularly when the orga-
nization has not yet learned how to couple the team ta an effective p r ~
cess. Pick your projects well and malee rertain that fue lessons of teams
shape your approach to next-generation projects.
5. Denne your new products strategy-rlght down to the business and pro--
ject leveIs. Organizations are far more successful in denning functional
goals than project goaIs. and teams can lose valuable time when they (al
to really understand their assignment. Try to focus on exploring projects
that nt with company skills. Ir a new product requires success with an
unfamiliar technology, don't start the product development team running
until the technology becomes more certain. When possible. examine
33. Reviewing Current Practices in lnnovation Management 509
trends in your markets and align your projects with the trends that are
growing and increasing in a manner that support customers' interest in
your producto When you grow by capturing new business, your path can
he easier then when you have lo displace an entrenched competitor. Be
"on trend": It can help cover sorne imprecision in your demand forecast.
When you do these things. you 'Will find that your tcam understands
its role, gets excited by t ~ insight into cusromers' needs, and sres how
individual contributions can be combined into something really unique.
This should lead to meaningful buy-in and participation. Momentum will
follow. Capture learning of effective steps for the organization and con-
sider installing it in the person ID a process owner. Celebrate project
milestones and successes frequently-don't wait for the cod. If the project
trajectory is not positive. you need a tearo strong enough to fire a non-
performing member, even fue leacler. Altematively, if the people are per-
forming, the team needs to assess fue quality of fue opportunity and make
a tmely and candid recommendation to the fumo
6. Recall that the project isn't complete until the goals are realized. Don't
disband the team too soon, for they may be the only ones who know how
to keep fue project going in the faee of unanticipated adversity.
Ir you don't have a proeess, your immediate challenge is to establish one
\vith multiple stages. Inelude written evaluation criteria that you wiIl use to judge
progress and success. Mue sure that the process 15 communicated, and that your
organizaton understands it. U se it to define potential growth opportunities. de-
velop insights into consumer needs and problems. and achieve shared focus on
these options leamng to cornmitment and participation. These are not easy steps,
but they denne a path to incredible excitement and professional satisfaction for
all who become involved.
Innovaton has been practiced smce the start of commercial business. Yet
the challenges facing innovation professionals are greater now than ever before.
lncreasingly, our experiences will translate into effective best practices. Right now
we are engaged in a series of challenging experiments. Yet, unquestionably, we
have begun to leam sorne very important lessons that are belping to reshape
many of our organizations and work practices.
ACKNOWLEDGMENTS
This chapter relles on data gathered by Albert Page md Abbie Griffin, principal investi
gators for two best practices sturues oonducted by the PTOduct Development and Man-
agement Assoclation in W90 and 1995, respectively. It is not our task hete to discuss fue
510 PbMA's Best Practices Research
research methodoJogy employed in those studies. Far that, the interested reader is te-
ferred to past and future ameles in the Journal of Product Innovation Management. Far
the 1995 study. only data obtained from PDMA member firms is reported. In addition, 1
thank the many authors &om JPIM who have contributed to my thinking over the years.
These ideas have been presented to a variety of executive aUcUences that have help hone
the ideas contained in this chapter. 1 wish to dedicate tbis chapter ta C. Merle Crawford,
who has been an inspirationalleader in the new products fie1d throughout his career. 1
can no longer separate rny ideas from those he has given me.
33. RevJewJng Current Practices in Innovation Management 511
Tbomas P. Hustad
Indiana University School 01 Business
Hustad has scroed PVMA since its inception. notablyas President in 1981, Sec-
retary-Treasurer for TIUlny years, and the founder and editor 01 ita Joumal of
Product lnnovation Management He was named a Crawford Fellow and Kosin
Professor in 1993. He has cha.ired Indiana Universitys MBA program, roon a
firn-place dissertation award from the AMA, held an unsolicited Fulbright
Award. and has frequently consulted ro major corporations. He received the first
Eli Lilly Teaching Excellence Awani. Business Week cited him as a "Best Bet"
teacher. He is Usted in Marquul ''''hos Who of Emerging Leaders in America
and Who's Who in the World