LEARNING UNIT ONE
OPPORTUNITY IDENTIFICATION / SELECTION: What is Product Development Strategy?
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Opportunity Identification and Selection
Figure I.1
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Why Study New Products?
New products hold the answers to most firms biggest problem:
Competitors do most damage when (1) there is little product differentiation, (2) when they have a desirable new products that we dont.
It is big business billions of dollars annually on technical development alone.
For many leading firms, a third or more of sales comes from products that are less than 5 years old.
The challenge of creating radical innovation is viewed as the most important business issue of our time (Gary Hamel).
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But the New Products Process is Difficult!
Percent of Products that Fail
90 90 80 70 60 50 40 30 20 10 0 Sometimes Quoted in Press
40
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Research Reports
Sometimes Claimed
Although you may hear much higher percentages, careful studies supported by research evidence suggest that about 40% of new products fail somewhat higher for consumer products, somewhat lower for business-to-business products.
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Best Practices in New Products
For every 100 ideas, Fewer than 70 make it though initial screening Fewer than 50 pass concept evaluation and testing A little more than 30 make it through development About 30 make it through testing About 25 are commercialized 15 of these 25 (about 60%) are successful. Success rate is lower in consumer goods (51%) and as high as 65% in healthcare.
Source: Comparative Performance Assessment Study, PDMA, 2003.
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Comparing the Best New Product Firms vs. the Rest
For the top new product firms, about 49% of company sales and profits come from products that were introduced in the last five years.
For other firms, this average is about 21%. Lesson: firms that maintain their commitment to new products are rewarded with sales and profits!
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Globalization and New Product Development
Top firms deploy over 50% of their R&D spending in foreign countries. Global product teams allow firms to leverage their new product skills across their subsidiaries. Design, R&D, and manufacturing may occur in different subsidiaries around the world. Difficulties: coordinating the efforts across multiple countries to launch a successful new product. Having a global innovation culture being aware of differences in business and cultural environments and being open to global markets is important to success.
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Firms With a Global Innovation Culture
Procter & Gamble products are developed globally in the firms 22 research centers located in 13 countries. Market research and testing of the Swiffer occurred in the U.S. and France. Apple did product design and customer requirement definition in the U.S. and Japan in developing the iPod. Ikea identifies unmet customer needs and commissions inhouse and outsourced designers to compete for the design. Worldwide manufacturing partners compete for the manufacturing rights. The firm also has excellent global logistics for product delivery to stores and customers.
Source: Loida Rosario, Borderless Innovation: The Impact of Globalization on NPD Planning in Three Industries, Visions, June 2006.
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The New Products Process is All About Teams
The new products team is a cross-functional team with personnel from marketing, R&D, engineering, manufacturing, production, design, and other areas.
All members of the team make a contribution to the new products process and the success of the team depends on how well they interact. Try to avoid narrow functional viewpoints & stereotypes.
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Not All New Products Are Planned
Microwave ovens Aspartame (NutraSweet) ScotchGard fabric protector Teflon Penicillin X-rays Dynamite
In each case, an accidental discovery but someone knew they had something when they saw it!
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What Is a New Product?
New-to-the-world (really-new) products (10% of new products): Inventions that create a whole new market. Ex.: Polaroid camera, Sony Walkman, Palm Pilot, Rollerblade skates, P&G Febreze and Dryel. New-to-the-firm products (20%): Products that take a firm into a category new to it. Ex.: P&G brand shampoo or coffee, Hallmark gift items, AirAsia Tune Hotel, Canon laser printer. Additions to existing product lines (26%): Line extensions and flankers that flesh out the product line in current markets. Ex.: Tide Liquid, Bud Light, Apples iMac, HP LaserJet 7P. Improvements and revisions to existing products (26%): Current products made better. Ex.: P&Gs continuing improvements to its detergent, Window XP, Vista, Window 7 etc, Samsung Galaxy phones Repositionings (7%): Products that are retargeted for a new use or application. Also includes retargeting to new users or new target markets. Ex.: Arm & Hammer baking soda sold as a refrigerator deodorant; aspirin repositioned as a safeguard against heart attacks; Marlboro retargeted as a mans cigarette. Cost reductions (11%): New products that provide the customer similar performance but at a lower cost. May be more of a new product in terms of design or production, e.g., HTC.
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Easier Said Than Done?
Top innovators such as Intel and Gillette stay focused and committed to innovation as a long-term strategic goal. Without such focus, firms can fall back to tweaking existing products and relying on minor product improvements, instead of true product innovation that results in new-to-the-world products or really new product lines. The best new product firms do not give in to this temptation, but continue to commit to innovative products. The biggest factor contributing to success is having a unique, superior product that adds value for the customer.
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The Strategic Elements of Product Development
The New Products Process (This chapter and Chapter 2) A phased process that takes the new product idea through concept development, evaluation, development, launch, and post-launch. The Product Innovation Charter (Chapter 3) A strategy for new products that ensures that the team develops products in line with firm objectives and marketplace opportunities. The Product Portfolio (Chapter 3) A way to assess which new products would be the best ones to add to the existing line, given financial and strategic objectives. 1-13
The Basic New Product Process
Phase 1: Opportunity Identification/Selection Phase 2: Concept Generation
Phase 3: Concept/Project Evaluation
Phase 4: Development Phase 5: Launch
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Principles and Issues in the New Products Process
Between the phases of the process are evaluation tasks or decision points, where hard Go/No Go decisions are taken. There is pressure to accelerate time to market (speed the product through this process), and phase overlapping and cross-functional teams are used to accomplish this. Fuzzy gates are commonly used: this is a conditional Go so as not to slow down the process in analysis. Still, fuzzy gates must have teeth! A potential problem is that the result should be No Go but the project goes through anyway. Another problem: hollow gates (the Go decision is made but no financial support is provided).
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Third-Generation New Products Process
Most firms use what is called a Third-Generation process. This is a flexible interpretation of the basic process, which allows overlapping phases and fuzzy gates.
This flexibility is particularly important in the development of new-to-the-world, breakthrough products.
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The New Products Process Interacts With the Other Strategic Elements
Without the strategic direction provided by the Product Innovation Charter, the firms attempts at product development will be unfocused. The PIC helps the team identify opportunities and focus efforts.
Product Portfolio considerations help the firm decide whether a new product opportunity adds financially and strategically to the current line and avoids spreading scarce financial and human resources too thin.
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