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Formula for Success in New Product Development
 

Formula for Success in New Product Development

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Have you ever wondered why some companies make product innovation seem so easy—generating one big winner after another? Here is a startling fact: New-product development (NPD) productivity in the ...

Have you ever wondered why some companies make product innovation seem so easy—generating one big winner after another? Here is a startling fact: New-product development (NPD) productivity in the top performing company is five times what it is in the average company. The top performer gets five times as much new-product output for the same investment. For the rest of us, developing a steady stream of successful new products is a real challenge. Many businesses use the Stage-Gate® process to conceive, develop, and launch new products. But proficient companies have implemented, modified, adapted, and improved the methodology; it has morphed into a faster, leaner, and more effective tool. The next generation process, or NexGen Stage-Gate, builds in seven principles of lean, rapid, and profitable new-product development to maximize productivity in product innovation.

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    Formula for Success in New Product Development Formula for Success in New Product Development Document Transcript

    • The seven principles of the latest Stage-Gate® method add up to a streamlined, new-product idea-to-launch process. B Y R O B E RT G . C O O P E R18 R MM March/April 2006 www.stage-gate.com
    • ave you ever wondered why The ADL study provides insights into H some companies make product innovation seem so easy—gener- ating one big winner after another? Here is NPD productivity by industry. It looks at output (five-year sales from new products as a percentage of company sales) and a startling fact: New-product development input (research and development spending (NPD) productivity in the top performing as a percentage of company sales). One company is five times what it is in the startling conclusion is the difference in average company. The top performer gets productivity between top performers and five times as much new-product output for the rest, regardless of industry. On aver- the same investment, according to the age, there’s an almost 1,200% difference Innovation Excellence Study 2005 conducted between the most productive (top 25% by Arthur D. Little (ADL). For the rest of of companies on this metric) and least us, developing a steady stream of success- productive (bottom 25% of companies on ful new products is a real challenge. this metric). And in some industries, the difference is even greater. For example, Major Productivity Gaps the top 25% pharmaceutical companies The concept of productivity is simple: are 31 times more productive in NPD the most bang for the buck. In product than the bottom 25%. What are these development, it is output (new-product high productivity companies doing so sales or profits) divided by input (research differently, and can your company learn and development or NPD costs and time). from them?© 2000-2013 Product Development Institute Inc. 2000-2012 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • EXECUTIVE Many businesses use the Stage-Gate® process—which this author introduced in 1988—to conceive, develop, and launch new products. As proficient companies have implemented, mod- briefing ified, adapted, and improved the methodology, it has morphed into a faster, leaner, and more effective tool. The next generation process, or NexGen Stage-Gate, builds in seven principles of lean, rapid, and profitable new-product development to maximize productivity in product innovation.Maximizing Productivity ent from relying on the salesperson or product manager to Seven key principles of lean, rapid, and profitable NPD are speak for the marketplace; such information is often filtered,common denominators of high productivity businesses in biased, and incorrect. The result is that the customer becomesproduct innovation. They are very much fact-based and were an integral part of the entire process: scoping, product defini-uncovered in benchmarking and best practice studies of top tion, development, validation, and beyond.performing companies. These principles were developed from Front-end loading. Due diligence in the early days of aa long tradition of solid research, culminating in the most project pays off; just ask a venture capitalist. A good dose ofrecent American Productivity & Quality Center (APQC) study the right up-front homework pays for itself tenfold, savingof best practices in product innovation. Our research shows time and producing higher success rates. Smart managersthat companies or project teams that employ these principles demand such preparation on projects: fact-based market, tech-achieve superior performance results, and that poor perform- nical, and business assessments. This homework is not exces-ers tend to ignore them (see Exhibit 1). Integrating the follow- sive; rather, it yields just enough vital information for makinging principles of NPD into your new-product methodology the go-to-development decision, and for sufficiently definingresults in a next generation idea-to-launch process, or NexGen the product and project to proceed. It’s also instrumental inStage-Gate®. (Stage-Gate® is a registered trademark of the generating a winning product.Product Development Institute Inc.) Spiral development. Things change. Often a team charges Customer focused. Developing and delivering new prod- into development with a product definition based on informa-ucts that are differentiated, solve major customer problems, tion that was right at the time, or thought to be right. But itand offer a compelling value propositionto the customer are the top drivers ofNPD success and profitability. The prod- I Exhibit 1uct or service must possess a “wow” fac- High productivity businesses practice the seven NPD principlestor or a little excitement, something thatis missing from most new products. But 1. Customer focused 15.4%conceiving such a product seems beyond 33.4% 69%the reach of many companies. Indeed, a 2. Heavy front-end homework 38.5%major reason for the decline in U.S. NPD 44.8% before development beginsproductivity is that many company 62.1%pipelines simply lack stimulating and 3. Spiral development—loops with 7.7%genuine new products. Instead, they are users throughout development 26.3%focused on tweaks, modifications, and 44.8%extensions with little real competitive 4. Holistic—effective 37.4%advantage. cross-functional teams 58% 74.2% The quest for unique, superior prod- 5. Metrics, accountable teams, 10.3%ucts begins with a thorough understand- profit/loss reports for 28.2%ing of the customer’s unmet and often continuous learning 48.3% I Low productivity businessesunarticulated needs—through in-the- 9% I Average productivity businessesfield, voice-of-customer work. This means 6. Focus and porfolio management 25.2% I High productivity businesses 40.2%that the entire team—technical, market-ing, and operations people—interviews 7. Lean, scalable, and adaptable 41.4% Stage-Gate process 54%and interfaces with real customers/users, 70.7%and learns their problems, needs, and Source of data: APQC study 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%challenges firsthand. This is quite differ- Percentage of businesses© 2000-2013 Product Development Institute Inc. 2000-2012 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • I Exhibit 2 itability results for the entire company are missing. Spiral development Without metrics, teams can’t be held accountable for results—and continuous learning and improvement is A series of “build, test, obtain feedback, revise” iterations or loops next to impossible. Top performing companies establish metrics: They measure how well individual projects perform by Build Test and business validate building post-launch and gate reviews into their idea- case to-launch processes, and hold teams accountable for delivering promised results against these metrics. Gate Stage 2 Gate Stage 3: Development Gate Stage 4 2 3 4 When gaps, difficulties, and weaknesses are identi- fied, they hold problem solving sessions—focusing on the causes, and identifying corrective actions to stop recurrence. In this manner, continuous learning and improvement become an integral, routine facet of the development process: Every project is executed User Full prop Rapid First Next Field better than the one before. needs and concept protocept protocept protocept trial, wants test and test and test and test beta test Focus and effective portfolio management. Most study companies have too many development projects under way, and often the wrong ones: They fail to focus, spreading their resources too thinly across too wasn’t, or the market shifted, or a competitive product was many initiatives, and their portfolio choices result in the introduced. And when the product is developed, it isn’t quite wrong mix and balance of projects. Consequently, there are right for the market. Smart teams practice spiral development. too many low-value projects and they take too long. They create the first version of a product (perhaps a virtual Development projects are investments and therefore must one) and test it with the customer, seeking feedback. Then be carefully scrutinized and focused through an effective they use that feedback to produce the next, more complete portfolio-management system. This is achieved with a funnel- version—maybe a working model or protocept. These fast- ing approach: Start with many solid new-product concepts, paced teams remove unnecessary work and quickly move to and successively remove the weak ones via a series of gates. finalized products, by forming a series of these iterative steps This results in fewer projects, but ones with higher value to or loops: build, test, obtain feedback, and revise. The loops are the company—and a significant improvement in productivity. built into the entire process, from scoping through develop- Adequate project resources also must be in place. Securing ment and into testing. When sketched on a flow diagram, they these is partly the result of an effective portfolio-management appear as spirals (see Exhibit 2). system, which ensures that the pipeline isn’t overloaded. A holistic approach. Product innovation is very much a Planning is another facet of correctly pulling together business function (not a research and development activity) resources: accurately estimating the resource requirements, and a team-based endeavor. The core team, an effective cross- projecting how long key tasks will take, and preparing an functional group, is the No. 1 key to reducing cycle time and effective “go forward” plan. Finally, the needed resources— promptly getting to market. Effective cross-functional teams people and money—must be secured at the important gates. comprise critical players from different parts of the organiza- Gates are not just go or kill decision points, but also resource tion, each with an equal stake in and commitment to the proj- allocation and commitment points. ect. They remain involved from start to finish, not just for one A lean, scalable, and adaptable process. Too many compa- phase of the project. Team accountability—results measured nies’ idea-to-launch processes contain bureaucracy, time against success criteria—also is critical for a team to be effec- wasters, and make-work activities. Even worse, they contain tive. A carefully selected champion or captain leads the team, rigid procedures and demand too much paperwork, forms, driving the project down the pipeline to the goal, in entrepre- meetings, and committees—regardless of the project. If your neurial fashion. The team’s organization (composition, key new-product process or launch system is more than three players’ roles and authority, and the choice of the appropriate years old, then it probably needs a good overhaul, or an team leader) means the difference between efficient, time-driv- update at minimum. en projects and those that languish and take forever. The ingredients of a first-class idea-to-launch system are Metrics, accountability, and continuous improvement. You clear: Build in the aforementioned six principles—those factors can’t manage what you don’t measure. Many companies are that mean the difference between winning and losing. Although guilty of not measuring their new-product results, as Exhibit 1 these principles might seem obvious, the majority of companies shows. It’s not clear whether a project was successful (i.e., met aren’t practicing them (as Exhibit 1 revealed). Only one-third of its profit or launch-date target). And often, new-product prof- companies are truly customer focused in their new-product© 2000-2013 Product Development Institute Inc. 2000-2012 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • I Exhibit 3 properly designed and implemented,An overview of NexGen Stage-Gate: Stage-Gate works. The majority of top performing companies in product innovation—Procter & Gamble, A five-stage, five-gate framework for significant new product projects Microsoft, Siemens, and Hewlett- Packard—have proficiently imple- mented such processes, and witnessed Driving new products to market their new products going to market quickly and effectively (see the APQC study). For example, Procter & Gamble Idea screen Second screen Go to develop Go to test Go to launch Post launch boasted five of the top 10 best-selling review (PLR) consumer, nonfood new-product Idea Gate Stage Gate Stage Gate Stage Gate Stage Gate Stage launches in 2004. Coincidentally, it is stage 1 1 2 2 3 3 4 4 5 5 strongly committed to SIMPL, a Stage- Gate process like the one in Exhibit 3.Discovery Scoping Business Development Testing Launch Companies can make Stage-Gate case even more effective by moving toward NexGen processes—which incorporate the six principles outlined earlier in the article—and then adding the fol-efforts, 55% don’t perform adequate front-end homework, and lowing elements of the seventh principle.almost three-fourths lack metrics, team accountability, and con- Lean. Smart companies streamline their NPD processes,tinuous learning in NPD. So go through the list in Exhibit 1, removing waste and inefficiency at every opportunity. Seniorand ensure that each principle becomes ingrained in your management borrows the concepts from lean manufacturingprocess’ language and method of operation. and applies them to its new-product process to remove waste in the system. By analyzing a map of the idea-to-launch valueNexGen Stage-Gate stream, all non-value-added items are removed. Every activity, Most U.S. companies engaged in product development procedure, template, deliverable, and committee in the currenthave adopted and implemented some form of stage-and-gate process is scrutinized: Is it really needed and how can projectsnew-product processes, such as Stage-Gate (see Exhibit 3). In be completed faster and better? Continuous learning andthe APQC study, every top performing company did so, to improvement is a key facet of the lean method, with post-drive new products to market. This breaks the innovation mortems undertaken at the post-launch review to provideprocess, from idea to launch, into a series of stages (typically insights. This results in a much more efficient and effectiveabout five). In each stage, the project team executes a pre- idea-to-launch method.scribed set of actions, designed to advance the project effec- Scalable. There is no longer just one version of Stage-Gate.tively and efficiently. This set is based on best practices, and The process has morphed into multiple versions: Stage-Gateyields a defined package of deliverables at the end of each XPress for projects of moderate risk, such as improvements,stage. modifications, and extensions; Stage-Gate Lite for small proj- Each stage is preceded by a gate or go/kill decision point. ects, such as simple customer requests; and Stage-Gate TD forHere, senior management meets with the team, and decides technology development projects, where the deliverable iswhether the project should proceed. Each gate has a pre- new knowledge, new science, or a technological capability.scribed list of deliverables—the information senior manage- (See Exhibit 4.)ment needs to make the go/kill decision—and a set of go/kill Adaptable. The notion of a rigid, lock-stepped process isand prioritization criteria, on which to base that decision. dead. Today’s fast-paced NexGen Stage-Gate is flexible, allow-Gates are also where team leaders secure the necessary ing the project team considerable latitude in deciding whatresources for driving the project forward; they get it on senior actions are really needed and what deliverables are appropri-management’s radar screen. ate for each gate, and adapting to fluid and dynamic informa- Stage-Gate makes sense, intuitively. It incorporates best tion. Spiral development is one way that fast-paced teamspractices that are often omitted in many companies’ approach- cope with changing data while getting their product defini-es; yields focus, eliminating poor projects early in the process; tions right.makes expectations clear to project teams; encourages a cross- In Stage-Gate, activities and stages can overlap, employingfunctional approach to product development; and appropri- the principle of simultaneous execution: not waiting for theately engages senior management in the innovation process as completion of a previous step and perfect information beforedecision makers and resource providers. Moreover, when moving ahead. (For example, don’t wait for formal gate© 2000-2013 Product Development Institute Inc. 2000-2012 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • approval before moving into some facets of the final stage, ment. Everyone involved has access to the best view of rele- Launch.) Rather, long lead-time launch activities (e.g., sales vant information: what they need to advance the project, glob- force training, preparation of marketing collaterals, ordering ally cooperate with other team members on vital tasks, help raw materials) can be moved into the previous stage, Testing, make the go/kill decision, or stay on top of a portfolio of proj- to accelerate the project—even though it might be canceled. ects. Examples of automation software include Accolade by Here, the team weighs the cost of delay against the cost of Sopheon (www.sopheon.com) and Enterprise Project moving forward in the event of cancellation, along with the Management by Microsoft (www.microsoft.com). likelihood of cancellation. Part of company culture. Stage-Gate is more than a Partnering and alliances. Because so much of product inno- method, process, or set of flow charts, templates, and check- vation involves partners, alliances, and outsourced vendors, lists. The best companies see their new-product processes as leading companies increasingly build alliance sub-processes cultures that foster new and desired behaviors. Success in into their traditional new-product processes. Embedded in product innovation requires many behavioral changes, such as each stage of Stage-Gate are key external activities, such as discipline; deliberate, fact-based, and transparent decision identifying the need for partners, seeking potential partners, making; responsible, accountable, effective, and true cross- and vetting candidate partners. Similarly, in addition to the functional teams; continuous improvement and learning from usual gate deliverables (e.g., results of market and technical mistakes; and risk taking and risk awareness. The structure assessments, a financial analysis) are items such as “letters of and content of Stage-Gate is a vehicle for change: altering how intent” and “memoranda of understanding” from potential people think, act, decide, and work together. partners. Gate criteria also build in partnering issues. Automated. Progressive companies recognize that automa- Winning Is Within Your Grasp tion greatly increases the effectiveness of their new-product High productivity companies have adopted systematic idea- processes. For one thing, everyone from project leaders to to-launch processes such as Stage-Gate, but that’s not enough. executives finds the process much easier to use, thereby The big winners are going further, incorporating the seven prin- enhancing buy in. (Cumbersome, hard-to-use Stage-Gate ciples of lean, rapid, and profitable NPD, and transforming processes have been a hindrance to adoption in some compa- their 1990s stage-and-gate processes into something that is bet- nies.) Another benefit of automation is information manage- ter suited for today’s fast-paced and competitive world: I Exhibit 4 NexGen Stage-Gate is scalable Second screen Go to develop Go to test Go to launch PLR Stage-Gate ® (full process) Stage Stage Stage Stage Stage Gate Gate Gate Gate 1 2 2 3 3 4 4 5 5 Scoping Business Development Testing Launch case Idea screen Go to develop Go to launch PLR Idea Gate Stage Stage stage Gate Gate Stage 1 1 and 2 3 3 and 4 5 5 Stage-Gate® XPress Discovery Scope and Development Launch business and testing case Decision to execute PLR Stage Stage Gate 3,4, 1 and 2 3 Stage-Gate® Lite and 5 Scope and Execute: business development, case testing, and launch© 2000-2013 Product Development Institute Inc. 2000-2012 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • NexGen Stage-Gate. These companies model the way, proving Author’s Note: Since the 1970s, my colleagues Scott Edgett,that significant productivity increases in NPD are indeed Elko Kleinschmidt, and I have studied hundreds of develop-possible. ment projects, teams, and companies, seeking to discover why some are so much more successful. These studies have beenAdditional Reading published in countless peer-reviewed scientific journals, andBeyer, Georg et al. (2005). Innovation Excellence 2005: How are a complete set of investigations into new-product success,Companies Use Innovation to Improve Profitability and Growth. failure, and productivity. Our research is summarized atArthur D. Little, www.adlittle.com. www.stage-gate.com, as well as in the PDMA Handbook forCooper, R.G. and S.J. Edgett (2005), Lean, Rapid and Profitable New Product Development (John Wiley & Sons Inc., 2004);New Product Development. Ancaster, Ontario, Canada: Product Winning at New Products: Accelerating the Process from Idea toDevelopment Institute, www.stage-gate.com. Launch (Perseus Books, 2001); and the International Encyclopedia for Business & Management (InternationalCooper, R.G. (2005), Product Leadership: Pathways to Profitable Thomson Business Press, 1999). IInnovation, 2d ed. New York, NY: Perseus Books.Cooper, R.G. (2005), “Your NPD Portfolio May Be Harmful to About the AuthorYour Business’s Health,” PDMA Visions, XXIX, 2 (April), 22-26. Robert G. Cooper is professor of marketing at McMaster University (Hamilton, Ontario), president of the ProductCooper, R.G., S.J. Edgett, and E.J. Kleinschmidt, (2002). New Development Institute Inc. (Ancaster, Ontario), Institute forProduct Development Best Practices Study: What Distinguishes the the Study of Business Markets distinguished research fellow atTop Performers, Houston: APQC (American Productivity & Pennsylvania State University (University Park), and creatorQuality Center). of the Stage-Gate process (www.stage-gate.com). He may beCooper, R.G. and M. Mills (2005), “Succeeding at New reached at robertcooper@cogeco.ca. To join the discussion onProducts the P&G Way: A Key Element Is Using the this article, please visit www.marketingpower.com/market-‘Innovation Diamond,’” PDMA Visions, XXIX, 4 (October), 9-13. ingmanagementblog.com.© 2000-2013 Product Development Institute Inc. 2000-2012 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Stage-Gate International is the worlds leading full-service provider of solutions which enable organizations to improve their Product Innovation and Portfolio Management capabilities and performance. Our clients include 5000+ organizations of all sizes across all industries. +1-905-304-8797 www.stage-gate.comVisit our website and subscribe to receive the latest research, information andcomplimentary articles to keep you current in product innovation!