The document discusses best practices for outsourcing product development, specifically in the early "fuzzy front end" stages. It provides an overview of theories for why and how companies outsource, as well as lessons learned from Blyth's experience developing a new product called Sterno Flameless. Key recommendations include thorough preparation, clear communication, co-location when possible, and reviewing processes with partners to facilitate improvement.

1. The Fuzzy Front End of Outsourced Product Development Brad Barbera Director of New Product Development and Innovation Blyth, Inc.

2. The Fuzzy Front End of Outsourced Product Development Objectives of this presentation: 1) Provide an understanding of what best practices theory suggests for outsourcing innovative product development efforts 2) Share the experience of actually implementing an outsourced innovation project for a New-to-the-World product 3) Recommend an approach to outsourcing innovation efforts based on what has been learned from experience 4) Offer contact with someone who loves to theorize, experiment, discuss, debate, pontificate and mutually grow through exchanging knowledge

3. The Fuzzy Front End of Outsourced Product Development Introductions Blyth, Inc.: The World’s Largest Home Expressions Company The Sterno Group ® : A century+ old company Founded on portable heat Sterno Flameless ™: A new-to-the-world product, bringing safe, portable food-service heating without a flame

4. The Fuzzy Front End of Outsourced Product Development “ Almost all companies outsource some part of their Research and Development (R&D) work…” 1 90% 1 Visions Magazine, July 2004, Goldense Group Survey If so many companies do this, there must be a good understanding out there of how to do it right. Right?

5. The Fuzzy Front End of Outsourced Product Development Open Innovation vs. Outsourced Innovation Outsourced innovation should be considered a subset of Open Innovation Outsourcing is very similar to the “Supplier Development” model of Open Innovation, but with the supplier providing New Product Development services instead of raw materials or other tangible supplies.

6. The Fuzzy Front End of Outsourced Product Development Outsourcing Product Development: Theory and Practice “In theory, there is no difference between theory and practice. In practice, there is.” ~Unknown

7. The Fuzzy Front End of Outsourced Product Development Outsourcing Product Development: Why Outsource? “ The best companies outsource to win, not to shrink.” ~Thomas Friedman, The World Is Flat

8. The Fuzzy Front End of Outsourced Product Development Why Outsource? Theory Four potential reasons to consider outsourcing: Access to technology, skills, experience, and other capabilities Minimize business risk and cost Speed New Product Development cycle times Internal Resource Alignment (Organizational Effectiveness) Note: there are no hard-and-fast lines between these three considerations. They can all be condensed into the strategic decision of “how do we maximize the expected return on our product development investment?”

9. The Fuzzy Front End of Outsourced Product Development The Sterno Flameless ™ Experience Assessment of our resources showed that we did not have internal resources capable of New-to-the-World product development Needed market research Needed research and development The critical needs were for expertise and capacity Important note: don’t underestimate the internal resource requirements when outsourcing! Practice Why Outsource?

10. The Fuzzy Front End of Outsourced Product Development Outsourcing Product Development: How to Outsource? “ It usually takes more than three weeks to prepare a good impromptu speech.” ~ Mark Twain

11. The Fuzzy Front End of Outsourced Product Development Theory Preparation Plan for Outsourcing: What are the desired objectives from outsourcing? What core competencies are needed? What is the scope of the service being outsourced? How long is the relationship to last? Who will be the internal linkage with the external organization? What defines success? How is performance to be measured? What are the risks? How will they be mitigated?

12. The Fuzzy Front End of Outsourced Product Development Theory Outsourcing Best Practices 2 Executive Sponsorship Structured Co-Development and Project Initiation Process Co-Development Project Teams Partner Selection Process Partner Management Process Co-Development Metrics 2 Rick Hoole and Ed Howland, “Lessons Learned from Outsourcing R&D,” PRTM’s Insight , October, 2005.

13. The Fuzzy Front End of Outsourced Product Development Theory Selecting an outsource partner What outsourcing model will be followed? Turnkey Transactional/Pay-for-Service Joint Development Partnership Licensing Other Who will own the intellectual property?

14. The Fuzzy Front End of Outsourced Product Development Theory Selecting an outsource partner (continued) What resources do they possess? Intellectual Acumen Technical Customer/consumer Business Capital/Financial Capacity Networks Reputation (Ethical considerations, working style/culture)

15. The Fuzzy Front End of Outsourced Product Development Theory Selecting an outsource partner (continued) Sources to Consider: Private inventors/entrepreneurs Consultants Contract Laboratories Other companies Government labs Universities Note: In today’s global marketplace, you are not limited with regards to geography, either!

16. The Fuzzy Front End of Outsourced Product Development Practice The Sterno Flameless ™ experience of selecting an outsource partner An awkward history with a number of unexpected challenges Initial partner ran into financial troubles that ended our relationship Re-reviewed patent literature, found some IP with licensing potential The IP owner had sold rights, so contacted third potential partner Third supplier introduced us to an R&D outsourced service provider Provider’s capabilities led us to consider developing our own design

17. The Fuzzy Front End of Outsourced Product Development Practice Selecting an outsource partner (continued) Investigated other potential contracted R&D service providers The chosen partner was selected on the basis of: technical capability business and consumer understanding cost of services cultural fit references Also selected Market Research Firm Familiarity with industry Previous experience Broad service capabilities

18. The Fuzzy Front End of Outsourced Product Development Outsourcing Product Development: When to involve external resources in the process? "The keen spirit Seizes the prompt occasion, makes the thought Start into instant action, and at once Plans and performs, resolves and executes!" Hannah More

19. The Fuzzy Front End of Outsourced Product Development Theory To effectively use an outsourced product development partner, a company must be willing to share confidential information The degree of willingness helps guide when to bring in external resources – the more willingness, the earlier to bring them in. When to Involve External resources Cost will play an obvious role in determining when to bring in resources – costs can be minimized by delaying when resources are brought in ( at least in theory ) NDA’s and other contractual arrangements can mitigate both information-sharing risk and cost risk.

20. The Fuzzy Front End of Outsourced Product Development DEFINITIONS 1 Opportunity: A business or technology gap, that a company or individual identifies Idea: A high-level view of the solution envisioned for the problem identified by the opportunity. Concept: A well-defined product or service description, that includes the primary features and customer benefits combined with a broad understanding of the technology needed. 1 Adapted from Peter A.Koen, Greg M.Ajamian, Scott Boyce, Allen Clamen, Eden Fisher, Stavros Fountoulakis, Albert Johnson, Pushpinder Puri, and Rebecca Seibert, “ Fuzzy Front End: Effective Methods, Tools, and Techniques” Practice

21. The Fuzzy Front End of Outsourced Product Development Practice For Sterno Flameless ™, both Market Research provider and a Research and Development service provider were involved in the later stages of the Fuzzy Front End: Opportunity identification Ideation Concept Development Screening External Resources Brought in here NPD Process The Fuzzy Front End

22. The Fuzzy Front End of Outsourced Product Development The Sterno Flameless Idea: Reactant Food Container A container of exothermic reactant and water is placed below a food container. Water Practice

23. The Fuzzy Front End of Outsourced Product Development The Sterno Flameless Idea: Chemicals mix and begin to react Food Container Mix the reactants . . . Practice

24. The Fuzzy Front End of Outsourced Product Development The Sterno Flameless Idea: Reaction continues to generate heat as long as desired by the customer Food Container Food absorbs transferred heat from pouch Practice

25. The Fuzzy Front End of Outsourced Product Development Practice We chose to involve our outsourced partners throughout the concept development process Enacted Non-Disclosure Agreements with all parties prior to market research and concept development When to Involve External resources Contracted for IP ownership But first…

26. The Fuzzy Front End of Outsourced Product Development Practice When to Involve External resources (continued) Concept development was truly a team effort: Internal cross-functional team members from Marketing, Sales, Sourcing, and R&D External Market Research, R&D, Key Component Suppliers Potential End-Users from a variety of backgrounds Facilitated by an external ideation expert

27. The Fuzzy Front End of Outsourced Product Development Practice When to Involve External resources (continued) Conducted concept development in multiple cities for diversity of thought Off-site work allowed for clear focus Generated hundreds of raw, simple concepts; dozens of more defined and refined concepts Used a hybrid Delphi/voting process to get down to most promising concept to move forward in formal NPD process Involvement of full team and end-users led to superior thought output – more concepts with better quality

28. The Fuzzy Front End of Outsourced Product Development Outsourcing Product Development: How to manage the NPD process?

29. The Fuzzy Front End of Outsourced Product Development Theory How to manage the NPD process Contracting – clearly define goals, objectives, deliverables. Define what, how it is to be measured, by whom, and when. Communication – process, schedule, points of contact, timing. Make as much tacit knowledge as possible transferable or explicit Internal project management – Resource planning, organizing, tracking, reporting, analyzing, and reviewing Maintain an Effective and Rigorous Process – follow your product development process and governance systems

30. The Fuzzy Front End of Outsourced Product Development Practice How to manage the NPD process Important! Don’t underestimate the value of co-location Don’t underestimate the internal resource requirements, especially with regards to project management and knowledge transfer Marketing Director was key contact for Market Research firm R&D Director was key contact for R&D firm on technical issues, Marketing Director was key contact on contracting and business issues Additional part-time and full-time support was added and taken away through the product development process

31. The Fuzzy Front End of Outsourced Product Development Practice How to manage the NPD process (continued) Existing Stage-Gate system was followed Outsourced contracting was done on a Stage-by-Stage process Additional outsourcing was done to cover areas encountered later in the process, such as Safety and Regulatory review, Graphic Design, Public Relations, etc. Current Status: post-launch technical issues have the product on hold, but customer excitement is high

32. The Fuzzy Front End of Outsourced Product Development Summary and Lessons Learned

33. The Fuzzy Front End of Outsourced Product Development Summary: The Seven Habits of Highly Effective Outsourcing in the Fuzzy Front End BE PROACTIVE: Do your strategic homework up-front – thorough due diligence saves time and money in the process BEGIN WITH THE END IN MIND : Understand your culture, capabilities, capacity, competencies, customers, and competition, then set clear objectives for outsourcing efforts PUT FIRST THINGS FIRST : Protect intellectual property through NDA’s and other contractual agreements up front THINK WIN-WIN : Outsource with a partner you’d like to have around for the future, and develop a relationship from which you can both benefit 1 Shamelessly adapted from Stephen Covey, The Seven Habits of Highly Effective People

34. The Fuzzy Front End of Outsourced Product Development The Seven Habits of Highly Effective Outsourcing (continued) SEEK FIRST TO UNDERSTAND, THEN TO BE UNDERSTOOD : Open and effective communication is critical to a successful partnership; in the fuzzy front end, it especially helps to build on the best opportunities, ideas, and concepts SYNERGIZE : Leave the cliché behind and appraoch this important concept with vigor – even in the fuzzy front end, the partnership should yield more fruit than the two separate firms SHARPEN THE SAW : Take time to review the process with your partner, build on strengths, identify challenges, and implement ongoing improvements

35. The Fuzzy Front End of Outsourced Product Development Summary Learn from What We Could Have Done Differently More Rigorous Up-Front Preparation and Planning Don’t underestimate the internal resource requirements of outsourcing Consider doing smaller, easier projects first, to work out the process Don’t underestimate the power of co-location – must balance the value of a globalized/virtual world with the value of sharing common experience and face-to-face interaction Ensure crystal clarity on agreements, deliverables, and expectations Fully open communication with your partners

36. The Fuzzy Front End of Outsourced Product Development Summary Learn from What We Did Right “Know Thyself” – understand your capabilities and fill in the gaps identified as strategically important