McGraw-Hill/Irwin
Merle Crawford
Anthony Di Benedetto
10 th Edition
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

OVERVIEW AND OPPORTUNITY
IDENTIFICATION/SELECTION
1-2

The Strategic Elements of Product
Development
1-3

• It is big business – billions of dollars annually on technical development alone.
• The challenge of creating radical innovation
(totally new product categories) is viewed by business consultant Gary Hamel as “the most important business issue of our time.”
• Accelerating innovation and business growth through innovation are the top business challenges according to the Industrial Research
Institute.
1-4

Percent of Products that Fail
90
40
30
20
10
0
90
80
70
60
50 40
10
Sometimes Quoted in Press
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.
1-5

• 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.
1-6

• 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!
1-7

• 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.
1-8

• Procter & Gamble products are developed globally in the firm’s 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 in-house 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.
1-9

• 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 and stereotypes.
1-10

• 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!
1-11

• 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, AT&T
Universal credit card, 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, Apple’s iMac, HP LaserJet 7P.
• Improvements and revisions to existing products (26%): Current products made better. Ex.: P&G’s continuing improvements to Tide detergent,
Ivory soap.
• 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 man’s 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.
1-12

• 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.
1-13

• 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.
1-14

Phase 1: Opportunity Identification/Selection
Phase 2: Concept Generation
Phase 3: Concept/Project Evaluation
Phase 4: Development
Phase 5: Launch
1-15

• Check the efforts of the best product developers in the business: the Outstanding Corporate
Innovator award winners as selected by the
Product Development & Management
Association
• Recent winners: Hewlett-Packard, Dow
Chemical, Maytag, Harley-Davidson, Corning,
Royal DSM, Bausch & Lomb.
• All have had a sustained commitment to innovation, with remarkable results in terms of new products.
1-16