Evaluating New
Product Innovations
Evaluating New Product Innovations
Evaluating New Product Innovations
Dr. Frank Devitt
2
Evaluating New
Product Innovations
Innovation is essential.
INNOVATION ≠ R&D SPENDING
INNOVATION ≠ R&D SPENDING
(Good news for Chief Financial Officers)
R&D spending must be done wisely and is only p
g
y
y
part of the spend required for successful innovation!
Evaluating New Product Innovations
Dr. Frank Devitt
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Evaluating New
Product Innovations
Innovation and research
Research converts money
Research
converts money into knowledge
into knowledge
Innovation converts knowledge into money
Research
Innovation
€  !
 €
Knowledge
Evaluating New Product Innovations
Dr. Frank Devitt
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Evaluating New
Product Innovations
Innovation
“Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation. They are the entrepreneurial functions. … marketing and innovation create value, all the rest are costs.”
marketing and inno ation create al e all the rest are costs ”
Peter Drucker, 1954, The Practice of Management
“Innovation
Innovation is the spark that makes good companies great ... is the spark that makes good companies great
Companies that know how to innovate don't necessarily throw money into R&D. Instead they cultivate a new style of corporate behaviour that's comfortable with new ideas, change, risk, and even failure.”
"America's most admired companies”, Fortune, March 3, 1997
Evaluating New Product Innovations
Dr. Frank Devitt
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Top 20 global R&D spenders
(Booz & Co., Winter 2010)
(Booz & Co., Winter 2010)
Evaluating New
Product Innovations
Is it enough?
Evaluating New Product Innovations
Dr. Frank Devitt
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Innova on ≠ R&D spending
((Booz & Co., Winter 2010)
oo & Co.,
te 0 0)
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
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Innovation is Risky
Evaluating New
Product Innovations
Innovation has an inherent variability, but rate of success can be improved through better
& different management:
g
85% of new ideas never reach a market
60% off R&D projects
j t are market
k t failures
f il
40% of consumer products & services fail
20% of business products & services fail
Evaluating New Product Innovations
Dr. Frank Devitt
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Implement ‐ New Product Development
Evaluating New
Product Innovations
Success rates
Most new product ideas (>90%) never make it to market!
25% to 45% of those that get to market FAIL
PDMA: “59% of new products launched are successful”
Product Development Managers Association
“In a review of 122 industrial product firms, the average success rate of fully developed
products is 67%”
G Cooper,
Cooper Winning at New Products
Robert G.
Summary: 1 in 3 launched products fail, on average
not including failures through development
Evaluating New Product Innovations
Dr. Frank Devitt
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New Product Development success rates
Evaluating New
Product Innovations
1 in 7 new product concepts gets to be a commercial success.
Approx ½ of all R&D expenditures are on failed R&D projects
7
Screening & evaluation
Num
mber of conce
epts
6
5
Business analysis
4
Development
3
Testing
2
Commercialisation
1
10
20
Evaluating New Product Innovations
30
40 50 60 70
% of project time
80
90 100
Dr. Frank Devitt
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Role of senior management
Evaluating New
Product Innovations
in New Product Development (ref. Robert G. Cooper)
Product Approval Committee
Establish the vision
clear product strategy & vision, at a high level
Cultivate the NPD process
support adherence to the process
manage risk and ensure business return
Make decisions
definite decisions, as early as possible
Motivate
leadership, appreciation
Recruit the right staff
Evaluating New Product Innovations
Dr. Frank Devitt
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Effect of good NPD management
Evaluating New
Product Innovations
25% of US firms spend 30% of all NPD and commercialisation resources on new
products that are cancelled or fail to yield adequate return.
Average firms spend estimated 45‐50% of these resources on such products.
30% of firms consistently achieve 80% post‐launch success rate!
Average firms achieve 66% post‐launch success rate.
Sources: PDMA, Robert G. Cooper, et al.
Evaluating New Product Innovations
Dr. Frank Devitt
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Evaluating New
Product Innovations
Why must we innovate?
Increased global competition
Science and Technology advances
Changing customers’ characteristics and needs
Requirements for increased productivity and quality
Shorteningg p
product life‐cycles
y
factor of 4 reduction in last 50 years
A.D. Little, 2001
Pharmaceuticals
Food items
Today
Tools
50 years ago
Toys
Cosmetics
0
Evaluating New Product Innovations
5
10
15
20
25
30
Dr. Frank Devitt
Top 10 NPD success factors
(PDMA)
Evaluating New
Product Innovations
1. A high‐quality new product process
2. A defined new product strategy for the business unit
3. Adequate resources—people and money—for new products/services/ideas
4 R&D or Design
4.
D i spending
di on new products
d t (as
( % off the
th business's
b i
' sales)
l )
5. High‐quality new product development teams
6. Formal,, consistent encouragement
g
for creative thinkingg within the organisation
g
7. An innovative climate and culture in the business unit
8. The use of cross‐functional teams for product development
9. Senior management accountability for new product results
10. Capacity and willingness of the business to engage in networks and collaborations to
develop
p new technologies
g and ideas
Evaluating New Product Innovations
Dr. Frank Devitt
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NPD Success Factors
ref. Robert G. Cooper
p
Evaluating New
Product Innovations
Resource commitments
Superior differentiated product
Superior,
Organisational structure, culture, climate
International outlook
Leverage core competencies
Market attractiveness
Market need, growth, size
competitive situation
Speed is everything
Evaluating New Product Innovations
Dr. Frank Devitt
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How can we innovate
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
DOBLIN – 10 ways to innovate
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
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Innovation must be managed as a strategic business process
as a strategic business process
Evaluating New
Product Innovations
Tidd & Bessant model of the innovation process:
INNOVATION STRATEGY
SEARCH
SELECT
IMPLEMENT
CAPTURE
INNOVATIVE ORGANISATION
Evaluating New Product Innovations
Dr. Frank Devitt
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Stage‐Gate™ process for NPD
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
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Stage‐Gate™ process
Evaluating New
Product Innovations
Each stage:
has well defined objectives
j
has a set of deliverables
has a full resource commitment for its duration
is cross‐functional
costs more (more commitments) than the previous one
Each gate
requires a set of defined deliverables
has defined criteria against which to evaluate the deliverables for the GO/KILL decision,
e.g.
business’ strategy?
does the proposed project fit our business
does it meet our environmental, health and safety policies?
core competencies, market attractiveness?
defined outputs
decision, action, resource plan, deliverables, date for the next gate
Evaluating New Product Innovations
Dr. Frank Devitt
Stage Gate decision making
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
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Evaluating New
Product Innovations
Open Innovation
accessible
Innovation output is achieved by creatively using a firm’s own assets
to bring about the customer’s value‐adding experience.
Assets
It’s increasingly difficult –
’
l d ff l impossible –
bl to “own” “
”
all these.
Access, rather than control, is the goal.
access to market knowledge
access to technology knowledge
t h l
t
d supports
t
technology
competence
and
design competence and supports
process and organisation systems and management
Absorptive Capacity is the pre‐requisite.
Evaluating New Product Innovations
Dr. Frank Devitt
Closed v. Open Innovation
from know‐how to know‐who
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Evaluating New
Product Innovations
Closed innovation principles
Open innovation principles
The smart people in the field work for us.
Not all the smart people in the field work for us.
We need to work with smart people inside and
outside the company.
To profit from R&D, we must discover it, develop
it, and ship it ourselves.
External R&D can create significant value:
internal R&D is needed to claim some portion of
that value.
If we discover it ourselves
ourselves, we will get it to the
market first.
We don
don’tt have to originate the research to profit
from it.
The company that gets an innovation to the
market first will win
Building a better business model is better than
getting to the market first.
If we create the most and the best ideas in the
industry, we will win.
If we make the best use of internal and external
ideas, we will win.
We should control our IP, so that our
competitors don’t profit from our ideas.
We should profit from others’ use of our IP, and
we should buy others’ IP whenever it advances
our business model.
from: www openinnovation eu
from: www.openinnovation.eu
Evaluating New Product Innovations
Dr. Frank Devitt
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Open Innovation web examples
Evaluating New
Product Innovations
Corporate websites – examples of open innovation and
crowdsourcing-like initiatives:
Open innovation / crowdsourcing
intermediaries and platforms:
3M Zukunft Innovation (in German)
BMW Virtual Innovation Agency
Boots Centre for Innovation
Campbell’s Ideas for Innovation
Cisco I-Prize
I Prize
Clorox Connects
Colgate-Palmolive
Dell IdeaStorm
DSM Licensing
Ei
Ericsson
Ford Story
General Electric Ecomagination
General Mills G-WIN
GlaxoSmithKline
Hershey´s Ideaworks
HP Labs Open Innovation Office
IBM Collaboration Jam
Huawei
Intuit Collaboratory
Intuit Labs
Johnson Controls Open Innovation
Big Idea Group
Chaordix
EdisonNation
Exnovate
Hypios
Ideas4All
IdeaConnection
IdeaWicket
InnoCentive
I
InnoGet
G
Innoradar
MillionBrains
Napkin Labs
NineSigma
g
Pharmalicensing
TekScout
Topcoder
Yet2.com
Your Encore
Open innovation / crowdsourcing software:
BrightIdea
Fellowforce
Imaginatik
I
Inno
360
InventionMachine
Spigit
Evaluating New Product Innovations
Kraft – InnovateWithKraft
LG
Medtronic
Nestlé
Netflix Prize
Nokia
Nokia Beta Labs
P&G Connect+Develop
Pepsi Refresh Project
Phili
Philips
Psion
Reckitt Benckiser
SAP
SAP – Sapiens
p
((In German))
Sara Lee
Shell GameChanger
Siemens
Starbucks – MyStarbucksIdea
Unilever
Weyerhaeuser
YTL Communications
Xerox
Dr. Frank Devitt
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NPD Project evaluation
Evaluating New
Product Innovations
Mitigating risk and ensuring financial return
Portfolio level & Project level
http://www.sciforma.com/page?id=417
Evaluating New Product Innovations
Dr. Frank Devitt
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Expected commercial value (options)
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
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NPD Portfolio management
Evaluating New Product Innovations
Evaluating New
Product Innovations
Dr. Frank Devitt
Project Assessment scoring model
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Evaluating New
Product Innovations
Strategic Alignment
Degree to which project aligns with our strategy
Strategic importance
Product/Competitive
/
p
Advantage
g
Offers customers/users unique benefits
Meets customer needs better
Provides value for money for the customer/user
For GO/KILL decisions
and for Project Prioritisation
Market Attractiveness
Market size
Market growth rate
Competitive intensity in the market (high=low score)
S
Synergies
i (Leverages
(L
O Core
Our
C
C
Competencies)
i )
Marketing synergies
Technological synergies
Operations/manufacturing synergies
Score each factor 1
1-10
10 and
aggregate them (weighted or
unweighted) to yield a
Project Attractiveness Score.
Technical Feasibility
Size of technical gap (large=low score)
Technical complexity (barriers to overcome) (many/high = low score)
Degree of technical uncertainty (high=low score)
Risk Vs. Return
Expected profitability (magnitude: NPV)
Return on investment (IRR)
Payback period (years; many=low score)
Certainty of return/profit estimates
Low cost & fast to do
Evaluating New Product Innovations
Dr. Frank Devitt
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Market diffusion and adoption
… area of greatest uncertainty
g
y
Evaluating New
Product Innovations
Commercialisation Factors that influence adoption
Timing
Targeting and positioning
Inter‐firm relationships
Product
Distribution
Advertising and promotion
Pricing
Evaluating New Product Innovations
Dr. Frank Devitt
Evaluating New
Product Innovations
Evaluating New Product Innovations
Evaluating New Product Innovations
Dr. Frank Devitt