EXECUTIVE WIRE
NORTH AMERICA / 2013 - 1.0
New Products and New
Markets: A Process for
Successful Innovation
THIS ISSUE HOT TOPICS
• The New Product Development Process
• Diversifying Into New Markets
• New Technology Supports Innovation
The development of new products and markets is a critical component of a
successful business strategy, as research indicates that innovative businesses
deliver above average sales growth and profitability.
FIGURE 1. NEW PRODUCTS, NEW MARKETS (WITH FOREST INDUSTRY EXAMPLES)
RISK
• Product extensions
• Market expansions
• Product and/or Market Diversification
Figure 1 outlines the range of opportunities
that exist and indicates how the level of risk
increases as enterprises move away from
current products and markets. The options
that carry less risk generally are more familiar
to the enterprise and have higher success rates,
as noted by the proportion of successful new
products within each category. For example,
almost all paper and board companies have
introduced product extensions, such as
developing lighter basis weight options, and
many have expanded into adjacent markets,
EXECUTIVE WIRE
High
PRODUCTS
1.1
Current products
Current markets
1.1
Increase product line to
include additional sizes,
or provide additional
services
WHAT ARE THE OPTIONS?
There are several options for expanding
an enterprise’s reach and developing new
products, with various levels of risk and rewards
associated with them. Generally, the options
consist of some combination of the following:
Low
Low
MARKETS
The need for new products is driven by the
fact that customers habits are continually
evolving, especially as new technology
develops and competing suppliers offer
innovative new solutions to satisfy customers’
needs. The graphic papers sector in North
America has examples of new products
developed, or new markets entered with a
mixed record of success. However, it is not
just those positioned in declining markets
that need to innovate. All companies should
have a process in place to expand their
markets and extend their product lines.
High
1.2
Current products
Market expansion to
1.2
adjacent markets
Sell lightweight SBS
40%*
generally used for folding
cartons into printing and
writing end use e.g. ,
cards
1.3
Current products
Market diversification
to totally new markets
1.3
20%*
Sell current release liner
product into new fiber
composite applications
2.1
Product extension
Current markets
2.1
50%*
Producer of coated
papers develops lighter
weight product for sale to
current book markets
2.2
Product extension
Market expansion to
adjacent markets
2.2
20%* Sell the newly developed
lighter weight product
Into a food packaging
end use
2.3
Product extension
Market diversification to
totally new markets
2.3
7%*
Modify smoothness of
release liner product for
sale into new market,
e.g.,
e.g solar cell market
arket
3.1
Product diversification
3.1
Current markets
Utilize new technology,
30%*
e.g., nanocellulose, to
develop coating
providing extra strength
for company’s lightweight
SBS product for
cosmetic packaging
3.2
Product diversification
Market expansion to
3.2
adjacent markets
Sell the newly
10%*
developed SBS product
with nanocellulose
coating technology into
specialty printing and
writing end use
3.3
Product diversification
Market diversification to
totally new markets
3.3
1%*
Develop new
composite of cellulose
and plastic to sell to car
manufacturers
*%’s reflect proportion of successful new products in each category and are indicative
Source for %’s: Klus, J. 2004. Interview, Emeritus professor at University of Wisconsin, Madison.
such as selling lightweight paperboard into
a graphic end use as well as a packaging end
use, because these are easier to accomplish
and are often seen as only stretching the current
condition, rather than fully diversifying.
However, the old adage “the higher the risk,
the greater the reward” is true. It is important
for all enterprises to plan product portfolios
carefully to ensure the highest levels of return
and the best opportunities for success. The
best portfolios will have products in each of the
nine boxes in Figure 1 and will have a strong
process for encouraging innovation, even to
the point of leading the enterprise to function
outside of its current comfort zone. Diversifying
into new products and markets can provide a
strong boost to a company, both by providing
a competitive advantage and bringing new
revenue.
TABLE 1. PRODUCT DEVELOPMENT PROCESS
A
IDEATION/DEVELOP NEW IDEAS
B
IDEA SCREENING
C
CONCEPT DEVELOPMENT AND TESTING
D
BUSINESS ANALYSIS
E
PRODUCT DEVELOPMENT
F
TESTING AND VALIDATION
G
COMMERCIALIZATION
THE PRODUCT DEVELOPMENT PROCESS
New product development is not just extending
the status quo, it is usually time consuming,
risky, and frequently costly. A clear strategic
vision with regard to innovation needs to be
articulated by an enterprise. Therefore, the
drive for innovation and diversification generally
comes from the top of the organization, if new
product development is to be successful.
Prior to instituting a process for product
development, a new organizational structure
may need to be implemented, because new
product development, especially as the level of
diversification and innovation increases, rarely
resides easily in a non-dedicated group or unit.
A new organizational structure may include
Innovation Teams, or may integrate R&D into a
business unit.
Once the organization is developed, a new
product development process needs to be
implemented. The goals of the process should
be to:
1 Maximize the value of the portfolio.
2 Design a portfolio that is aligned with the
company’s strategy and targets so that the
new products get you where you want to be.
3 Develop the right mix of projects within
the portfolio, which, as indicated in Figure
1, would include extensions, expansions
and diversification. This can be a difficult
balancing act, and several criteria need
to be considered, such as cost, R&D
investment, technical capability, time
to market, potential return/reward, and
probability of commercial success.
4 Define the right number of projects, i.e.,
how many can the organization handle at
one time compared to what is required for
its continued success.
The process, itself, includes several steps and
can be thought of as a stage-gate process (go/
no-go decision after each step). Major steps
generally included in the process are outlined in
Table 1.
Depending on the level of innovation decided
upon (extension, expansion, diversification),
EXECUTIVE WIRE
Generate a large number of new ideas (could be hundreds). The best sources for ideas
are often customers, end users and even competitors. Practices such as customer
intimacy and voice of the customer can be very useful here. In addition, other good
sources of ideas include employees of the company, channel partners, engineers,
scientists, consultants, and marketing agencies.
Screen the ideas from the previous step by develop and weighting screening criteria.
Prioritize or rank them. Consider all of the ideas generated, and determine which are the
most likely to succeed when considering the enterprise’s manufacturing, technology,
and marketing capabilities. Which ideas fit best with the enterprise’s competencies and
strategy?
Begin concept development for the best ideas, after the screening process. Develop
the preliminary product concept and value proposition; identify specific targeted
market segments by conducting market research with potential users. Develop a
customer map, which should lead to an outline of the value chain structure and service
requirements. Further narrow the list of ideas.
Analyze the internal/enterprise specific feasibility to produce the product, as well as
the costs associated with development/production, marketing, sales and potential
pricing/margins/profitability. In addition, conduct external analysis around competitive
strategies and capabilities. Further prioritize the options.
Design and develop prototypes for the best option(s). Conduct trial production, including
in-house testing, until a satisfactory product is made.
Test market the new product with converters and/or consumers, perhaps leading to
redesign, tweaking, etc., with suggestions leading to another round of trial production.
In-depth consideration of competitor responses, ramp-up time/sales development,
distribution involvement, etc. is also included here.
Full product launch, including development of marketing materials and communications
with consumers and markets.
some of these steps can be streamlined and
completed rather quickly. However, in industrial
markets, commercialization of new products
can be very time consuming, as any material
change can lead to risks for the final product
performance. And, while benefits of a new
material can be exciting, the potential liabilities
of failure can be large. The more innovative
the product or different the market, the more
comprehensive and thorough the testing needs
to be by participants throughout the value
chain, which can take weeks, months, or years.
A word of caution, even something as simple as lowering the
weight of paperboard can lead to failure of the final box. And,
ensuring that the new substrate performs well through a
converting process can also be time consuming and may require
product reengineering. Or, thinking outside of the box, if a new
fiber, nanocellulose for example, is substituted for carbon fiber in
the construction of an airplane, but is inadequately tested, and
fails, then the consequences could be devastating.
DIVERSIFYING INTO NEW MARKETS
Even with the goals and process for new product
development in place and clearly articulated,
successfully launching an entirely new product
within an entirely new market can be a daunting
task. In addition to running comprehensive
product trials, conducting detailed market
segmentation should become routine, in order
to minimize failure across a larger market, which
has not been segmented sufficiently. After all,
it is better to assess a small market thoroughly
rather than assume the product fits for a large
market with more diversity than is immediately
obvious. More detailed market segmentation
leads to better understanding of the needs of
new customers and improves the success rate
of diversification.
Although it is a good idea to be active in all
categories within Figure 1, many companies
focus significant effort on product extensions
or market expansions because they can often
be brought to market more easily, promising
some quick successes. For example, many
printing and writing companies are focusing on
development of more specialty grades, such as
lightweight packaging or release liner and label
grades. While this brings some improvement
in declining markets, it doesn’t provide much
long lasting relief, as competitors can more
easily follow into these adjacent products and
NEW TECHNOLOGY SUPPORTS INNOVATION
More than likely, new product development will
be tied, at some level, to new technology. For
the pulp, paper and packaging industry, one
area of new technology which has yet to be
commercialized on a large scale is the use of
nanotechnology in the form of nanofibrillous
cellulose (NFC) or microfibrillous cellulose
(MFC).
These materials impart functional
properties at lower weights and higher strengths
than many other materials. They could be used
to develop product extensions, for example, as
fiber reinforcement within a paper or board, or
as an additive in a coating to provide a special
barrier property. Stepping further along the
continuum, to partial and full diversification,
nanocellulose could be utilized by paper
manufacturers to produce translucent “label
paper” or “smart labels” for food packaging
or to enter into entirely new markets. Then, to
WHO GOES FIRST?
There is the issue as to whether an enterprise should be first to market, or should be a follower
into a market. There are costs and risks, but also many rewards associated with being first in the
market, some of which are outlined below.
POTENTIAL REWARDS FOR BEING FIRST:
POTENTIAL REWARDS FOR FOLLOWERS:
• Higher market share
• First choice of market segments and
positions
• Increased sales through longer sales life
• Define the rules of the game
• Distribution advantages; securing a supply
chain
• High switching costs for early adopters,
increased product loyalty
• Possibility of preempting scarce resources
• Sustained leadership position
• Economies of scale and experience
• First with patents
• Take advantage of “first’s” mistakes: product,
market, positioning
• Lower promotional expenditure than first, as
the market is created
• Lower product costs, as development time is
shorter and quality requirements are better
understood
• Lower service costs, as customer
expectations are better understood
• Leapfrog the “first” with superior technology,
quality and customer service
markets, with value chains that are simple and
understood.
To push the envelope and take a step
beyond what the competition is capable of or
comfortable doing, diversification is required,
however. To mitigate the risk of entering a new
market, it is sometimes a good idea to get help
by developing partnerships or joint ventures with
complete diversification, entirely new products
could be manufactured, along the lines of
functional tailored composites or surfaces, with
nanocellulose pulps.
Of course, as with any new product development,
hurdles may need to be surmounted, especially
with new technology. For example,
• Enough scale may not yet exist for some end
uses
• The technology for testing or measuring the
characteristics and specifications of the
products may be new and unproven.
• Consumer acceptance may be an issue, for
example with health, safety and environmental
considerations, even though nanotechnology
is generally considered to be environmentally
friendly.
• Supply chains for providing the raw materials
and the intermediate products are not well
Recent collaboration between Ford and Weyerhaeuser lead
to the use of cellulose fibers in plastic composites to reduce
weight. This can be extended to a range of hydrocarbon and
nonhydrocarbon polymers, according to Weyerhaeuser. In
addition, there are examples of unique protective packaging
materials using agricultural byproducts and mycelium.
EXECUTIVE WIRE
other participants already positioned in these
markets. While partnerships can be useful in
many cases, they can be particularly helpful
as companies move further away from their
current comfort zones and into diversification.
Even if the relationships are loosely constructed,
they can help provide important insights and
guidance on product and market requirements.
established, or may not be established, at all.
• And, last, but not least, the economic
feasibility of this new technology may not be
proven and won’t be until some pioneers take
the first major steps.
It is not easy to be successful in developing
new products. It requires commitment of
time, money and effort from many levels of an
organization. It often requires help from outside
the organization. However, with an innovation
strategy in place, and a full understanding of
the needs of the customers and end users,
a successful introduction is almost certain,
and the opportunity to be first to market could
produce significant rewards.
HOW PÖYRY CAN HELP
Pöyry can customize a new product development process that works for your enterprise. We have expertise in each of the following areas:
NEW PRODUCT DEVELOPMENT
PROCESS
CUSTOMER NEEDS
BUSINESS ANALYSIS AND
PRODUCT DEVELOPMENT
TESTING, VALIDATION, AND
COMMERCIALIZATION
• Developing a structure that works
for the enterprise based on mission
and values
• Aligning consensus among
stakeholders
• Facilitating ideation sessions
• Screening ideas
• Providing options for optimal
organization structure
• Implementing an innovation
process
• Finding new markets
• Finding partners
• Conducting primary research
interviews with key customers,
end users, consumers
• Conducting focus groups
• Developing value propositions
and voice of the customer
processes
• Determining value in use
opportunities
• Assessing product and service
specifications and requirements
• Screening products and markets
• Developing market plans
• Assessing supply chains
• Providing risk-reward analysis
• Estimating cost to produce
• Conducting financial analysis
(NPV/ECV)
• Competitive analysis: strategy,
likelihood, and cost to enter
market
• Assessing cost competitiveness
• Providing technical support
• Providing market segmentation
analysis
• Assessing competitor response
• Developing production planning
process and design
• Planning market share and sales
goals
Pöyry is a global consulting and engineering company dedicated to balanced
sustainability and responsible business. With innovation, quality and integrity at
our core, we deliver best-in-class strategic advisory, engineering, project
implementation and operations support services. Our in-depth expertise extends
to the fields of energy, forest industry, chemicals & biorefining, mining & metals,
transportation, water and real estate. Pöyry has about 7,000 experts and an
extensive local office network.
Soile Kilpi, Director
tel. 646-651-1547
soile.kilpi@poyry.com
Kathy Kneer, Principal
tel. 646-651-1548
kathren.kneer@poyry.com
Poyry Management Consulting USA
52 Vanderbilt Avenue, Suite 1405
New York, NY 10017, USA
www.poyry.us