Strategy, Process
Organisation and Timing
Key Steps For NPD Success
Clear strategic
direction
Ensure NPD goals and objectives:
• Fit with strategy
• Are challenging
• Are adequately resourced
• Are well prioritised
Speed
Responsive
process
• Adaptable steps
• Minimum possible
bureaucracy
• Clear tasks and
responsibilities
Timely,
Effective
NPD
Speed
Speed
Appropriate
organisation/
philosophy
• Organisation
according to
product type and
priority
• Clear but
moderate top
level input
• Atmosphere
of creativity
Clear strategic direction
NPD strategy must:
•
Fit with company strategy
•
Fit with company skills and capabilities
•
Fit with company ethos/style
Danger of new products NOT
fitting strategy/capability/style
•
NPD is risky enough anyway, why make it
riskier?
•
Management takes its eye off the ball in core
business
•
“Opportunity cost” is high : resources are finite
•
Existing customers may be alienated
Examples of ill-fit between
products and strategy
•
•
•
•
•
Pierre Cardin
Arcadia (Burton)
Prudential
SAS
Kingfisher
•
•
•
•
•
Downmarket jewellery
Shopping centres
Estate agencies
Catering
ISP (Liberty Surf)
Ill Fit Can Be Justified
BUT
If you’ve weighed all that up and it
still makes sense....
GO FOR IT!
(eg. Securicor and Cellnet)
How Can You Tell Whether Products
Are Appropriate?
Approaches to Innovation
Leadership
in
Innovation
High
• Concept
• Product
Low
Low
High
Barriers to “followership”
• Patents
• Capital Spend
• Advertising spend
Generic NPD Strategies
High
Market Driven Modifier
You’re good at innovation but
it can easily be copied
•stream of product modifications
•incremental changes
•first to market
Leadership Moderate Investment
in
Innovation Fast Follower
Low
Next Generation Innovator
You’re good at innovation and
others can’t follow easily
•new product categories
•high internal investment
•first to market
High Investment
Acquirer
You’re not so good at innovation, You’re not so good at innovation
but the types of innovation can
andits tough to copy
be copied
•acquire capabilities
•standby research
•leapfrog existing leader
•flexible staff
•build on acquired capabilities
•fast second market
Moderate Investment
High Investment
Low
High
Barriers to Followership
Key Skills Required
Market Driven Modifier
•Vigilance regarding
High
improvements
•Rapid innovation
•“Tweaking”
Leadership •Consumer knowledge
Next Generation Innovator
•Technological prowess
•“Out of the box” thinking
•Rapid innovation
•Consumer knowledge
in
Innovation
Fast Follower
Low
•Market intelligence
•Reverse engineering
•Rapid response
•Flexible manufacturing
Acquirer
•Commercial intelligence
•Financial analysis
•Efficient implementation
• of commercial synergies
Low
High
Barriers to Followership
Industry Types
Market Driven Modifier
High
•Food companies eg Nestle
•Consumer Goods eg P&G
•Japanese cars
Leadership
in
Innovation Fast Follower
Low
Next Generation Innovator
•Electronics eg Sony
•Pharma eg GSK
•Software eg Microsoft
•Acadaemia eg Cambridge
University
Acquirer
•Fashion eg M&S, Zara
•Electronics eg Marconi
•Electronics eg Matsushita •Software eg Microsoft
•Fast Food eg Burger King •Hanson
Low
High
Barriers to Followership
Matrices Compared
“Newness” of the Product
Approaches to Innovation
High
Leadership in
Innovation
Low
Market
driven
modifier
Fast
follower
Low
Next
generation
innovator
Yes
New to
Company
Acquirer
High
Barriers to “followership”
Me-Too
Product
New to
World
Product
Repositioning
Improvement
No
Yes
New to Market
No
Conditions for Proactive vs.
Reactive Strategies
Proactive
Appropriate when:
• Patents protect the
invention
• The product offers high
volumes and/or margins
• There’s the possibility of
entering new markets
• Company holds power in
the distribution channel
• The Budget exists for
substantive advertising
Reactive
Appropriate when
• Patent protection is
unlikely
• Company needs to
concentrate on existing
products or markets
• Market too small to
recover development
costs
• Distribution chains are
in the hands of another
competitor
SWOT Analysis
SWOT
Strengths
Weaknesses
Internal
Opportunities
Threats
External
NPD Strategy: Conclusions
1. Generally, NPD strategy should fit corporate
strategy/skills/style
2. SWOT analysis is very helpful in illustrating
appropriate areas of NPD (at a personal level
too)
3. There are 4 key generic strategies - each is
appropriate in different circumstances. It’s
worth considering which approach may suit
you best
How is it Done?
Market facts
& ideas
Technical
facts &
ideas
Activities
Phase I
Phase II
Phase III
Concept
Generation
Business
Proposition
Development
Launch
Preparation
• Gather ideas
• Conduct
demand
research
• Develop
project briefs
>>>>>>>>>
Launch/
Rollout
• Build total
proposition
• Organise
logistics
• Launch marketing
campaign
• Determine,
test, refine
components
(packaging,
name, etc)>>>>>>>
• Prepare
marketing
campaign
• Distribute product
• Monitor progress
• Brief salesforce
ITERATIVE
Phase 1: Concept
Generalisation
Cross functional inputs required:
• fusion of ideas from R&D, marketing,
logistics
• open sharing of ideas
• formal and informal interdisciplinary
forum
Phase 2: Business Proposition
Development
Change from concept to sound business
propositions:
• Prototyping
• Market research
• Test marketing
• Pre-production engineering and costing
• New product business plan/proposal
Phase 3: Launch Preparation
Close multifunctional approach required:
• Establish marketing mix (4Ps)
• Packaging development
• Market testing
• Product refinement
• Sourcing
• Production engineering
• Begin manufacture
Launch
• Put marketing mix (4 Ps) into
practice
• Monitor progress
• Log successes and failures
• Redeploy team thoughtfully
New Product Development Stages
Motorola – 4 stages
Product Definition
Contract Development
Development through manufacturing start-up
Program wrap-up
New Product Development Stages
Kodak- 6 stages
Customer mission/vision
Technical demonstration
Technical operation/feasibility
Capability demonstration
Product/process design
Acceptance and production
New Product Development Stages
Xerox - 7 stages
Pre-concept
Concept
Design
Demonstration
Production
Launch
Maintenance
New Product Development Stages
Get an idea
Prove it works
Develop and test it
Scale it up
Launch it
Monitor things
Keep iterating
Generic
Cost of product screening
Stage
Ideas
Pass ratio Cost/
idea, $k
Idea screening
64
1: 4
1
Concept test
1:2
20
Product Development
1:2
200
Test Marketing
1:2
500
Launch
-------------------------------- ------Successful idea
1
1:2
5,000
-------
-------
Total
cost, $k
-------
Cost of product screening
Stage
Ideas
Pass ratio Cost/
idea, $k
Total
cost, $k
Idea screening
64
1: 4
1
64
Concept test
16
1:2
20
320
Product Development
8
1:2
200
1,600
Test Marketing
4
1:2
500
2,000
Launch
2
1:2
5,000
10,000
Successful idea
1
13,984
Approximate Costs of NPD: %
Stage
Consumer Goods
Opportunity
Identification
Design
Testing
2
2
3
28
16
Launch
Total
100% =
Industrial Chemicals
$12.6m
Source:McKinsey analysis
13
79
57
100
100
$4.7m
Who Does NPD and What Do They Do?
R&D
Senior Management
Manufacturing
• Investigate emerging
technologies re: new
products
• Evaluate fit with
corporate strategy
• Ensure the product
can be manufactured
at economic cost
•Design new products
• Hold the purse strings
• Establish production
line
NPD
Marketing
Legal
Finance
•Discover what the
customer wants/needs
• Apply for product patent
• Evaluate financial
impact of NPD on
cashflow of business
•Design marketing mix
• Check product liability
• Conduct NPV
calculations
Who Does It ? Textbook View
R&D Engineering
Marketing
Production
Finance
Role of Finance
NPD via NPV
• Build cashflow models
• Calculate the rate of return
• Compare to the company’s cost of capital
Key considerations:
• Risk of project
• Reliability of key assumptions (whose agenda?)
• Volume assumptions affecting economies of scale
• Cannibalisation of existing products
Manufacturing: NPD input
• Early input to design process (ie “don’t
design for 1 unit but for 100,000”)
• Extensive use of technology (eg
CAD/CAM)
• Clear view of ultimate manufacturing
location – crucial effect on costs (eg labour
vs capital)
Manufacturing: Efficiency of
Process
JIT – Just in Time
• Pull inventory through system
• Produce on schedule, not +/• Focus on quality via visibility
TQM – Total Quality Management
• Emphasis on quality throughout
• Culture change from inspection to prevention
• Employee awareness and motivation key
• All responsible for satisfying customer
Manufacturing:effect of external
pressure:WWII example
Saginaw Steering Gear – to make machine
guns:
Plan
Achieved
Nov 1940
Start plant
March 1941
1
Dec 1941
1
March 1942 280
28,000
Process: Conclusion
1. A typical process will have several clear
and distinct phases
2. The further along the process an idea
moves, the greater the accumulation of cost
3.Most of the organisation is involved to some
extent
Organisational Options for
NPD
•
•
•
•
As part of R&D
As part of marketing
Within its own department
Throughout the organisation
•
•
•
•
•
•
Via NPD committee
Via new product task-force
Small permanent staff
Matrix organisation
Entrepreneurial division
Alliances
Common options
Less frequently used options
NPD as part of R&D
Pros
• NPD closest to those
who understand
technical side
• Projects tend to be
more technically
successful
Cons
• Little consumer
perspective
• Poor for brand
improvements
• Projects tend to go
into cost overruns
Comments
•If NPD is within R&D do you organise round
pure research or products ie development?
•Rule of thumb: if over ¼ of R&D budget goes
to basic research then separate research from development
NPD as part of Marketing
Pros
• Emphasis on
consumer
understanding
• Good for
incremental
improvements
Cons
• Poor for truly
innovative
products
• Marketing often
has short time
frame
Comments
Incremental improvements to brands fit well within product
manager’s responsibility and ensure automatic product
champion
NPD in Separate Department
Pros
• Establishes NPD as
high priority
• Brings diverse
skills together
• Frees itself from
day to day
pressures
Cons
• Threatens power base of
existing department heads
• May be overly structured
to use true entrepreneurial
talent
• Inappropriate for
incremental improvements
Comments
Needs high profile within the organisation otherwise heads
of department who need to supply personnel will be
reluctant to do so
Description of Rugby vs Baton
Approach
Hand picked,
multidisciplinary
team
Members work
together throughout
Phases overlap and
merge
Rugby Approach vs Baton Approach
Baton
Phase
1
2
3
4
5
6
1
2
3
4
5
6
Rugby 1
Phase
Rugby 2
Phase
1
2
3
4
5
6
Pros and Cons of Rugby vs Baton Approach
Direct benefits
Direct problems
Faster development
Increased flexibility
Communication throughout
large team
Maintaining cohesion
Heightening tension
Indirect benefits
Shared responsibility and
cooperation
Lasting understanding of
others’ agendas
Diversified skills
Wider problem solving
capabilities
Indirect problems
Resentment of other
departments (?)
Erosion of specialist skills(?)
Role of Communication
“Communication. There’s more crap talked
about communication than any other single
topic in industry today.
The reason? To most managers communicate
means transmit information. Any
communication mechanism is, at best, only half
effective if it doesn’t receive as well as
transmit.”
Barry Gibbons
Chairman, Burger King 1989-94
Value of communication…
R & D versus Marketing
Culture – R & D view
(exaggerated stereotype)
R&D culture
Marketing Culture
•
•
•
•
•
•
•
•
Deep
Scientific
Perfectionist
Understands product
Shallow
Airy-fairy
Get it out quick
Misunderstands product
R & D versus Marketing
Culture – Marketing view
(exaggerated stereotype)
R&D culture
Marketing Culture
• Anoraks
•
• Takes forever
•
• Poor customer
•
understanding
•
• Priority is discovery
Realists
Speedy and reactive
Deep customer understanding
Priority is profit
Manufacturing and R&D
Cultures – (Stereotypes)
R&D culture
Manufacturing Culture
•
•
•
•
•
•
•
•
Creative
Can-do
Iterative mindset
Tolerance of
ambiguity
Rigid
Discipline-oriented
Stable
Tolerance of repetition
R&D and Manufacturing
Working Together-Example
IBM Dot Matrix Printer
• Needed cheap effective printer
• Small team of R&D and
manufacturing
• Mandate: work together to
Result:
simplify product with tight
•150 parts down to 60
deadline
•Developed in half normal time
•Very reliable product
•Became market leader in 5
months
Organisation: Conclusion
There is no prima facie optimal
organisational structure for NPD. It depends
on the type of product and the company’s
priorities.
• For improvements, marketing input is key
• For greater innovation, R&D is key
• As department after department is involved,
interaction and overlapping stages are crucial
Advantages of reducing
development time
• Keeps you close to customer requirements
• Keeps you a step ahead of the competition
• Infuses the whole company
• Good for profitability
Time is money
33%
3.5%
Profit lost when product
shipped 6 months too late
Profit lost with 50%
overspend on budget
Source:McKinsey analysis
Ways of Reducing time to market examples
Use baton approach
Improve communication
Avoid perfectionist mentality
Flexibility to cope with change
Use standard components
Early customer input
Log “ready to go” ideas
Fewer approval stages
Alliances
Timing: Conclusion
Get a
move
on!
Conclusion
• NPD strategy should fit with company
strategy
• The process should be responsive
• The NPD group needs to be organised
according to the product type
• Teams should be multifunctional
• Speed is essential