CD 303

PRODUCT DEVELOPMENT

Topic Synthesis on New Product Development

Prepared by: Ma. Solita J. Virtudazo

PhD (Com Dev) Student
 Discussion Points

1. What is New Product Development

(NPD) and why is it important?
2. NPD principles of success
3. Strategic Planning and Opportunity and
Identification of New Products
4. Framing Opportunity Areas
 What is New Product?
• new product can mean different things to
different people.
• NP run the gamut from the cutting edge of
technology to the latest version of the ball pen
– could be tangible goods and services
– can be destined for the consumer market
(B2C), the business-to-business (B2B), or both
• The next slide shows that new products can
include new-to-the-world (sometimes called
really- new) products, as well as minor
repositionings and cost reductions. 1-3
 What Is a New Product?
New products can be categorized in terms of how new they really are to the world,
or to the firm. One common set of categories is as follows:

• 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.
1-4
 What is New Product Development?

• 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. 1-5
What is New Product Development
 study how new products are developed and managed

They are one and the same:

 Product innovation management
 Product planning
 Research and development
 New products management
 New product development

1-6
But the New Products Process is Difficult!
Percent of Products that Fail
90
90
80
70
60
50 40
40
30
20 10
10
0
Sometimes Quoted Research Reports Sometimes Claimed
in Press
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.
1-7
 Best Practices in New Products

• 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. 1-8

 Comparing the Best New
Product Firms vs. the Rest
• 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!
1-9
Globalization and New Product Development

• 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. 1-10
 Firms With a Global Innovation Culture

• 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.
1-11
The New Products Process is All About Teams

• 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.
1-12
 Not All New Products Are Planned

• 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!
1-13
 Easier Said Than Done?
• 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.
1-12
 The Strategic Elements of
Product Development
• The New Products Process (Chapter 1 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
strategic
and objectives. 1-13
The Basic New Product Process

Phase 1: Opportunity Identification/Selection

Phase 2: Concept Generation

Phase 3: Concept/Project Evaluation

Phase 4: Development

Phase 5: Launch

1-16
The Basic New Product Process
FIGURE I.1 Opportunity Identification and Selection

Inputs from ongoing Special opportunity Inputs from ongoing

marketing planning audits corporate planning

Audit of relevant markets

Audit of resources

Sort Suggestions for Product Innovation Activity

Exploit underutilized Exploit new resources Respond to external Respond to internal

resources mandate mandate

Technical Discoveries Quality studies Owners

Financial Acquisitions Customer needs Top management plans
Product Diversified markets Competitive threat Unit management plans
Market Regulation Gaps

Study the mandate,

Study the mandate,
Evaluate the resource and define it carefully validate role for
validate the threat
product innovation

Cull to a Pool of Validated New Product Opportunities

Reject those that conflict with ongoing product innovation strategy.

Reject those clearly not economically or technically viable

Give Each Opportunity a Product Innovati on Charter (PIC)

Fits a PIC already in place Requires a new PIC

To Fig. II.1 Concept

Generation

1-17
Principles and Issues in the New Products Process

• Between the phases of the process are evaluation tasks or

decision points, where hard Go/No Go decisions are taken.
• There is pressure to accelerate time to market (speed the product
through this process), and phase overlapping and cross-functional
teams are used to accomplish this.
• Fuzzy gates are commonly used: this is a “conditional Go” so
as not to slow down the process in analysis.
• Still, fuzzy gates must have teeth! A potential problem is that
the result should be No Go but the project goes through anyway.
• Another problem: hollow gates (the Go decision is made but
no financial support is provided).
1-18
 Third-Generation New Products Process

• Most firms use what is called a Third-

Generation process.
– This is a flexible interpretation of the basic
process, which allows overlapping phases
and fuzzy gates.
• This flexibility is particularly important in
the development of new-to-the-world,
breakthrough products.

1-19
The New Products Process Interacts With the
Other Strategic Elements

• Without the strategic direction provided by the Product Innovation

Charter, the firm’s attempts at product development will be
unfocused. The PIC helps the team identify opportunities and focus
efforts.
• Product Portfolio considerations help the firm decide whether a
new product opportunity adds financially and strategically to the
current line and avoids spreading scarce financial and human
resources too thin.

1-20
 So, Does All Of This Actually Work?

• 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.

1-21
 Reference:

Crawford, M. and Di Benedetto A. (2003). New Products Management 10th

Edition. 576 pp.