Evaluating New Product Innovations

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(1)
(2)

Product Innovations

Innovation is essential.

Innovation is essential.

INNOVATION

R&D SPENDING

INNOVATION

R&D SPENDING

INNOVATION

    ≠   

R&D

 

SPENDING

INNOVATION

    ≠   

R&D

 

SPENDING

(Good news for Chief Financial Officers)

R&D spending must be done wisely and is only 

R&D spending must be done wisely and is only 

p

p

g

g

y

y

y

y

part of the spend required for successful 

part of the spend required for successful 

innovation!

innovation!

innovation!

innovation!

(3)

Product Innovations

Innovation

 

and

 

research

Research converts moneyinto knowledge Research converts moneyinto knowledge Innovation converts knowledge into money

Research Innovation

!

!

(4)

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 inno ation create al e all the rest are costs ” … marketing and innovation create value, all the rest are costs.”

Peter Drucker, 1954, 

The Practice of Management

“Innovation is the spark that makes good companies greatInnovation 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 

(5)

Product Innovations

Top 20 global R&D spenders

(Booz & Co., Winter 2010)

(Booz

 

&

 

Co.,

 

Winter

 

2010)

(6)

Product Innovations

Innova on ≠ R&D spending

(Booz & Co., Winter 2010) ( oo & Co., te 0 0)

(7)

Product Innovations

Innovation is Risky

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% f R&D j t k t f il

60% of R&D projects are market failures 40% of consumer products & services fail 20% of business products & services fail

(8)

Product Innovations

Implement

 ‐

New

 

Product

 

Development

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%”

Robert G Cooper Winning at New Products

Robert G. Cooper,Winning at New Products

Summary: 1 in 3 launched products fail, on average not including failures through development

(9)

Product Innovations

New

 

Product

 

Development

 

success

 

rates

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 Approx ½ of all R&D expenditures are on failed R&D projects

7 6 5 e pt s

Screening & evaluation

5 4 3 m ber of conc e Business analysis Development 1 2 Nu m Testing Commercialisation 10 20 30 40 50 60 70 80 90 100 % of project time

(10)

Product Innovations

Role of senior management

in New Product Development (ref. Robert G. Cooper)

Product Approval Committee Establish the vision

clear product strategy & vision, at a high level

Cultivate

Cultivate thethe NPDNPD processprocess

support adherence to the process

manage

manage riskrisk andand ensureensure businessbusiness returnreturn

Make decisions

definite decisions, as early as possible

Motivate

leadership, appreciation

(11)

Product Innovations

Effect

 

of

 

good

 

NPD

 

management

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.

(12)

Product Innovations

Why must we innovate?

Increased global competition

Science and Technology advances

Changing customers’ characteristics and needs

Requirements for increased productivity and quality Shortening product lifeg p ‐cyclesy

factor of 4 reduction in last 50 years

A.D. Little, 2001 Tools Food items Pharmaceuticals Today Cosmetics Toys Tools 50 years ago

(13)

1. A high‐quality new product process

(PDMA)

2. A defined new product strategy for the business unit

3. Adequate resources—people and money—for new products/services/ideas

4 R&D D i di d t ( % f th b i ' l )

4. R&D or Design spending on new products (as % of the business's sales)

5. High‐quality new product development teams

6. Formal, consistent encouragement for creative thinking within the organisation, g g 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

(14)

Product Innovations

NPD Success Factors

ref. Robert G. Cooperp

Resource commitments

Superior differentiated product Superior, differentiated product

Organisational structure, culture, climate International outlook

Leverage core competencies Market attractiveness

Market need, growth, size competitive situation

(15)

Product Innovations

(16)
(17)

Product Innovations

as a strategic business process

as

 

a

 

strategic

 

business

 

process

Tidd & Bessant model of the innovation process:

INNOVATION STRATEGY

CAPTURE SELECT IMPLEMENT

SEARCH

(18)

Product Innovations

(19)

Product Innovations

Stage‐Gate™ process

Each stage:

has well defined objectivesj

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.

does the proposed project fit our business’ strategy? does the proposed project fit our business strategy?

does it meet our environmental, health and safety policies? core competencies, market attractiveness?

defined outputs

(20)
(21)

Product Innovations

Open Innovation

Innovation output is

achieved

by creatively using a firm’s own assets

accessible

Innovation output is

achieved

by creatively using a firm’s own assets

to bring about the customer’s value

adding experience.

’ l d ff l bl “ ”

Assets

It’s increasingly difficult – impossible – to “own” 

all these.

Access, rather than control, is the goal.

access to

market knowledge

access to

technology knowledge

t h

l

t

d

t

technology competence and supports

design competence and supports

process and organisation systems and management

(22)

Product Innovations

from know‐how to know‐who

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 we will get it to the We don’t have to originate the research to profit If we discover it ourselves, we will get it to the

market first.

We don t 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.

market first will win 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.

(23)

Product Innovations

Open Innovation web examples

Open innovation / crowdsourcing intermediaries and platforms: Corporate websites – examples of open innovation and

crowdsourcing-like initiatives: 3M Zukunft Innovation (in German) BMW Virtual Innovation Agency Boots Centre for Innovation Campbell’s Ideas for Innovation Cisco I Prize

Big Idea Group Chaordix EdisonNation Exnovate Hypios Kraft – InnovateWithKraft LG Medtronic Nestlé Netflix Prize Cisco I-Prize Clorox Connects Colgate-Palmolive Dell IdeaStorm DSM Licensing E i Hypios Ideas4All IdeaConnection IdeaWicket InnoCentive I G Netflix Prize Nokia

Nokia Beta Labs

P&G Connect+Develop Pepsi Refresh Project Phili

Ericsson Ford Story

General Electric Ecomagination General Mills G-WIN

GlaxoSmithKline InnoGet Innoradar MillionBrains Napkin Labs NineSigma Philips Psion Reckitt Benckiser SAP

SAP – Sapiens (In German) Hershey´s Ideaworks

HP Labs Open Innovation Office IBM Collaboration Jam

Huawei Intuit Collaboratory g Pharmalicensing TekScout Topcoder Yet2.com Your Encore p ( ) Sara Lee Shell GameChanger Siemens Starbucks – MyStarbucksIdea Unilever Intuit Collaboratory Intuit Labs

Johnson Controls Open Innovation

Your Encore

Open innovation / crowdsourcing software: BrightIdea Fellowforce Imaginatik Unilever Weyerhaeuser YTL Communications Xerox

(24)

Product Innovations

NPD Project evaluation

Mitigating risk and ensuring financial return Portfolio level & Project level

(25)

Product Innovations

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Product Innovations

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Product Innovations

Strategic Alignment

Degree to which project aligns with our strategy Strategic importance

Product/Competitive Advantage/ p g

Offers customers/users unique benefits Meets customer needs better

Provides value for money for the customer/user

Market Attractiveness

For GO/KILL decisions

and for Project Prioritisation

Market Attractiveness

Market size

Market growth rate

Competitive intensity in the market (high=low score)

S i (L O C C i ) Score each factor 1 10 and

Synergies (Leverages Our Core Competencies)

Marketing synergies Technological synergies

Operations/manufacturing synergies

Score each factor 1-10 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) Payback period (years; many=low score)

(28)

Product Innovations

Market diffusion and adoption

… area of greatestg  uncertaintyy

Commercialisation Factors that influence adoption

Timing

Targeting and positioning Inter‐firm relationships Product

Distribution Distribution

Advertising and promotion Pricing

(29)

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References

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