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New Product Numbers Game

March 30, 2004
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Alex lay awake, pondering the reasons for low sales of his new product line. Two years prior, the project had missed its sales sample date by three days. Alex never imagined those three days of the project's two-year timeframe could be that important—until he was invited along on sales calls with Bud, the national sales manager.

The top-ranking purchasing managers at Bud's key accounts were furious at being inconvenienced by the poor planning. As a result, several key accounts placed the product in less desirable locations in their stores.

Could poor placement have contributed to the unexpectedly low sales for the line? Could being late really have contributed to the failure of the product line in the marketplace?

Thinking back, Alex remembered that the timetable seemed too tight, the staff too lean, and the funding excessively frugal to get the job done. He thought he was being a good team player when he agreed to give the project his best effort, but could his failure to force the resource issues at the beginning of the project have ultimately doomed it to failure?

Many Projects, Limited Resources

Unfortunately, Alex is far from alone. Many of us have worked on projects that were late or seriously over budget. We've taken courses on project management and applied the techniques. Too often, there isn't enough time or money to do a project right the first time, but always time and money to do it over. With all of our best efforts, why do we so often run into these problems?

In-depth analysis of many projects suggests a single, simple and persistent root cause. In the quest to maximize the odds of new product success, companies often try to do too many projects with too few resources. I call this phenomenon the "decision/resource paradox."

But here's the clinker: Every project that we start with insufficient resources reduces the odds of success for other projects sharing the same resources. In other words, by attempting to increase our odds of success by introducing more products into the marketplace, we may actually be decreasing the odds.

For example, Alex's project was only one of three his business unit was commercializing for introduction that fall. At the start of the project, Alex recommended that his budget and staff be increased and measures be taken to assure timely delivery of a critical packaging system. As he expected, however, he was denied the larger budget and reminded that his management skill would be judged by his ability to deliver with the leaner resources.

At the same time, managers for the other two projects in Alex's business unit were making similar requests. Like Alex, their requests for incremental resources were not made frivolously. And like Alex's, their requests were also denied. The business unit had divided resources fairly among the three projects, and each would have to do their best.

A "Capable" New Product Process

At a breakout session during the summer 1999 meeting of the American Productivity and Quality Council, more than 30 people from a variety of industries participated in a spirited discussion about new product development problems. Participants told stories just like Alex's. They shared a variety of techniques that their companies were using to prevent new product development problems, but they all echoed the tendency for short staff, short timetables, and short budgets versus their best recommendations during the planning stage.

In this era of statistical process control (SPC), it is unthinkable to run a manufacturing process by "trying to do your best." A process is capable of meeting the required specification, or it is not. The determination of capability is a clear, straightforward, and fact-based activity. If a process is not capable, the organization is expected to make changes necessary to improve the process.

So why are so many of us asked to "try harder" to make our new product processes meet specification? The specification for a new product process should include timing, resources and budget for the project. It should also detail a clear, objective specification of target product quality, acceptable variation around that target, and ongoing costs associated with achieving that product quality.

Post-project reviews too often show that projects are completed late, over budget and with compromises in product quality, economics or both. If these reviews reach back to consider the original planning processes, we often see that project managers recommend budgets, resources and timing close to the amounts that would have been spent if extraordinary measures were not taken. This suggests that we know how to plan our new product projects, but something else is preventing us from having a capable new product process.

More May Be Less

The persistence of these new product problems across so many companies suggests that there is a common and compelling barrier to resolving the issue. The problem lies in the common-sense response to the statistics associated with new product success.

If 1 in 58 ideas succeeds in the marketplace, then it makes sense to explore as many ideas as possible. If 1 in 2 product lines introduced succeeds long enough to return meaningful profits to the company, then it makes equal sense to introduce as many new products as possible into the marketplace. And when some companies realize 50% of sales and 40% of their profits from products that did not exist 5 years before, the urgency of new product efforts becomes even more apparent (see PF, August 1998).

The logic appears unassailable. If we introduce more items, and one out of two succeed, then we will increase our new products in the marketplace. Companies focus significant efforts on generating high-quality ideas, screening those ideas for consumer appeal and technological feasibility, and choosing as many of the best candidates as possible to proceed to development and commercialization. The number of projects that proceed to the final stages of the new product development process is often limited only by the "stretched to the limit" capabilities of the new product staff. Unfortunately, the fact that success rates might increase if commercialization teams were adequately resourced is seldom mentioned (or considered).

Compromised Quality

Have you ever purchased a new product based on TV or print advertising and been disappointed in the product's delivery or the promises made? How can companies that are spending so much money in the idea and prototype screening processes introduce products that don't deliver? Could a significant portion of the 50% failure rate for new products introduced be accounted for by commercialization problems?

Some of the issues in product quality in the marketplace result from scale up problems that become evident relatively late in the project. Unfortunately, scale up problems show themselves after the new equipment has been installed and the project is close to completion. Too often, a fix is applied that permits the product to meet the minimum quality standard, with good intentions of improving the situation after the crunch of start up is over.

Too often, quality issues seen in the marketplace result from many smaller decisions made during a project's final stages. Those little decisions aggregate to become bigger problems. Some of the common problems include minor reformulation to accommodate process issues, subtle shifts in key ingredients being scaled up to meet your timetable, and cost reductions that become necessary at the 11th hour.

Each individual decision might not change the final product much. Indeed, difference tests are often used to confirm the acceptability of the decisions. Sometimes, however, the urgency of meeting deadlines causes companies to sidestep these quality safekeeping measures, and the original "gold standard" prototype is not always used as a reference point during all of these changes. Lastly, crunch timing seldom permits scaled up products to be confirmed acceptable with the target consumers. So we march into the marketplace with new products subtly different than their thoroughly tested counterparts.

Small, downward shifts in quality become extremely important at this juncture. The business plan is almost always constructed presuming that product quality will sustain repeat after initial trial is gained with the consumer. While the product that enters the marketplace may meet the minimum quality hurdles, it may have lost the "sparkle" that makes a consumer think, "I'll buy that product again."

The project team can be an indicator of success or failure on this issue. If they continue to seek out the product to eat on a voluntary basis, you may well have a winner. But if they stop seeking out the product for elective consumption, you may have a subtle but important quality problem.

Shelf life and distribution may also play a role in quality as seen by the consumer. If something causes initial production to move slowly through the pipeline, product may be much older when consumed than expected. If quality shifts significantly during shelf life, this can mean that the consumer is making repeat purchase decisions on products that are much older, and therefore lower in quality, than the products on which management decisions were based.

Thus, the project may have been completed and the product introduced, but the product could still fail in the market due to decisions made late in the project.

Keys to Beating the Odds

Robert Cooper, professor of marketing and technology management at McMaster University, Hamilton, Ontario, has outlined a controlled new product process with clear decisions at each gate before progressing to the next stage of the process. In surveys he has conducted, he still finds that many companies do not enforce the "gates" in the later stages of the new product process. Once started, projects too often become impossible to kill, robbing the best projects of the resources they need to succeed.

We can maximize our odds of new product success if we realistically determine the resources necessary to complete new product projects and then only allow that number of projects to proceed into the final, resource intensive, commercialization phase. This recommendation may be very unpopular with the owners of ideas that do not get chosen, but it will go a very long way towards increasing your odds of success. Remember, every resource you spend on a project that fails could have been spent to enhance the odds of success on another project. It's time to make the tough decisions on which projects to kill much earlier in the development process. In the long run, it's our best shot at increasing our odds in the new product game.

Leslie Skarra is the owner of Merlin Development Inc., Plymouth, Minn. The contract food product development company specializes in new products in most application categories and solves tough technical problems while creating great-tasting products. Phone: 612/475-0224, Fax: 612/475-1626. E-mail: lskarra@merlindev.com.

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