- MARKET INSIGHTS
I've had the luxury of working on 15 new product lines during my 20-plus years in the food industry. Half of that experience was at Pillsbury and half at Merlin Development, a contract development company that works with a variety of large and small food companies. Experts I interviewed for this story provided what they consider the keys to new product success. A comprehensive view of the development process dictates that all of these key areas must be managed well to boost new product success rates.
It's been estimated that only one new product idea in 58 actually makes it through the development process and yields a successful new product, according to a study by Booz Allen & Hamilton Inc., McLean, Va. Yet, some companies realize a whopping 50% of their sales and 40% of their profits from products five years old or less, according to Robert Cooper, professor of marketing and technology management, McMaster University, Hamilton, Ontario.
Thus, it's no wonder that companies will make significant investments to improve their new product processes. For example, in 1979 Pillsbury made a concerted effort to hone its processes for new product development and subsequently increased its new product success rate to an award-winning level.
During the 80s, companies tried to map the steps necessary to execute new products. Incredibly complex process maps with hundreds of steps resulted. Most experts have since adopted simpler process flows to serve as a checklist during new product development. A typical new product process often includes some variation of the following four steps:
- Assessing management commitment.
- Finding the right idea.
- Developing the business case.
- Development and commercialization.
Laying a Foundation While many development teams start their new product process description with the search for the right idea, Dan Stults, managing director, Research International, New York, says the first step should be an honest assessment of senior management's commitment.
If management's motivation is strictly to increase short-term profits, other lower-risk courses of action may be preferable. However, if the motivation for new products is due to a strategic assessment that new products are necessary to meet key business objectives, then the company will have a greater driving force to support the new products process with necessary talent, organizational structure, time and money.
Honesty is critical. "Lack of top management support drives many of the failures in new product development," says Tom Ryan, newly appointed vp of menu management for McDonald's. Building the creative environment necessary to develop truly innovative, breakthrough products requires an investment of time and money.
"New product people quickly sense if corporate commitment to new products is real or lip service. Rewards and punishments meted out by management for new products efforts provide key clues to the real level of organizational commitment. People quickly adjust behaviors to succeed in a given environment," says Jim.
If big new products are the required outcome, "the process cannot be calendar driven," says Ryan. Smaller ideas, like line extensions, can be forced to meet specific timing requirements, but breakthrough ideas will not necessarily appear by a scheduled date.
If resources are constrained, management could decide to pursue appropriate new product directions that are consistent with those constraints. "Success is situation-dependent. Certain product - some children's cereals as an example - can be managed to be decent moneymakers for a defined period of time with limited investments," says Bob Spears, director/founder, RAM Consulting, Oakland, Calif. "If the goal for the new product department were a big, new, long life-cycle item, the cereal idea would be a failure. But if near-term profits are the goal, the same idea could be viewed as quite successful."
"In addition to time, I need top talent, the right organizational structure, and the right process to deliver major new products into the marketplace," says Ryan.
Stults questions the frequent practice of assigning junior marketing managers to new products. "New product development requires the ability to synthesize complex consumer information, product information, food science technology, as well as financial data. It is surprising that new product development is often relegated to inexperienced marketers rather than being assigned to veterans," he says.
Spears also wonders why companies often move brand managers into new product jobs. "This is curious in that marketers are often MBAs taught in business school to utilize a disciplined, structured approach. These marketing managers are moved to new products, which requires a creative approach - almost the antithesis of their established brand experience."
The Big IdeaOnce management support is ascertained, new product teams often enter the idea and concept generation phase. Many teams precede idea generation with a business analysis to determine the direction of new ventures in a given area.
Zimmerman recommends a leverage analysis to identify a company's unique strengths. Leveragable strengths can include sourcing, low-cost producer, technology and patents, trademarks or brand names, distribution, sales
execution or financial depth.
If a company introduces an appealing consumer product requiring skills that it hasn't developed fully, another company with those skills can copy the product and win in the marketplace by leveraging its strengths.
Focusing on the "simplest principles" can pay out. "Really understand the consumer need or benefit and the company's core competencies. A match usually provides a real opportunity for success," says Matt Smith, general manager, baking mix group, Aurora Foods, Columbus, Ohio.
Many companies know their customers but don't do a good job of matching customer needs to core competencies, notes Joe DePippo, managing partner, Holleran consulting, York, P.a. "Years ago, a shotgun approach worked. Today's marketplace fragmentation drives the need for a rifle."
Stults recommends a similar approach, but starts from a marketplace trend analysis. He seeks a combination of strong consumer trends, weak competition and an area that utilizes the company's core competencies.
It is critical to understand consumer motivations in order to find a sustaining need versus a superfluous one, stresses Spears. Companies must also understand what will happen as the product interacts with the consumer's life and how the product fits in the context of competitive products. Spears emphasizes the importance of "savvy understanding" of the consumer and cautions against "blindly following consumer research numbers" to make decisions.
Most successful new products are "familiar somehow, in form or function," notes Smith. The best new products provide an "easier, simpler way for consumers to get where they want to be."
"The product creation process must be consumer driven as opposed to management or technology driven," says Leah Peters, president, Peters Growth Associates, Minneapolis. The "voice of the consumer" must be clearly imprinted on the entire process. Peters finds that technology- or management-driven projects tend to make compromises that can be deadly to the consumer proposition.
Products need to be designed for broad enough appeal to capture an appropriate portion of the market to meet the company's business objectives. The product can't be too "nichey," and likewise, can't be so dilute that no one really loves it. The key for a successful product is to capture a repeating user group.
Ryan's idea generation process starts with a "strategic target such as a customer group or use occasion." He emphasizes the importance of an idea process that "lets you be free and open with customers." He separates the idea creation process from the idea judgment process to assure that great ideas don't get killed in their infancy.
Pillsbury strives to expand new ideas into "platforms," which are multiple ideas grouped together via common technology or manufacturing execution. Early in the process, team members attempt to extend an interesting idea into a platform. If an idea cannot be transformed into a platform, then it competes for a smaller investment among other non-platform ideas. "But if we strike a gusher on a platform, we keep drilling," says Jim Behnke, senior vp of technology for Pillsbury.
On the other hand, companies must be willing to kill weak ideas as early as possible, since prototyping and testing actual products can be very costly. If a company tends to "take off" with a project once it receives favorable consumer feedback, it is imprudent to test items that can't be commercially produced quickly afterwards. Hence, great sums of downstream product development effort get invested an ideas long before it is known if they are worth any investment at all.
It is also important to have a number of ideas in process at any time. Given the relatively low rate of new product success, multiple projects seem wise just to maximize odds.
The Business CaseMost new product processes include a "business case," which often includes detailed descriptions of the following:
- Business and project objectives.
- The consumer proposition.
- How product delivers to the consumer proposition.
- Manufacturing and distribution methods.
- Advertising, promotion and sales approach.
- Financial analysis of the project.
- Timetable, including impact of delays.
These components need to deliver to consumer needs, fit together into a cohesive project and be intimately understood by the entire team.
Companies can use the business case in many ways. For some, it becomes a contract between the team and the corporation specifically spelling out resources to be invested and payback expected. Consequently, underestimation of resources or time required to complete the project may doom it to failure. Many companies hold the financial performance predicted in the business case as a commitment.
Other companies use the business case as a communication device. By clearly spelling out all of the critical elements of the project in one document, the business case can be used to confirm clarity of thinking, acceptability of assumptions, and to assure that all team members, regardless of function, understand the important deliverables in the complete project. Any new team members can be brought to the same understanding of the project via the business case document.
Design to CommercializationEven if the preceding steps are successfully completed, key issues such as compromised objectives and late, over-budget delivery can still prevent successful development and commercialization.
Compromised objectives can often be attributed to the "transfer" that naturally occurs when a new development team replaces the original design group. Because the ambiguous up-front concept and product design activities require different skills than the detailed downstream development activities, companies typically use different teams for each. Many companies have developed specific safeguards to minimize the harm caused by project transfer.
Some companies use the business case to educate the new team members on the project. Others transfer key team members from the design team to the development team to maintain continuity. Peters says companies must be alert to the "drift of objectives" that can occur if new team members attempt to put their own stamp on the project. Substantial continuity in team members over the project's life helps to ground activities in a consistent interpretation of strategy and consumer input. Continuity also permits addition of fresh, new team members while preventing drift.
Stults sees a disturbing tendency for companies to be satisfied with mediocrity in the final product delivery. "Conflicting objectives, sometimes functional, sometimes personal, can limit the quality of the final product. Aligning objectives and establishing clear introduction criteria ensure that quality standards will be met."
The prevention of quality drift should be a marketing responsibility, says Smith. Good marketers understand the consumer's needs and know how to translate to product objectives. In some cases, Smith has observed that products failed because marketing didn't translate the consumer benefits into the correct products or marketing communications. In these instances, the ideas and business cases may have been good, but the execution killed the opportunity.
The corporate reward system too frequently drives accomplishment within functions rather than end results, says Stults. It's not an elegant marketing or manufacturing plan that earns the profits, it's the total project executed in a cohesive manner.
Holding the whole team responsible for total project execution realizes two important benefits, says Peters. First, the whole team becomes more focused on the forward progress of the whole project, not just their portion. Secondly, each team member can raise questions and demand thoughtful replies and action if appropriate. Whole project responsibility facilitates mutual respect across functions - and successful project outcomes.
Another development and commercialization pitfall results from time and budget compression. Some companies attempt to remedy any shortfalls by reducing spending in other portions of the plan, such as advertising or promotional spending, which can have a ripple effect on the project and ultimately lead to failure. Postmortem reviews of projects show that these later activities are often the source of the "killer issue." Greater realism in the planning process and an in-depth understanding of the statistics of uncertainty can help alleviate the time/budget compression.
Large companies and small have different issues and advantages. A recurring theme with new product developers working in large companies was the tendency to do something - structure, reward system, physical location, etc. - to facilitate the new product team to think, act and function as if it were a small company. Many of the experts cite Haagen Dazs and Starbucks as examples of new products that would never have emerged from a traditionally organized large company. Large companies using a team structure describe faster response time, less bureaucracy and greater focus as benefits.
Postmortem Review"New product development is a lot like raising kids. Nothing works for sure, but some things work a lot better than others. So why wouldn't you systematically strive to identify and learn from those things that work well?" asks Behnke. Failures are often swept under the rug quickly. Very seldom do new product development teams take a moment to map out and reflect on the course their projects have taken. Whether a project is a success or failure, teams can learn a lot from postmortem reviews. "In my experience, full team review techniques, which add 6 to 12 days to an entire project timetable have, over the course of 2 to 3 projects, halved development time (and costs)."
Finally, there is no silver bullet. All components of the new product development process must be "roughly" right to succeed. No amount of execution makes up for an inherently weak idea, but conversely, few great ideas survive weak executions.