Upgrade your new-product machine: this process allows the product team to prepare a solid business case before beginning the costly development stage.
The old-product machine is a decent machine. After a great deal of attention by management and employees with belts of various colors, some companies have had impressive Six Sigma success, producing three or fewer defects per million attempts. Then there is the new-product machine. We know that only one in four projects becomes a commercial success after the decision has been made to enter the costly development stage (1,2). So, as shown in Figure 1, this machine is producing three defects per four attempts. And the attempts are serious, since most companies now conduct gate reviews prior to the development stage (3). These defects squander immense R&D and commercial resources, as well as fill up the old-product machine's capacity in making low-margin output. In other words, nearly every facet of the company--R&D, marketing, sales and manufacturing--is affected.
To be fair, the new-product machine has a more difficult assignment. Just as we prize an original painting over a reprint--because we recognize the creativity and effort required--so we appreciate the challenge of developing a winning new-product design. We measure the success of the old-product machine with the question, "Is the out-put the same?" while we ask of the new-product machine, "Is the output different--and better?" Also, because the new-product machine deals in intangibles, we find its variables much more difficult to measure and control.
[FIGURE 1 OMITTED]
But can we do no better? If we could reach just "Two Sigma," the average company's new-product success rate (from the development stage) would skyrocket to about two in three attempts. Your chief technology officer might not choose to have Two Sigma celebrations, but there is more latent corporate value that can be unlocked here than anywhere else. As you consider the millions your company invests in R&D alone, can you think of any other area where such waste is tolerated?
So, how many of these defects are part and parcel of new product development, and how many can be driven out--in much the way variability is relentlessly pursued in the old-product machine? Fortunately, we have known for some time which parts of the new-product machine are malfunctioning, and we even know some of the upgrades that will help. Let's look at the malfunctions first.
Five Valuation Errors
Imagine you are at a gate review trying to decide if a project should enter the development stage. You are about to make a valuation--an estimation of something's worth (4)--weighing the likely benefits of this project against its costs. The golden rule of valuation is: Make your decision when you have gathered the most facts and spent the least money. Since pre-development activities are focused on gathering facts and most companies make at least 90 percent of their project investment after this point (5), you are at the right meeting. So far, so good.
Now, you and your colleagues must avoid five types of valuation errors (see Figure 2). We have discovered most of these errors the hard way: by making them personally as we led product development teams and then observing these same errors in dozens of businesses at our employers and consulting clients.
Understanding these errors will help you make a better valuation of your project. More importantly, this understanding can help your company change the way new-product development teams prepare for these gate reviews in the future. After all, having good gate reviews is a little like having good inspectors at the end of a production line. While inspection is useful, we have learned that it is much better to understand root problems and provide teams with tools and skills to overcome them. This same approach is our best prospect for reaching Two Sigma and beyond in the new-product machine.
Each of these valuation errors has to do with the facts that should have been presented and handled at the predevelopment gate review. In our new-product machine metaphor, think of facts as the raw material we feed into the machine. Problems arise when these facts are 1) poorly analyzed, 2) wrong, 3) missing, 4) misinterpreted, or 5) undiscovered. Substandard raw material invariably leads to defective output. In the case of the new-product machine, the defective output is a product design that is not highly valued by customers.
1. Poorly Analyzed Facts. These occur when projects are not consistently evaluated using criteria that reflect your company's true goals. Perhaps you are using the wrong metrics, weightings or financial measures (e.g., internal rate of return vs. modified internal rate of return). Or maybe an ill-conceived project is funded simply because it is a favorite of top management. It is worthwhile to settle on the right criteria and require an even-handed use of these criteria for all projects. But don't let this become a major internal exercise. Some companies spend far too much time analyzing facts that were in desperate need of correction or replacement. In our experience doing post-launch reviews, we have never traced the cause of a new product flop to applying the wrong weighting percentage to "market attractiveness," for instance. Our advice: Get it close and move on!
2. Wrong Facts: If you are extruding plastic products, it doesn't take much of the wrong resin in the feed hopper to ruin your output--and so it is with wrong facts. Wrong facts can come from a faulty market research report or miscalculations, but these are minor compared to the granddaddy of wrong facts: untested assumptions. It all starts innocently enough. Someone thinks customers make their buying decision this way, thinks competitors don't have that technology, and so forth. The thinkers aren't motivated to prove they were wrong, others are too busy to do so, and these notions take on the appearance of proven facts with each passing meeting. You can minimize this valuation error during your gate reviews by requiring 1) facts and assumptions to be clearly labeled as one or the other and 2) those characterized as facts to be supported by external sources.
3. Missing Facts: The third valuation error type occurs when key questions that should have been answered were not. Of course, the overwhelming reason they were not answered is that they were never asked. Perhaps you didn't ask about an alternative solution customers had based on a totally different technology than your product. Or maybe you never considered a regulatory roadblock or some other "showstopper" and its early warning signs. A checklist at the gate review can catch many of these, but it's not the most efficient approach. Instead, teach your teams how to prepare a brief but thorough business case prior to the pre-development gate review. Team members should know all the key business case questions as they begin their pre-development work, and then address them as they move forward. The business case should be more of an operating manual than a mid-term exam.
To develop a strong business case template, we studied the decision-making processes used by venture capitalists (6). From this research and subsequent years of refinement, we have established a 12-point business case template, which will be discussed in greater detail later in this paper. For now, Figure 3 illustrates the types of questions that can be used to avoid "missing facts" for one of the 12 business case points.
4. Misinterpreted Facts." This may be the most difficult to correct. Here, the facts are right but their implications are wrong, especially concerning future projections. The most common example is the enthusiastic sales projection, shaped like a hockey-stick and accompanied by the opinion, "Of course, we think this is actually conservative because...". Or perhaps you launched your new product as a frontal attack on the market leader's stronghold--and had your head handed to you! The facts were right and the team gained experience, but at great cost to your company. The remedy is the thoughtful challenge--born of good judgment from years of good (and bad) experience. Sprinkle your gate review board--and especially your teams--with seasoned new-product development veterans and encourage them to ask tough questions. If these veterans are in scarce supply (a common problem) accelerate your organizational learning with post-launch reviews. Focus on past duds, never criticize or even identify the "guilty," create a Pareto chart of root causes, and broadly share what's been learned.
[FIGURE 3 OMITTED]
5. Undiscovered Facts: These are quite different from missing facts. When a fact is missing, you can look back and say, "We really should have done a better job of checking this out." In contrast, undiscovered facts are never prompted by internal checklists; they are only uncovered by external probing. For instance, maybe you failed to find an unspoken customer need which your product could have addressed to make or save them money. Or perhaps customers had an unimagined need that could only have been brought to light by collaborative brainstorming with your technical staff but would have led to a blockbuster new product.
No one is ever faulted for undiscovered facts, and yet more value is probably left on the table here than with all other valuation errors combined. According to Cooper and Kleinschmidt, new products that offer minimal advantage garner 11.6% market share, while those offering high advantage gain 53.5% market share (7). This is a staggering differential. So why don't companies offer more "high-advantage" new products? In some cases, it's because they lack the technological means to do so. In our experience, though, the more common reason is that the high advantage itself was either not discovered or the importance of the advantage was not sufficiently recognized.
Won't Our NPD Process Save Us?
You may have noticed that every malfunctioning part we've discussed so far is located at the front end of the new-product machine. This is not to say that the rest of the machine is working flawlessly. In fact, we suspect that when the severe problems in the front part of the machine are overcome, back-end problems (in product development, trial and launch) will become more evident as well. But we've known for a long time that something is particularly wrong with the fuzzy front end. More than 30 years ago, inadequate market analysis was cited as the leading cause of new product failures (8). Excellent work has been done by Peter Koen in this area: he and other members of the Industrial Research Institute's Process Effectiveness Network found a strong, positive correlation between proficiency in front-end activities and innovative product development (9).
The American Productivity & Quality Center performed a landmark new product development benchmarking study in which 12 practices were found to be particularly strong drivers of performance, with correlation coefficients of 0.5 to 0.7 to overall NPD success and profitability (10). Six of these practices are completely or largely performed prior to the beginning of the product development stage. (Interestingly, another three practices pertain to focused and accountable cross-functional teams.)
In comparison, simply having a new product development process in place had a correlation coefficient of less than 0.3. So what's the message? Are internal processes such as Stage-Gate[R] unnecessary (11)? No, they are quite necessary; they're just not sufficient. In far too many companies, teams face good questions at gate reviews but have not been properly trained to find the answers. It's as though the test is being given but the teaching has yet to occur.
[FIGURE 4 OMITTED]
If there is danger in a new-product development process, it's that we can be lulled into thinking we're doing the best we can by simply installing one. Think of your new product development process as a good start (Figure 4). By itself, though, the process has two limitations. First, it is internally focused. Enormous time can be spent doing business with others in the same company--completing forms, attending meetings, giving presentations, etc. Second, it draws on an analytical thinking process, which tends to look for what has been done wrong instead of what can be done right.
In many processes (strategic planning, for instance), it's difficult for analytical thinking and discovery, "what-if' thinking, to live together peacefully. You need both, but analytical thinking invariably seems to take over unless special measures are taken. This is especially true if time, training and motivation are lacking for discovery thinking. So, let's not discard a good NPD process. But let's not allow it to substitute for new skills and tools sorely needed by most new-product development teams.
So much for the new-product machine malfunctions. What about the upgrades? As you might guess, they all have to do with the gathering and handling of facts, they are accomplished prior to the development stage, they are outside-in oriented, and they require new skills and tools for teams. We have seen the most success when these practices are linked, so imagine a single four-phase methodology that brings clarity to the fuzzy front end.
We think of this methodology as New Product Blueprinting (Figure 5), because we are drawn to the notion that building something of lasting value requires thoughtful preparation. If you were having a home built, you would apply creative foresight, building your dream home in your mind first. But then a detailed plan would be needed; scribbled notes to the builder would not suffice. In New Product Blueprinting, you are the architect, patiently and expertly interviewing the customer to understand his dreams before committing them to a highly detailed product design plan.
To some, the four phases of New Product Blueprinting look like a good deal of work just to get to the "real work." There's a saying in the aerospace industry, "OK, let's shoot the design engineers now and build an airplane." But that all-too-familiar thinking leads to this all-too-familiar situation: A resin producer received a customer request to develop a new product for railcar coatings (12). They were told what was wrong with their existing resins and immediately set to work. But when they solved one problem, another cropped up. For more than a year, they moved from expansion flexibility to abrasion resistance to UV discoloration and so forth. Finally, they took a deep breath and embarked on New Product Blueprinting. Based on their new, deeper understanding of customers' desired outcomes, their highly successful product actually offered benefits the customers had not identified, such as easy graffiti-removal properties.
[FIGURE 5 OMITTED]
Phase I: Market Segmentation
It can be tempting to dive into a new-product development project without understanding your field of play--and usually wrong. Any number of unseen problems could plague you: global competition that will shrink your domestic market, declining end-use consumer trends, well-entrenched and surly competition, etc. You will eventually learn about these problems, but your cost of doing so could easily increase by one-to-two orders of magnitude if you learn from experience rather than investigation. One of us recently worked with a manufacturer of centrifugal pumps that had just finished investing considerable time and money designing a new pump for a particular market segment. Around the time of the product launch, they noticed pumps being imported from China that were completely satisfactory for this application at prices just below their costs! Market segmentation and understanding became quite important for their next project.
Figure 6.--These errors prevent companies from understanding market segments in depth ... thereby hamstringing their NPD efforts. Common Market Segmentation Errors 1. Clusters of customers with common needs are not isolated and deeply explored. 2. The organization is not aligned by market segment, leaving it incapable of exploiting attractive markets. 3. The organization is structured into segments that are too large, blurring and hiding common needs of users. 4. Market segments are not managed globally ... leaving the company vulnerable to changing global trends. 5. Resources are not concentrated on those segments most likely to lead to profitable growth.
Market segmentation can be defined as an outside-in process for grouping customers with similar needs into common clusters. If you use internal considerations such as your organizational structure or even breakdowns commonly found in published market studies, you'll probably get it wrong. Three rules will aid your segmentation: 1) Each segment should be like no other in terms of its unique customer needs; 2) Each segment should be small enough that the needs of truly different customers do not become "averaged out"; 3) Each segment should be large enough to warrant the in-depth discovery of needs. (See Figure 6, above, for common market segmentation errors.)
The key to good market segmentation is to aim your precious resources at market segments that are worth winning and winnable. The military historian Basil Liddell Hart said, "All the lessons of war can be reduced to a single word: concentration." He went on to say that this lesson could be amplified to "the concentration of force against weakness." Many companies dabble and dilute their resources, leaving highly attractive segments unidentified or under-resourced for victory. When done well, the parallels to warfare become obvious: targeted market research is performed (reconnaissance), a tight business case is prepared (battle plan) and sufficient resources are allocated to win decisively (troop deployment).
Market segmentation should be an iterative process in which potential segments are first identified and screened so teams can pursue attractive opportunities. The very pursuit of these opportunities (using the customer interviews to be described next) then provides so much information that the company can re-evaluate the segment's attractiveness and its own competitive position. This bottoms-up approach allows you to build a truly meaningful strategic plan based on a portfolio of market segments and a reallocation of resources. (In our view, a strategic plan is just an internal exercise unless tough tradeoffs are made.)
Good market segmentation requires good secondary market research. Some companies purchase the same multi-client market research reports as their competitors and call it quits. This may be fine for generating internal presentations, but does little to identify and characterize attractive market segments undiscovered or underpursued by those same competitors. Fortunately, there are now some excellent Internet-based research tools available for uncovering a great deal of information about clusters of customers (13). Some of these are quite cost-effective in that you can purchase just those portions of a market research report that are of greatest interest.
Recently retired industry experts are another excellent source of market intelligence (14). They can add to your learning about customers (who's winning, who's losing, who's lost their way), competitors (strengths and weaknesses), technologies (which ones are gaining or losing ground and why), trends (impact of globalization, regulations, consumer tastes, etc.) and key contacts (including a network of other experts you can contact). These experts can also use their industry contacts to help you set up the next phase in New Product Blueprinting: customer interviews.
Phase II: Customer Interviews
Consumer-goods producers can use the well-honed art of the focus group here. For industrial producers--those selling products for use by other companies--no other single practice can have the same impact on the new-product machine as customer interviews (Figure 7). Compared to their consumer-goods counterparts, industrial producers have some unique advantages inherent in their customer base: 1) because their customers are fewer in number, it is worthwhile to fully engage them in the product design process, thereby making it easier to engage them in the product buying process; 2) industrial suppliers often already have close relationships with their customers, which can be easily leveraged to set up and conduct interviews with the right individuals; 3) it is usually in customers' best interests to help their existing suppliers succeed, as they are often dependent on them for their own new product or process success; and 4) industrial customers are typically far more technically savvy about the products they purchase than end consumers, making a meaningful collaboration possible.
Figure 7.--While interviews make sense for all customers, they are particularly important if you sell a product used by another company. Why Industrial Interviews Make Sense Compared to consumers, industrial customers are ... 1. Fewer in number, making it worthwhile to "pre-sell" the new product by engaging customers in its design. 2. Often in a close relationship with suppliers, making it easier to get the right individuals to the interviews. 3. Dependent on suppliers for their own new product success, and hence motivated to collaborate. 4. Far more knowledgeable about the products they buy, making a meaningful collaboration possible.
In our experience, these advantages are woefully under-exploited at most industrial companies today, with their interviewing deficiencies generally falling into one of two areas. The first occurs when industrial companies use the same interviewing methodologies as consumer-goods producers. The literature for Quality Function Deployment (15), Design-for-Six-Sigma (16) and Voice-of-the-Customer (17) is generally silent regarding differences between interviewing final consumers and industrial customers. Consequently, industrial producers who use a one-size-fits-all approach fail to engage customers and collaborate as deeply as they might. Wonderful opportunities are missed to plumb customer insights and build excitement about the launch of a product they helped design.
The second--much more common--industrial interviewing deficiency is that customer-reactive meetings are held instead of market-proactive interviews. As shown in Figure 8, the difference between the two is stark. When your sales rep simply brings back a new product request from a customer, you can be fairly sure your competitors' reps brought back the same request. This puts you in a footrace with them. If you and a competitor both cross the finish line, you can say goodbye to that price premium you were hoping for. How much better for you to select your target market segment, conduct a program of in-depth interviews and uncover customer needs that have never surfaced before. Now you are in a footrace by yourself--and that's a race you can win. This type of customer interview program is proactive, reflects the needs of many like-minded customers, addresses tomorrow's needs as well as today's needs, and improves your understanding of the underlying outcomes desired by customers.
After a great deal of experimentation, we have found the following practices to be particularly helpful in industrial customer interviews: 1) A two-person technical-marketing team conducts the interviews, often with a sales rep in attendance. 2) The roles of moderator, note-taker and observer are carefully established (with the sales rep generally taking the latter role). 3) In addition to existing customers, interviews are conducted with prospective and former customers and with customers' customers. 4) Prior to these interviews, teams receive training, role-play practice and coaching in listening, probing and idea-triggering skills. 5) Debriefing occurs immediately after the interview, since recall drops by about 50 percent after 24 hours (18).
We have also found that interviews are best conducted in two steps: a round of Discovery interviews followed by a round of Preference interviews. In the former case, the interview team uses divergent thinking to uncover as many possible customer needs as it can. A typical Discovery interview begins with a tour of the customer's facility. This is not the type of tour where your toughest thinking goes into adjusting your hardhat! Teams prepare detailed observation checklists in advance to help them probe for ways to increase capacity, improve quality, reduce material costs, reduce labor costs, and deliver other benefits.
Then the interview--which looks more like a brainstorming session--takes place. For these, we use laptop computers, digital projectors and software that allow everyone to see and sort ideas on virtual Post-it[R]-style notes on the screen (19). Interview teams are trained to probe deeply to get to the underlying "why" of customers' ideas, and specially-developed trigger methods are used to help customers think of groundbreaking new ideas. In one method, the customer is asked to review a detailed list of generic ways to improve profitability to help trigger new ideas. In another, future-oriented trends are reviewed and discussed.
After several Discovery interviews are completed, the team moves on to convergent thinking. From hundreds of Discovery ideas, they develop a short list of top new product attributes that might excite customers and conduct Preference interviews to prioritize these attributes. Imagine your company is planning to develop a new resin for use in paints. Some of the top product attributes gleaned from Discovery interviews might include easy crayon mark removal, good leveling of brush marks, and paint that dries quickly enough that windows closed the next day will not stick. Many of these attributes might be well-accepted industry needs with standard industry tests. However, the more effective the Discovery interviews, the more likely it is that some of these attributes will deliver completely unforeseen value.
In some cases, this value can be captured by your customers in their products, allowing them to make money. Picture your customer's paint ad showing children using their crayons on the wall, with the tagline, "Now your kids can color outside the lines." In other cases, your product improvement could impact customers' production processes, allowing them to save money. In this case your resin might allow customers to reduce the time required to thoroughly mix paint ingredients. In all cases, your job is to understand the value being created so you can make sure your customers share it with you. (In truth, the best customers want their suppliers to be interested in helping them create new value, and understand that decent profit margins drive this interest.)
There are two principal objectives for the Preference interview. The first is to understand how much enthusiasm there is behind improving each of the new product attributes. For this, the team asks questions to determine the importance of and existing level of satisfaction with each attribute. The second objective is to learn how the team should test each attribute in the next phase, competitive benchmarking. For this, they gather information about recommended test procedures, competitive products to test against, and the test results that would constitute "barely acceptable" and "totally satisfied."
While it can be tempting to economize and combine Discovery and Preference interviews, this should not be done for three reasons: 1) the two types of interview require entirely different thinking processes, and in many cases, different participants and companies; 2) the Discovery interview is too time-consuming and tiring for the customer to continue with yet more questioning; 3) the team needs to have the brainstorming results available from all of the Discovery interviews before it begins converging on the best ideas.
Phase III: Competitive Benchmarking
Competitive benchmarking is an important outside-in exercise, in which you look at all of the alternatives available to customers from their perspective. This phase is tightly linked with the customer interview phase in that customers' preferred test procedures are used on customers' favorite attributes, with your best current product(s) compared to customers' favorites, and all test results interpreted using the customers' perspective. It's at this point that we often find our well-spoken assumptions coming under attack by a brutal gang of facts.
Too often, companies that do perform side-by-side testing do it in isolation from customer interviews. We recommend linking the two in order to create a unified, outside-in view of both supply and demand for value in the type of product offering you will pursue. The linking of interviews and tests also engages customers in the design process and builds their confidence in your test results. It's human nature. When someone brings you their lab study, you immediately set to work looking for mistakes. But when they bring you your study, you're impressed! Besides, the last thing you want to hear in a fast-paced product development program is, "Nice work ... but could you rerun this test at a higher temperature?"
Side-by-side testing is an easy step to skip or delay. We strongly believe this testing should be done as part of your up-front work for four reasons: 1) an understanding of competitive positions allows you to design against their weak points. It makes sense to do this before freezing your product design and thereby avoiding costly "scope creep" during development; 2) you never want to be blindsided later by a pre-existing competitive product, a classic "missing facts" error. (You should never even be surprised by customers' results when they test your prototypes against other products); 3) solid side-by-side test data are invaluable for planning your product launch promotional campaign. The earlier you have this information, the sooner you can begin testing value propositions with collaborating customers.
The fourth reason for side-by-side testing can prove the most significant. To capture maximum value with your new product, three conditions must be present: 1) the product must provide a benefit the customer values; 2) the customer must not be able to get this benefit elsewhere (at least not without paying a price premium); and 3) you must know the difference in value offered between your product and the next best alternative. Interviewing only tells you "1 ." In other words, the interview uncovers the opportunity, but testing determines the value. If your new product offers uncommon value and you don't confirm it with testing, you will leave money on the table when you price your new product.
Phase IV: New Product Planning
Now the fun begins. Your team has amassed a wealth of outside-in interview and test data and it's time to turn these facts into a winning new product plan. Four principles help: 1) do it visually--you have amassed so much data that the average person cannot process it otherwise; 2) do it sequentially--the team's understanding of the data should be built step-by-step; 3) do it from multiple vantage points--methodologies that rely on a single rating or chart are often neat, easy to use and wrong; 4) do it with your team--everyone who worked to gather the data should have a voice in this process.
One of the visual tools you can use at this point is calculation of the Market Satisfaction Gap (Figure 9). In our earlier paint resin example, imagine your team had completed Discovery interviews and had settled on the ten attributes shown as those most likely to create value. During the Preference interviews, you asked customers to rate both attribute importance and their current level of satisfaction for each, using a 1-10 anchored rating scale. The Market Satisfaction Gap (MSG) is calculated based on averaged interviews for the entire market segment (although we often find it useful to assign higher weightings to the input from large market-share customers). MSG is essentially the multiple of importance and dissatisfaction. The calculation itself (expressed as a percentage) is simple enough:
MSG = (Average Importance Rating) x (10 - Average Satisfaction Rating)
As shown in Figure 9, hiding power has the highest MSG, at 37%. In reviewing hundreds of such Market Satisfaction Gaps, we find that scores in excess of 30% indicate a high level of eagerness for improvement on the part of the customer. On the other hand, if your product attributes all score below 20%, you will know that customers are quite satisfied with the important attributes--a key fact that should cause you to consider shelving the project.
While beyond the scope of this paper, other visual tools can be employed which reflect the test data you have generated as well. We recommend converting all test results to 1-10 scales, in which 5 equals "barely acceptable" to the customer and 10 equals "totally satisfied." Once this is done, your best product today can easily be compared to competitive products you tested in Phase III. You can do this for each attribute and you can also do an overall assessment of each product.
We usually calculate an Outside-In score for each product, which reflects its overall test results. Instead of a simple average, though, the score weights each attribute based on its importance to customers. This gives an overall, unbiased, fact-based assessment of how the market can be expected to react to each product. As your team envisions various new product designs, it can do "what-if" calculations of the Outside-In score for each before settling on its attribute targets.
Deciding what you want to develop is, of course, different than actually developing it. Before entering the development stage, it's best for the team to chart one or more likely technical paths for the most important attributes they wish to improve. Internal technical brainstorming works well. For this, the product development team is usually augmented with other internal company experts and perhaps external experts under a confidentiality agreement. Brainstorming techniques are used to generate a wide range of possible technical routes. Ideas are then grouped into several clusters that share common technical themes, and a prioritization technique is used to select the most promising technical paths.
Our favorite approach is to narrow the field with voting and then use a visual grid for each of the top ideas to assess its ease of implementation and likelihood of achieving the technical goal. After developing such a grid for each key attribute, the team should evaluate whether it makes sense to tackle several attributes at once or to phase them in by introducing a series of new and improved products. In other words, the output of Phase IV is not always one new product--it could be several new products.
The final step within Phase IV, New Product Planning, is to create the business case--a compelling rationale for proceeding with the heavy investment required in the product development stage. To overlook this would be like creating a detailed mental view of a new home to be constructed and then failing to communicate that view to the builder via a blueprint. Important details would surely be lost. Furthermore, the very creation of the blueprint forces you to ask questions you would otherwise omit.
With the last point in mind, we believe the business case should not be thought of as something to be completed "for management." It is true that well-constructed, consistently delivered business cases help management direct resources to the most attractive opportunities. But the greatest benefit occurs within the team that sees the business case as a tool for its own success. The business case provides good application of author Steven Covey's admonishment to "begin with the end in mind." In our experience, the best business cases are not written just before a review, but are built over several weeks or months, as teams gather their facts. The recognition of missing facts, the correction of wrong facts, the discovery of unimagined facts, the interpretation of facts, and the analysis of these facts occur as part of the team's natural work cycle. After such intensive learning, the test--or gate review--is practically a formality.
What and how much to include in a business case is a frequent point of disagreement. Typically, the longer someone spends thinking about this, the thicker the document becomes. We have seen them 30 or 40 pages long and have noticed that the only person who actually read the document was the writer. On the other hand, we've seen the one-page variety in which important facts can only be addressed superficially. We like the advice of Albert Einstein: "Everything should be made as simple as possible ... but not simpler."
We have generally been able to cover what needs to be covered in about four pages by following two rules. First, use charts generously, because they convey facts more efficiently, hold the reader's attention better and force a higher level of quantification than words alone. For example, the Market Satisfaction Gap chart shown earlier, with a brief narrative, can effectively explain the team's value proposition.
[FIGURE 10 OMITTED]
Second, organize the business case in a logical fashion and package your message into crisp blocks of information. After studying the decision-making of venture capitalists and much experimentation on our own, we've settled on the 12 points shown in Figure 10. For each point, about half a dozen key questions are addressed and one central chart is presented and briefly discussed. We have found there is a natural flow to these points which should be followed. Let's return, for example, to the pre-development gate review you had imagined attending earlier: You would first ask yourself the question, "What is this project about and do we even want to proceed with it?" If the market is unattractive or there is no clear way to deliver superior value, for instance, you wouldn't even be interested in the second question, "Can we do this, and how likely is it that we will succeed?" Only if these answers are affirmative would you then ask, "Given everything else on our plate, what is the impact of this project?" This is essentially a matter of prioritization.
Being concerned with the proper sequence might seem trivial, but imagine the mental dissonance created if someone was presented with the financial plan first: "You are showing me sales and earnings projections for a project I don't understand, am not sure whether I like, and cannot yet intelligently question or challenge." Making your points in the proper sequence will do more than help the gate review board. We recommend reviewing business plans at their various states of completion during team meetings and each of the follow-up review sessions. The proper flow promotes a much more useful discussion during these sessions.
Time for an Upgrade
We stress that we are calling for an upgrade to the new-product machine, not a repair. It should be no surprise that this machine has never worked well--some of the most important upgrades to the old-product machine weren't made until the end of the industrial revolution. Why has the new-product machine continued to cough and sputter? For one thing, this is a highly complicated machine. According to the authors of the APQC benchmarking study cited earlier:
Of the 113 practices measured, a total of 87 significantly distinguished the best-practice organizations, 77 of these in a strong way. NPD success does not boil down to one or a few bullet points. Product innovation is perhaps the most complex of all business activities', and getting it right is" equally complex (20).
One of us recently tore apart an old player piano with 8,000 parts and had these parts on his workbench a lot longer than expected. Your new-product machine has even more "moving parts," and just figuring out which to work on can be overwhelming. The fact that the parts to this process reside in different functional organizations makes the task all the more difficult.
We also believe the new-product machine has suffered from management short-sightedness. Acquisitions, downsizing and lean operations all hold the promise of near-term results, but the benefits of a new-product machine upgrade will seldom be noticed in the same fiscal year. We do see the winds of change blowing on this point. It wasn't long ago that many industrial manufacturers in developed nations talked of being low-cost producers in their industries. As the boundaries of competition have stretched from national to global, though, faith in a low-cost, old-product machine alone has ebbed. This new reality and the harsh lessons of many acquisitions have inspired more than a few companies to look more closely at profitable, organic top-line growth from new product development.
Although upgrading the new-product machine is neither easy nor immediately satisfying, we offer two points of encouragement in closing. The first is that work on the up-front part of this machine is inherently cost-effective. A team that might spend $3,000 on secondary market research or $30,000 on travel costs for interviews could easily spend $300,000 on the development and launch stages. For most projects, you will recover your up-front investment if you do any one of the following: 1) improve the probability of NPD success by one percentage point; 2) increase your market penetration by one-half a share point; 3) accelerate your time-to-market by one month; or 4) raise pricing by half a percent. Done well, up-front work does much more.
The second source of encouragement is that you will see ample evidence your machine is running better, even if you cannot immediately measure improved output. At one point in our careers, we worked together in the same business, doing everything we could think of to improve our new product pipeline. Still, it seemed that the project teams were running in place, registering only a little forward motion from meeting to meeting. But once we began implementing New Product Blueprinting practices, the teams suddenly got some traction. It was amazing to see how the customer interviews generated enthusiasm and helped teams surge forward.
Customer feedback will provide another form of evidence that your new-product machine is beginning to work better. Customers appreciate suppliers who are competent and interested in their needs, and often ask to be included "next time you do this."
In conclusion, employees and customers are two important groups to engage and enthuse with New Product Blueprinting. If you want to upgrade your new-product machine, you need to upgrade the capabilities of a critical mass of technical and commercial people. The executive who adopts a "make it so" approach and fails to consider the investment required to develop employees will be disappointed.
You could employ more sophisticated survey methodologies and statistical manipulations than we have shown here, but carefully consider what you might lose: Think of the power behind teams that can understand and explain the methodology to customers, so that customers become part of the process.
Finally, imagine how much fun it is to launch a new product to someone who has helped you design it, is waiting for you to finish it, and has already told you which promotional "hot buttons" to push. That's a new-product machine that can reach Two Sigma and beyond.
References and Notes
(1.) Cooper, R. G. 2001. Winning at New Products': Accelerating the Process from Idea to Launch. Reading, Mass: Perseus Books, p. 9.
(2.) Christensen, C. M. and Raynor, M. E. 2003. The Innovator's Solution. Creating and Sustaining Successful Growth. Boston: Harvard Business School Press, p. 73.
(3.) 2003. Improving New Product Development Performance and Practices'. Houston: APQC International Benchmarking Clearinghouse, pp. 18-19.
(4.) 1989. The Oxford English Dictionary. Oxford University Press.
(5.) 2003. Improving New Product Development Performance and Practices. Houston: APQC International Benchmarking Clearinghouse, pp. 25-26.
(6.) For an excellent overview of venture capital decision-making practices, see: Camp, Justin J. 2002. Venture Capital Due Diligence." A Guide to Making Smart Investment Choices and Increasing Your Portfolio Returns. New York: John Wiley & Sons.
(7.) Cooper, R. G. 2001. Winning at New Products': Accelerating the Process from Idea to Launch. Reading, Mass: Perseus Books, p. 58.
(8.) Hopkins, D. S. and Bailey, E. L. 1971. New Product Pressures. Conference Board Record 8, pp. 16-24.
(9.) Koen, Peter et al. 2001. "Providing Clarity and a Common Language to the 'Fuzzy Front End.' "Research-Technology Management, March-April, pp. 46-55.
(10.) 2003. Improving New Product Development Performance and Practices. Houston: APQC International Benchmarking Clearinghouse, pp. 45-46.
(11.) The term Stage-Gate[R] was coined by Robert Cooper and is a registered trademark of the Product Development Institute, Inc.
(12.) The details of this and other cases have been altered to protect confidentiality.
(13.) To research a specific market segment, see www.marketresearch. com, www.frost.com or www.profound.com. To research a certain company, go to www.sbs.dnb.com or www.thomasnet.com.
(14.) A good Internet source for finding industry experts is www. intota.com.
(15.) ReVelle, Jack B; Moran, John W; and Cox, Charles A. 1998. The OFD Handbook. New York: John Wiley and Sons.
(16.) Brue, Greg and Launsby, Robert. 2003. Design for Six Sigma. New York: McGraw-Hill.
(17.) Shillito, Larry M. 2001. Acquiring, Processing and Deploying Voice of the Customer Boca Raton: St. Lucie Press.
(18.) The Forgetting Curve was established by Ebbinghaus in 1885. Numerous studies have corroborated the rapid drop in memory retention, including experiments conducted at the University of Texas Learning Center, Austin, Texas.
(19.) Post-it[R] is a registered trademark of the 3M Corporation.
(20.) 2003. Improving New Product Development Performance and Practices'. Houston: APQC International Benchmarking Clearinghouse, p. 70.
Dan Adams is president of Advanced Industrial Marketing, Inc., a Cuyahoga Falls, Ohio-based training firm, and the author of New Product Blueprinting: The Handbook for B2B Organic Growth (AIM Press, 2008). He developed new product blueprinting and has trained firms on six continents to use these front-end practices. He has worked for over 30 years in all areas of new product development, as former head of BFGoodrich Specialty Chemicals strategic' planning, director of numerous marketing and business development areas, and as an inventor listed in the National Inventors Hall of Fame. He holds an M.B.A. and B.S. in chemical engineering from the University of Akron.
firstname.lastname@example.org or www.newproductblueprinting.com
Sudhir Hublikar is vice president of technology at A GY, a manufacturer of specialty glass fiber yarns and rovings based in Aiken, South Carolina. Prior to that, he was director of technology at BFGoodrich Specialty Chemicals and Noveon, Inc. For more than 20 years, he has nurtured innovation and directed product development in a broad array of industries such as tires, aerospace, chemicals and high-performance materials. He holds a Ph.D. in fiber and polymer science from North Carolina State University and an M.B.A. from Arizona State University. email@example.com
Figure 2.--New product "defects" are reduced when product development teams are taught how to avoid these errors. Five Valuation Errors Error Leading Cause Type 1 Poorly Analyzed Facts A disciplined process is lacking Type 2 Wrong Facts Untested assumptions are accepted Type 3 Missing Facts Key questions are never asked Type 4 Misinterpreted Facts Insufficient expert challenging occurs Type 5 Undiscovered Facts Probing skills & tools are lacking Figure 8. Moving from customer-reactive meetings to market-proactive interviews will give you a strong competitive advantage. Meetings vs. Interviews Customer-Reactive Meetings Market-Proactive Interviews * New product needs usually * Needs of many customers & expressed by a single customer prospects pursued in segment * Work only with direct * Interview customers' customers customers * Little understanding. Just * Needs are probed deeply to "The customer said he understand root issues wants ..." * Only spoken needs addressed * Unspoken needs also addressed * Today's problems discussed * Future opportunities explored * Other suppliers are often in * Close customer collaboration a "foot race" to solve same usually shuts out competitors issue * Solution often incremental * Solution usually significant and suitable only for one & suitable for entire market customer Figure 9. A high Market Satisfaction Gap is generated when customers are dissatisfied with an attribute they feel is important. Market Satisfaction Gap Hiding Power 37% Brushmark Leveling 13% Window Sticking 12% Crayon Removal 36% Brushability 19% Scrub Resistance 30% Fading Resistance 10% Stain Resistance 14% Sprayability 16% Factory Mix Time 6% Note: Table made from bar graph.
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|Author:||Adams, Dan; Hublikar, Sudhir|
|Date:||Mar 1, 2010|
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