The New Products Process

Setting

The New Products Process

Chapter 1 provided a view of the overall new products process—that combination of steps/activities/decisions/goals and so on that, if performed well, will churn out the new products the organization needs. This process appeared in Figure 1.4, which serves as a framework for the rest of this book. As noted in the introduction to Part 1, the five figures that introduce each part of this book (Figures 1.1, I.I.1, and so on) are indeed simply the five boxes of Figure 1.4, expanded to show more detail on what happens at each phase in the process.

In this chapter, we go more deeply into the phases of the new products process model of Figure 1.4, illustrating what tasks are required at each phase and who is responsible for what. We then explore several issues important to product managers: how the new products process can be sped up (without sacrificing product quality or running up the budget), how the process would have to be adapted for the development of new services, how to develop breakthrough innovations, and how the skills and resources of external partners can be leveraged to improve the process.

We begin by relating a short new product story to illustrate some of the key activities in the new products process in action. This will lead into a deeper discussion of the new products process and its managerial aspects. In particular, the story clearly shows how the new products process is interwoven with the other strategic elements introduced in Chapter 1, that is, the product innovation charter and the new product portfolio. It also introduces the idea of the cross-functional team and the importance of effective team management in implementing the new products process.

The Procter & Gamble Cosmetics Saga ^{1}

In 1989, leading U.S. consumer goods manufacturer Procter & Gamble established itself in the cosmetics business by acquiring two leading cosmetics brands, Cover Girl and Clarion. By 1991, they also owned Max Factor. P&G established a new Cosmetics strategic business unit (S.B.U) and tried developing and launching new products using the procedures it had mastered in the detergent, food, and other packaged-goods lines. By the mid-1990s, however, P&G senior management was considering its options for its Cosmetics S.B.U. Some new products had done poorly, Clarion was sold, and some managers were even wondering whether P&G should leave the cosmetics business for good.

P&G, one of the leading product developers worldwide, certainly knew the long-term importance of new products to the firm's bottom line. P&G's C.E.O, A. G. Lafley, said that "innovation is a prerequisite for sustained growth. No other path to profitable growth can be sustained over time.

Without continual innovation, markets stagnate, products become commodities, and margins shrink." Senior management felt that this was not the time to get out of cosmetics; rather, the challenge was to turn new product development around within the ailing S.B.U. With this strong commitment to new products at the highest levels within the firm, the Cosmetics S.B.U's challenge was clear: fix the new products process, so that new products can become a sustaining, vital part of their business into the long term.

Cosmetics S.B.U management understood its new product weaknesses. At the time, there was little evidence of a clear product development strategy in the Cosmetics S.B.U. Product initiatives were all over the place, too many different product categories were being pursued, and too many customer segments were being targeted. In short, the S.B.U lacked a product development focus.

Within a few years, P&G's Cosmetics S.B.U had engineered a complete turnaround by following and implementing the three strategic elements we introduced in Chapter 1. It's not so simple, of course; senior management had to recognize new products as the lifeblood of their S.B.U and a key component of their success. They had to adequately fund new products and assign the right people to the tasks. However, the cosmetics S.B.U turnaround is almost a textbook case of the value of the strategic elements.

It also clearly shows that one or two of the strategic elements alone won't be enough. All three were put into action, and each complemented and supported the others. Let's examine each in turn.

The Product Innovation Charter (P.I.C)

The starting point for the turnaround was a clear product innovation charter (P.I.C), which starts with an honest situation assessment and opportunity identification. At the time, the Cosmetics S.B.U was trying to develop products for the entire body and having difficulty carving out a competitive position. The situation assessment showed that there was an underserved consumer market, who wanted quality products for facial use only (facial cleanser, eye or lip products, and so on). Also, a problem was identified in the supply chain, which had become uncoordinated.

Production and shipments were not tied to fluctuations in market demand, with the result that products spent too long in the supply network. Some new products were almost obsolete (not really competitive any more) by the time they were launched! Management realized that the supply chain needed to be under better control, such that market demand forecasts drove production and shipping schedules.

If they succeeded in improving the supply chain, fewer launches would be delayed, and new products would be more competitive at the time of launch.

While you will learn more about the P.I.C in Chapter 3, the important thing to know is that it is a systematic way for managers to develop a new product strategy that considers the goals for their product innovation efforts and how these efforts fit overall business strategy. It involves identifying a strategic focus (which markets and which technologies will be targeted). In this case the market was defined in terms of products for the face. Essentially, this became a statement of the strategic arena or battlefield the Cosmetics S.B.U was going to compete in. Any new product opportunities that did not clearly help Cosmetics achieve its objectives in this arena would no longer be pursued.

The New Products Process

A second strategic element is the new products process, which is the path the new product takes from idea to the time of launch and beyond. P&G's Cosmetics S.B.U did not have an effective new products process in place, with the result that product development often proceeded without clear inputs from customers early in the process. Cosmetics implemented a new products process quite similar to the five-phase process introduced in Chapter 1, which ensured that project teams were established early in the process, that consumer research was done early, and that consumer insights were actually used in the development of new product concepts. (A term you will see in upcoming chapters is the voice of the customer or V.O.C: Think back to this example and consider how the V.O.C was used to drive product development in the Cosmetics S.B.U.) Note here that having a new products process, and actually implementing it correctly, are two different things.

Cosmetics made its new products process work by having tough evaluation steps between the phases. At each phase, the project team had a set of current best practices against which to evaluate the product, as well as clear end-points or expectations. In addition, the evaluations were two-step, consisting of both a team recommendation and a decision by top management. In the past, the evaluations were not so carefully done, with the result that too many poor ideas would be allowed to pass.

The New Product Portfolio

In addition to a well-functioning new products process, there needs also to be an assurance that the firm is developing the right products with respect to its product portfolio. P&G's Cosmetics S.B.U established a plan for managing its product portfolio and systematically adding new products to the portfolio. Given the nature of the products they were making, it was important for new launches to create buzz and excitement in the marketplace—for that reason, excellent launch timing was important.

Cosmetics added new products to the existing portfolio strategically, in terms of both product selection and launch timing. For example, a new eye makeup would not be launched onto the market if there were already too many similar products in the portfolio, or if a similar product had just been launched. S.B.U management spoke of establishing an "initiative rhythm" for its products: New products would come through the development pipeline such that they would be ready for market launch at the best moment. We will see much more about portfolio management in Chapter 14.

Supporting the Strategic Elements: Effective Team Management

Finally, new product team management within the Cosmetics S.B.U was excellent. First and foremost, senior S.B.U management was committed to turning new product development around and to properly implementing the new products process. Certainly, senior P&G management such as C.E.O A. G. Lafley was behind them as well, judging from his quote above.

Cosmetics management ensured that a positive innovative culture was in place within their S.B.U, one in which employees worked effectively in empowered, cross-functional teams. One important step, established in Cosmetics as well as in other S.B.U's, was to create initiative success managers (I.S.M's), who reported to senior S.B.U management. These I.S.M's led strategy development sessions, managed new product evaluation meetings, took part in resource planning, trained employees, and (importantly) shared what they learned with I.S.M's working in other business units, so that their expertise could spread quickly throughout the firm. A solid set of metrics was also established, so that the performance of each development team could be honestly assessed every six or twelve months on key indicators established by S.B.U management. As with all other S.B.U's within P&G, great emphasis was placed on identifying the best team leaders, who could come from any of the functional areas (marketing, engineering, R&D, or elsewhere) and were rewarded based on how they performed relative to the established indicators.

We will see much more about cross-functional teams and related organizational issues in Chapter 14.

What Happened in That Saga?

We just read several years worth of product development activity in a few minutes. The story began with an ongoing operation that was facing a difficult situation. The saga illustrates how the managers involved applied the strategic elements effectively. We also saw how important it was to get support for the process from top management—in this case, from the C.E.O himself.

This situation is typical in that the new products process does not usually begin with a new product idea. It is folklore that someone, somewhere, wakes up in the middle of the night with a great insight. It can happen, but successful new product programs are not built on such slender hopes. As the saga shows, the process usually begins with what amounts to strategy. With top management's support and good execution of all the strategic elements, P&G was able to turn the weak Cosmetics S.B.U around.

Note too that development does not take place behind the closed doors of a research lab. The cross-functional team includes personnel from many departments, not just the product engineers or R&D people. Also, marketing doesn't start when the product is finished. It becomes involved very early in the process—in this saga, marketing provided key information for the development of the P.I.C.

Last, the process is not over when the new product is launched. It ends when the new product is successful, usually after some in-flight corrections. P&G monitors the sales, profits, and market shares of its new products and takes corrective actions if interim goals are not reached.

The next section looks more deeply at the phases of the new products process, first introduced in Chapter 1.

The Phases in the New Products Process

Phase 1: Opportunity Identification and Selection

The first phase is strategic in nature and is the most difficult to describe or define. The best approach probably is to tell you what businesses actually do, and then show how this yields strategic guidance to the firm.

At least three main streams of activity feed strategic planning for new products. They are (with an example for each) as follows.

- Ongoing marketing planning. Example: The annual marketing plan for a C.D-ROM line calls for a line extension to meet encroachment of a new competitor selling primarily on price.

- Ongoing corporate planning. Example: Top management adopts a strategy that says either own a market (meaning get either a first-or second-place share) or get out of it. This will require new product activity in all desirable markets where the firm holds a minor position.

- Special opportunity analysis. One or more persons (in the firm or a consulting firm) are assigned to take an inventory of the firm's resources (people, facilities, reputations, whatever). Example: A firm in the auto parts business called for an audit of its manufacturing operation. It turned out that manufacturing process engineering had been overlooked or just not appreciated—that skill could serve as the base for a new products program.

From these activities, the opportunities identified sort naturally into four categories, again with examples:

• An underutilized resource. Example: A bottling operation, a strong franchise with dealers, or that manufacturing process engineering department.

- A new resource. Example: DuPont's discovery of Surlyn, a material with hundreds of potential uses.

- An external mandate. Example: The market may be stagnant, the competition may be threatening, or customer needs may be evolving. Challenges like this will cause the firm to search for new opportunities, as did the Tasty Baking Company in the case at the end of this chapter.

- An internal mandate. Example: Long-range planning often establishes a five-year-out dollar sales target, and new products people often must fill part of the gap between current sales and that target. That assignment is called the product innovation (and/or acquisition) gap. Other common internal mandates are simply upper management desires.

The process of creatively recognizing such opportunities is called opportunity identification. The opportunities are carefully and thoroughly described, then analyzed to confirm that a sales potential does, indeed, exist. Recall that one of the first things P&G Cosmetics did was recognize that the new products process for cosmetics could be fixed, and that new products in this category could be a viable business direction.

Of course, no firm wants to exploit all opportunities; some are better than others. Some may not fit with company skills, some are too risky, some require more money than the firm has. So, most firms have ongoing strategies covering product innovation. For example, Waterford had a strategy that no new product would jeopardize the firm's great image. Cincinnati Milicron's strategy demanded that any new product be highly innovative, not a me-too. Gillette and Sony usually choose leading-edge innovation strategies.

Once an opportunity is approved, managers turn to various techniques to guide new product people in exploiting it. This we will call the product innovation charter (P.I.C), and it will be explained in Chapter 3.

Phase 2: Concept Generation

in some cases, merely identifying an opportunity pretty well spells out what is wanted (for example, an opportunity to add a small size of deodorant for travelers). Most times, however, it's not so clear, so an immense set of ideation tools has evolved. Creating new product ideas, usually called product concepts by new products people, is not the simple, fun-and-games thing it might appear.

The most fruitful ideation involves identifying problems people or businesses have and suggesting solutions to them. For example, if the opportunity focused on “people moving their families over long distances,” the first ideation step is to study those people and find what problems they have. This problem-finding-and-solving activity has become quite sophisticated; it is no longer the caricature of a group sitting around a table, pouring out ideas.

While the systematic problem-based ideation is going on, unsolicited ideas are pouring in on phone, mail, and e-mail from customers, potential or former customers, employees (especially sales, technical, and operations), and every other source imaginable. These ideas are reviewed briefly by whomever receives them to see if they are even relevant to the firm and its strategies. They are then put into the pool with the ideas that came from problem-solving activities.

Concept generation is covered in Part 2, Chapters 4 through 7.

Phase 3: Concept/Project Evaluation

Before development work can begin on new ideas, they need to be evaluated, screened, sorted out. This activity, sometimes called screening or pretechnical evaluation, varies tremendously. But most firms more or less follow a sequence from quick looks to complete discounted cash flows and a net present value. The quick look is necessary because the flow of new product concepts is huge—into the thousands in many firms.

But what happens next is the first formal type of evaluation. Depending on the idea, this may be end-user screening or technical screening, or both. The work may be extensive and difficult, or it may take no more than a few telephone calls. In the P&G Cosmetics example, some of the proposed new products may have originated among the technical people; this would have to be followed by a concept test to see what potential consumers thought about it. Ultimately, these views all come together in what is often called the full screen. It uses a scoring model of some type and results in a decision to either undertake development or quit.

If the decision is to go ahead, the evaluation turns into project evaluation, where we no longer evaluate the idea but rather the plan we propose for capitalizing on that idea. This involves preparing a statement of what is wanted from the new product. Firms using Quality Function Deployment (a method of project management and control) see this as the first list of customer needs. A more common generic term is product description or product definition.

In this book it will be called product protocol. Protocol means agreement, and it is important that there be agreement between the various groups before extensive technical work gets under way. The protocol should, to the extent possible, be benefits the new item is to yield, not the features the new item is to have.

The lack of good hard information complicates all pretechnical evaluation. In fact, the first three phases (strategic planning, concept generation, and, especially, concept/project evaluation) comprise what is popularly called the fuzzy front end (of the new product process). By the end of the project, most fuzz will have been removed, but for now, we move with more daring than the data allow. The various pretechnical evaluation actions are covered in Part 3, Chapters 8 through 12.

Phase 4: Development

This is the phase during which the item acquires finite form—a tangible good or a specific sequence of resources and activities that will perform an intangible service. It is also the phase during which the marketing plan is sketched and gradually fleshed out. Business practice varies all over the map, but we often find the following pieces.

Resource Preparation

Often overlooked by new products managers is a step called resource preparation. For product improvements and some line extensions, this is fine, because a firm is already up and going in a mode that fits products that are close to home. The culture is right, market data are more reliable, and ongoing managers are ready to do the work. But a particular innovation charter may leave familiar territory, forcing problems of fit. If a firm wants new-to-the-world products (more about them later in this chapter), then the team may need special training, new reward systems, revisions in the firm's usual project review system, and special permissions. Without adequate preparation of the ball field, a firm doesn't get much home advantage.

The Major Body of Effort

Next comes what all of the previous steps have been leading up to—the actual development of, not one thing, but three—the item or service itself, the marketing plan for it, and a business (or financial) plan that final approval will require. The product (or better, the concept) stream involves industrial design and bench work (goods) or systems design (services), prototypes, product specifications, and so on. It culminates in a product that the developers hope is finished—produced, tested, and costed out.

While the technical developers are at work, marketing planners are busy making periodic market scans (to keep up with changes out there) and making marketing decisions as early as they can be made—first strategic and then tactical. Marketing decisions are completely interlaced with technical ones and involve package design, brand name selection, and tentative marketing budgets. A technical disappointment down the line may junk the early package design, name, or whatever. But we have to pay that price; we can't wait for each step to be conclusive before going to the next one.

Along the way, concept evaluation continues; we evaluated the concept well enough to permit development work (discussed earlier), but we have to keep evaluating technical and marketing planning results. We evaluate prototypes primarily, checking to be sure that the technology being developed meets the needs and desires of the customers in a way that creates value for them, while at the same time being profitable commercially. By the time this phase winds down, we want to be assured that the new product actually does solve those problems we began with.

The fuzzy front end has been the subject of much research the past few years. A good resource is Peter A. Koen, Greg A. Ajamian, Scott Boyce, Allen Clamen, Eden Fisher, Stavros Fountoulakis, Albert Johnson, Pushpinder Puri, and Rebecca Seibert, "Fuzzy Front End: Effective Methods, Tools, and Techniques," in P. Belliveau, A. Griffin, and S. M. Somermeyer, The PDMA Toolbook for New Product Development (New York: John Wiley, 2002), Ch. 1.

Comprehensive Business Analysis

If the product is real and customers like it, some firms make a comprehensive business analysis before moving into launch. The financial analysis is still not firm, but it is good enough to assure management that this project will be worthwhile. The financials will gradually be tightened during the launch phase, and where the actual Go/No Go point is reached varies with the nature of the industry. Approval for a new food product can be held until just before signing T.V advertising contracts, but a new chemical that requires a new manufacturing facility has to Go much earlier, and the pharmaceutical industry really makes the Go decision when it undertakes the 10-year, $50 million R&D research effort. The development phase is covered in Part 4, Chapters 13 through 15.

Phase 5: Launch

Traditionally, the term launch, or commercialization, has described that time or that decision when the firm decides to market a product (the Go in Go/No Go). We associate this decision with building factories or authorizing agencies to proceed with multimillion-dollar advertising campaigns.

It's more subtle than that now. The launch decision has a healthy component of attitude. A firm can always pull out, even during a test market, so some people say most projects actually don't have a Go/No Go decision. Regardless, the last few weeks or months just before and after announcing the new product is really a launch phase. New products teams are enjoying life in the fast lane (or, unfortunately, life in a pressure cooker). Manufacturing is now doing a gradual scale-up of output. The marketing planners, who got a good glimpse of their ultimate target market as early as the opportunity, are now deep into the hundreds of tactical details required for launch. The critical step—if a company takes it—is the market test, the first time the marketing program and the product dance together. This step is pure dress rehearsal, and managers hope any problems discovered are fixable between dress rehearsal and opening night.

If they aren't, the opening has to be delayed. Given the time pressures involved, managers have come up with many new ways to do reliable market tests quickly, to complement the familiar test market, which can be inordinately time-consuming and costly. We will review many market test techniques in Chapter 18.

Sooner or later (it is hoped), these preparation activities lead to a public announcement of the new product—advertising, sales calls, and so forth. The announcement is often called launch, meaning that launch takes place one day, or even at one hour. Dramatically, yes, but practically most firms today are gradually moving the new item into commerce over a period of at least several weeks—there are suppliers to bring on line, sales forces to be trained, distributors to be stocked and trained, and a large set of market support people to be educated (columnists, scientists, government people, and thousands more). These things cannot happen one day, nor can the secret be kept—details yes, but the emergence of a new item, no.

One thing that is often overlooked at this point is the activity of planning for launch management. Everyone knows that when space shuttles leave the launch pad in Florida, a plan of tracking has been carefully prepared. “Houston Control” runs it, seeking to spot every glitch that comes up during launch and hoping it was anticipated so that a solution is on board, ready to use. New products managers often do the same thing, sometimes formally but often very informally.

The launch phase is covered in Part 5, Chapters 16 through 20.

$ ^{3} $Edward U. Bond, III and Mark B. Houston, “Barriers to Matching New Technologies and Market Opportunities in Established Firms,” Journal of Product Innovation Management, 20(2), March 2003, pp. 120–135.

Evaluation Tasks Throughout the New Products Process

Figure 2.2 illustrates the evaluation tasks encountered in the new products process. As shown, different kinds of questions need to be asked after different phases. For example, once concepts are generated, each is subject to an initial review: Is it any good, and is it worth refining?

Figure 2.2 summary: A flowchart mapping New Product Process Phases to their corresponding Evaluation Tasks. The process moves linearly from opportunity identification and selection through concept generation, concept/project evaluation, development, and finally launch, with evaluation tasks such as initial review and full screen providing feedback loops back to earlier phases. This structure demonstrates how continuous evaluation informs and redirects the product development cycle to ensure project viability.

At the concept evaluation phase, careful screening is required, as concepts that pass this phase move on to development and begin incurring significant costs. In development, relevant questions are “Are we done yet?” and “If not, should we continue to try?” These questions are best answered through progress reports. Finally, at launch, the main questions concern whether the product should be launched, and later, how well it has done relative to expectation. We pick up discussion of Figure 2.2 later, in Chapter 8, when we go much more in depth into which evaluation techniques are the most useful at each point in the new products process.

You may have noticed by now that the new products process essentially turns an opportunity (the real start) into a profit flow (the real finish). It begins with something that is not a product (the opportunity) and ends up with another thing that is not a product (the profit). The product comes from a situation and turns into an end.

What we have, then, is an evolving product, or better, an evolving concept that, at the end, if it is successful, becomes a new product. Even a new product announcement just tells the world about a concept, hopefully a winner, but actually just in temporary form. Forces are standing by to see what revisions need to be made, even now, if it is off track.

This evolution is linked to the phases of the new products process (see Figure 2.3). Here are the phases in that process, using a new skim milk product as an example:

Figure 2.3 summary: A diagram plotting Clarity against Market value across five project phases, from Opportunity Identification to Launch. As a project progresses through the phases, it moves from an Opportunity concept toward a Successful concept, with clarity increasing as the concept evolves through stages such as Idea, Tested, Protocol, Prototype, and Pilot concepts. The takeaway is that advancing through the project development lifecycle systematically increases both the clarity of the concept and its projected market value.

The Evaluation Tasks in the New Products Process

Phase 1: Opportunity Identification

- Opportunity concept—a company skill or resource, or a customer problem. (Assume that skim milk drinkers tell us they don't like the watered look of their favorite beverage.)

FIGURE 2.3 The Evolution from Concept to New Product

Phase 2: Concept Generation

- Idea concept—the first appearance of an idea. ("Maybe we could change the color …")

• Stated concept—a form or a technology, plus a clear statement of benefit. (See Chapter 4.) (Our firm's patented method of breaking down protein globules might make the liquid more cloudy; emphasis on the might, at this time.)

Phase 3: Concept/Project Evaluation

- Tested concept—it has passed an end-user concept test; need is confirmed. (Consumers say they would very much like to have such a milk product, and the method of getting it sounds fine.)

• Fully screened concept—it passes the test of fit with the company's situation.

- Protocol concept—a product definition that includes the intended market user, the problem perceived, the benefits that a less watery skim milk would have to have, plus any mandatory features. (Our new product must taste as good or better than current skim milk, and it must yield exactly the same nutritional values.)

Phase 4: Development

- Prototype concept—a tentative physical product or system procedure, including features and benefits. (A small supply of a full-bodied skim milk, ready to consume, though not yet produced in quantity.)

- Batch concept—first full test-of-fit with manufacturing; it can be made. Specifications are written stating exactly what the product is to be, including features, characteristics, and standards. (Skim milk ingredients: Vitamin A source, fat, fiber, and so on.)

- Process concept—the full manufacturing process is complete.

- Pilot concept—a supply of the new product, produced in quantity from a pilot production line, enough for field testing with end users.

Phase 5: Launch

- Marketed concept—output of the scale-up process from pilot—milk product that is actually marketed, either for a market test or for full-scale launch.

- Successful concept (i.e., new product)—it meets the goals set for it at the start of the project. (New, Full Body Skim has achieved 24 percent of the market, is very profitable, and already competitors are negotiating licenses on our technology.)

The idea that a new product suddenly emerges from R&D—like a chicken from an egg—is simply incorrect. In fact, throughout this book we will be examining how analytical techniques are applied throughout the new product process, from early idea generation and concept evaluation, through screening, and on to positioning, market testing, and launch management.

Speeding the Product to Market

One of today's most discussed management goals in product development is accelerated product development (A.P.D), or speeding the product to market. Accelerating time to market offers many benefits to the firm. The product will be on the market for a longer period of time before becoming obsolete, it can attract customers early and possibly block competitors with similar products that hit the market at a later time, or it can help to build or support a firm's reputation. A firm that implements the strategic elements outlined in Chapter 1—the product innovation charter, the new products process, and portfolio management—has advantages in reducing cycle time. New products consultant Robert Cooper identifies five sure methods to accelerating time to market, some of which have been mentioned previously:

- A clear product innovation charter—doing the opportunity identification homework and having a clean product definition—leads to better product design specifications and less time lost due to “recycling” (returning to earlier phases in the process to fix errors).

- A third-generation new products process that permits overlapping phases or parallel processing results in more getting accomplished in a shorter span of time; streamlined evaluation tasks means that less time is wasted in evaluation.

- A portfolio management approach minimizes the chance that the firm's human and financial resources are spread too thinly over too many projects; better project selection focuses the firm's scarce resources and uses them more efficiently.

- A focus on quality at every phase complements the P.I.C; by following the adage “do it right the first time,” the firm will avoid unnecessary recycling.

- An empowered cross-functional team, including individuals from marketing, R&D, manufacturing, and other functional areas, that works on the project from the earliest phases, supports parallel processing and eliminates “over-the-wall” product development (for example, marketing or production do not even begin their participation until the product is out of technical product development).

Notice that the first three methods are the three strategic elements, while the last two (focus on quality and multifunctional product teams) are methods that help the firm to implement the strategic elements.

There is plenty of evidence that these techniques contribute greatly to increasing speed to market. Software development is often marked by intensive “crunch time” periods due to approaching deadlines, and many firms in this industry rely on small, cohesive cross-functional teams to meet time goals while at the same time not sacrificing quality. Parallel processing is typical in the car industry: A car's drive train may be 70 or 80 percent designed (but not 100 percent) before body design work is initiated. Then, an early prototype (but not the final car) may be built and ready for controlled test-driving. Some observers have noted that the use of parallel processing by the Japanese automakers was a big factor in their emergence on the world market. Figure 2.4 shows many techniques that have been advocated for shortening cycle times.

Note that the cycle time metric, that is, the way management measures speed to market (or, frequently, time to market), is often “getting the idea to the shipping dock faster.” This assumes that there has already been technical accomplishment—the R of R&D has been concluded successfully. But from the point of view of technical development, speed to market success means not just time to the shipping dock, but also postshipping technical speed: For example, are corporate services (such as legal and environmental) in place? Also, if one uses the metric of

$ ^{4} $Robert G. Cooper, Winning at New Products: Accelerating the Process from Idea to Launch, 2nd ed. (Reading, MA: Addison-Wesley, 1993), p. 210.

$ ^{5} $B. J. Zirger and Janet L. Hartley, “The Effect of Acceleration Techniques on Product Development Time,” IEEE Transactions on Engineering Management, May 1996, pp. 143–152, look at cross-functional teams in electronics firms; and Alfredo M. Choperena, “Fast Cycle Time: Driver of Innovation and Quality,” Research-Technology Management, May–June 1996, pp. 36–40, examines the development of an immunoassay diagnostic system. Both found evidence that teams drive speed to market without sacrificing quality.

$ ^{6} $K. B. Clark and T. Fujimoto, Product Development Performance: Strategy, Organization, and Management in the World Auto Industry (Boston, MA: Harvard Business School Press, 1991).

Figure 2.4 Techniques for Attaining Speed in a New Product Project

Organization Phase

1. Use dedicated cross-functional teams.

2. Use small groups and other techniques to minimize bureaucracy.

3. Empower a team, motivate it through incentives and rewards, and protect it.

4. Destroy turf and territory.

5. Make sure the supporting departments are ready when called on.

6. Develop effective team leadership.

7. Encourage organizational learning; transfer knowledge from one project to the next.

Intensify Resource Commitments

1. Integrate vendors; reduce numbers as necessary.

2. Integrate other technology resources.

3. Integrate resellers; reduce numbers as necessary.

4. Get users involved early; capture the Voice of the Customer.

5. Use simultaneous or concurrent engineering.

6. Get suppliers involved through alliances, ventures, etc; develop long-term relations with them.

Design for Speed

1. Computer-aided design and other forms of rapid prototyping.

2. Design-aided manufacturing, reduce number of parts, consider the manufacturing process.

3. Use common components across families.

4. Make the product easy to test.

5. Design in the qualities that lead to fast trial, including relative advantage.

6. Use effective design practices; minimize costly design changes late in the new products process.

Prepare for Rapid Manufacturing

1. Simplify documentation.

2. Use standardized process plans.

3. Use computer-aided manufacturing.

4. Go to just-in-time delivery of materials and components (flexible manufacturing).

5. Integrate product use testing, and start it early.

Prepare for Rapid Marketing

1. Use rollouts in place of test markets.

2. Seed the firm's reputation ahead of marketing.

3. Spend what it takes to get immediate market awareness.

4. Make trial purchasing as easy as possible.

5. Get customer service capability in place ahead of need, and test it. “time to success” rather than “time to the shipping dock,” marketing has a much bigger role to play in accelerating cycle time. Marketing can strive to accelerate premarket speed (i.e., pretesting the marketing plan more quickly, or getting up to speed on field coverage through alliance formation), and also postannouncement speed (i.e., speeding up coupon redemption, or getting the sales reps into the field more quickly).

We are now also hearing about the value of being first to mindshare rather than being first to market. The firm with mindshare in a given product category is the one that the target market associates with the product category and that is seen as the standard for competitors to match (such as Intel microprocessors or Hewlett-Packard laser printers). Firms that strive for mindshare think not about the speed of an individual product's development and launch, but rather about creating a dominant position in the mind of the customer.

Finally, the role of top management in speeding products to market cannot be ignored. It is not enough for top management simply to say "Cycle times are to be cut by 50 percent, effective now!" Employees will no doubt interpret such blanket statements as a thinly disguised command to work twice as hard. Real resources need to be committed to a cycle time reduction program. An expert in cycle time reduction, Preston Smith, reports that many firms expect the process to be quick and easy.

Executives sometimes ask for a one-or two-day training program in cycle-time reduction, believing that to be adequate training. The idea is not to skip critical steps in the new products process—the goal is to figure out how to get through the process faster without sacrificing quality. In the early 1990s, Chrysler spent over 1 billion on a development center designed to allow colocation of its project teams, while at the same time investing heavily in new C-A-D systems, team training, and supplier development.

Senior management will also know the value of strategic alliances to obtain technical and marketing resources and assistance. Alliances can be upstream to vendors, downstream to resellers and customers, and even sideways to competitors. Apple, for example, turned to Sony for assistance in speeding up the development of the PowerBook notebook.

Sources: Compiled from many sources, but some particularly useful articles on the subject are: Edward F. McDonough III and Gloria Barczak, “Speeding Up New Product Development: The Effects of Leadership Style and Source of Technology,” Journal of Product Innovation Management, 8(3), September 1991, pp. 203–211; Murray R. Millson, S. P. Raj, and David Wilemon, “A Survey of Major Approaches for Accelerating New Product Development,” Journal of Product Innovation Management, 9(2), March 1992, pp. 53–69; Ed. J. Nijssen, Arthur R. L. Arbouw, and Harry F. Commandeur, “Accelerating NPD: A Preliminary Empirical Test of a Hierarchy of Implementation,” Journal of Product Innovation Management, 12(2), March 1995, pp. 99–109; Ashok K. Gupta and William E. Souder, “Key Drivers of Reduced Cycle Time,” Research-Technology Management, 41(4), July-August 1998, pp. 38–43; J. Daniel Sherman, William E. Souder, and Svenn A. Jenssen, “Differential Effects of the Primary Forms of Cross-Functional Integration on Product Development Cycle Time,” Journal of Product Innovation Management, 17(4), July 2000, pp. 257–267; Morgan Swink, “Product Development – Faster, On-Time,” Research-Technology Management, 45(4), July-August 2002, pp. 50–58.

Risks and Guidelines in Speeding to Market

There are plenty of advantages to speeding to market, not the least of which is that the product that is launched early is on the market for a longer period of time before becoming obsolete. A launch delay of, say, six months means six months less to earn profits and may give a competitor a chance to be first to market and establish a positive reputation.

Nevertheless, there are lots of costs involved in speed, costs that are not evident and which can sometimes be disastrous. A firm facing increased competitive intensity, rapid technological change, and fast-changing market demographics may be tempted to concentrate on only easy, incremental product projects, or to cut critical steps in the new products process in order to get cycle time down. Cutting corners in technical product development may result in quality sacrifices, resulting in annoyed customers and distributors. By rushing the early steps, the firm may decide late in the process that the product quality is inadequate, which delays the launch, further infuriates dealers, and encourages customers to drift to the competition.

Alternatively, rushing through the marketing ramp-up may result in inadequate attention to key marketing tasks in readying the product for launch. In these cases, the firm wins the speed-to-market battle but may lose the war.

The temptation to go too fast must be resisted, so that the firm does not mishandle a new-to-the-world opportunity, miss out on key customer information, or develop a technologically inferior product. A better way to cope when facing a high-turbulence environment is to keep product development as flexible as possible: Do not freeze the product concept until the last possible moment, but allow later phases in the new products process to run concurrently with concept development.

Another related concern is that accelerating time to market might result in bringing the product out too soon, while it still has bugs. In some situations, where there are high opportunity costs and relatively low development risks (such as with a new personal computer), it would be better to speed up cycle time. When Boeing develops and launches a new aircraft, however, there are relatively low opportunity costs (less direct competitors) but much higher development risks. In this case, getting the product “100 percent right” is the more appropriate goal. Another risk of focusing exclusively on speed to market is that management might be tempted to concentrate on quick, close-to-home innovations at the expense of really new products, thus putting new product development efforts out of strategic balance.

Do the job right the first time. A small amount of time in the early phases can save many times that later, in rework alone.

Seek lots of platinum B.B's rather than one silver bullet. This means look at every step, every action, every meeting; small savings add up.

Train everyone involved. People who don't know their jobs, who are assigned work without proper skill-building, won't know how to speed things up.

Communicate. Huge amounts of delay can be traced to someone, somewhere, waiting for a piece of information. E-mail and the Internet have made collaboration much easier and quicker, speeding up communication.

Be flexible. Look for machines that can do many jobs, people who can switch from one job to another, stand-by vendors, and more. Attitudes too: a new product may require finding a more open-minded designer.

Make fast decisions. Managers know that people sometimes get blamed more for things they do than for things they don't do. Retraining them to make decisions as soon as they reasonably can, and managing them in such a way that we don't destroy that willingness, is a key step to a fast program.

Cut things wisely. There is a common bureaucratic practice of meeting a budget cut of 10% by cutting all of its components 10%. A better method is to take perhaps a 50% cut in noncritical steps, and 0% in the key ones. It's all risky, but why not take the risk on things that are more forgiving?

Some other considerations in cycle time acceleration may be summarized as in Figure 2.5.

P&G successfully cut development time on a pharmaceutical product by over 80 percent, while improving quality by over 60 percent, using many of the techniques described above. New product personnel carefully documented all work activities involved in product development and set aggressive goals for time reduction—"This activity should take 50 percent of the time it currently takes" (more modest goals could be easily achieved through only minor improvements). Stretch goals were set: To achieve a 75 percent reduction, one could set a goal of 50 percent reduction in the first year and a further 50 percent reduction in the second year. They also practiced several of the techniques described in this chapter and the previous one: team motivation through clear goal setting, empowerment, and reward mechanisms; and senior management commitment.

In Chapter 16 we will see other metrics that can be used to complement speed-to-market, such as the cash-to-cash metric. Using this tool, the firm will measure not just how quickly the product is launched, but also how long it takes to break even. Using metrics such as this help the firm manage the whole launch phase, not just the moment of launch.

7Denis Lambert and Stanley F. Slater, "First, Fast, and On-Time: The Path to Success. Or Is It?" Journal of Product Innovation Management, 16(5), September 1999, pp. 427–438.

$ ^{8} $Preston G. Smith, “From Experience: Reaping Benefit from Speed to Market,” Journal of Product Innovation Management, 16(3), May 1999, pp. 222–230.

$ ^{9} $For the Apple example, see Douglas W. LaBahn, Abdul Ali, and Robert Krapfel, “New Product Development Cycle Time: The Influence of Project and Process Functions in Small Manufacturing Companies,” Journal of Business Research, June 1996, pp. 179–188.

$ ^{10} $Christer Karlsson and Pär Ahlström, “Technological Level and Product Development Cycle Time,” Journal of Product Innovation Management, 16(4), July 1999, pp. 352–362; R. G. Cooper and S. J. Edgett, “The Dark Side of Time and Time Metrics in Product Innovation,” Visions, April–May 2002, pp. 14–16; see also C. Merle Crawford, “The Hidden Cost of Accelerated Product Development,” Journal of Product Innovation Management, 9(3), September 1992, pp. 188–199; and Abdul Ali, Robert Krapfel, Jr., and Douglas LaBahn, “Product Innovativeness and Entry Strategy: Impact on Cycle Time and Break-Even Time,” Journal of Product Innovation Management, 12(1), January 1995, pp. 54–69. $ ^{11} $Marco Iansiti, “Shooting the Rapids: Managing Product Development in Turbulent Environments,” California Management Review, Fall 1995, pp. 37–58. Roger J. Calantone, Jeffrey B. Schmidt, and C. Anthony Di Benedetto, “New Product Activities and Performance: The Moderating Role of Environmental Hostility,” Journal of Product Innovation Management, 14(3), May 1997, pp. 179–189, looked specifically at high-hostility environments. $ ^{12} $E. G. Krubasik, “Customize Your Product Development,” Harvard Business Review, 66, November–December 1988, pp. 46–52.

$ ^{13} $C. Merle Crawford, op. cit.

$ ^{14} $R. W. Boggs, Linda M. Bayuk, and David A. McCamey, “Speeding Development Cycles,” Research-Technology Management, September–October 1999, pp. 33–38.

What about New Services?

Before we leave the new products process, let's take a look at a group of products that might not seem to have a technical component to their development—services. Services and goods are often arrayed on a scale of (1) pure service, (2) primarily service and partly a good, (3) primarily a good and partly service, and (4) pure good. Examples, in order, are counseling, insurance policy, automobile, and candy bar.

Only in the first category does the product provider have nothing tangible on which to do R&D, and there are very few of them. Even on pure or primarily service products, there are tangible support items such as ads, warranties, policies, and instructions, which need design and production. For an example of a good/service blend, consider a cell phone. The phone itself is tangible, yet it provides services: certainly communication, and possibly also entertainment (music, games) and other services as well.

The creation of service products tends to mirror the systems used on goods. The strategic elements all fit (the product innovation charter, the new products process, and the balanced portfolio). Perhaps the concepts must be applied creatively, but still the parallels are there. Indeed, a study of successful new services found that these tended to come from companies that used a systematic, comprehensive new service development process with clearly defined phases and regular evaluations and reviews. In fact, the new services process is very similar to the new products process we have presented in this chapter.

The new products process needs a little refinement to be most useful in service development, mostly due to fundamental differences between services and manufactured goods. Services are individualized to the individual customer. Whereas goods are mass-produced, services are provided through interaction between service provider and customer, and the most successful service providers are those that can deliver a “customized” experience to each customer. Services, unlike goods, are also intangible, which means that a key component of the service is indeed the experience of receiving the service.

For this reason, the human interaction between service provider and customer is of utmost importance; service providers must strive to meet customer expectation and leave a positive impression. Services are also instantly and continuously being evaluated by customers at every interaction with the service provider. The service provider therefore needs to obtain feedback from the customer and act on it quickly so as to continuously improve performance.

Finally, services are often evaluated by customers as the sum of their parts. A family looking back on a trip to a theme park considers the friendliness of the ticket agent on the phone, the ease of parking, the number and entertainment value of rides and other activities, the cleanliness of the park, and the quality of interaction with park personnel when forming an overall opinion of the experience. Poor performance on any of these leads to a lower evaluation of the whole trip. These fundamental differences between services and products pose challenges to the service provider, but the same basic new products process can still be used.

Consider how JetBlue has managed to be a successful airline in an extremely difficult and competitive market through excellent service development. Rather than focusing on cost-cutting, as many of its competitors have done, JetBlue has strived to provide a customized experience, offering travelers free television, friendlier flight crews, comfortable seats, and a simple but useful Web site. JetBlue also is a leader in adding safety measures, such as “paperless cockpit” flight technology and security cameras in the passenger cabin. These safety measures, important to today's air travelers, help to differentiate JetBlue from competitors.

Also, JetBlue obtains opinions (good and bad) from customers throughout the service experience: when the customer is on the company Web page, at the ticket counter, or on the actual flight, JetBlue strives to obtain customer satisfaction information so they can target any areas for improvement and increase the customer's overall level of satisfaction with the firm. The guiding objective at JetBlue, according to its founding C.E.O, David Neeleman, was to bring “humanity back to air travel.” This is clearly a service provider that understands the importance of customer interaction!

Given the importance of customer interaction in service success, it is no surprise that getting customer participation early is critical to successful new service development. Service delivery personnel—the staff that actually deals with customers, obtains their feedback, and handles their complaints—are in the best position to identify unmet customer needs and are therefore critical players at the concept generation phase. Involving them this early in the new products process increases their motivation and excitement about the new service, which results in more enthusiastic service delivery and more satisfied customers.

As the service progresses through development, the best prototype concepts can be taken to customers and tested in product use tests much like those outlined above. Unfortunately, prototype testing is not always well done by service providers. Since services are by definition unpatentable and often easy for competitors to replicate, it is important to ensure that the service has been "tweaked" as much as possible before launch to make sure customers are very satisfied with the offering. A prototype test would be an ideal opportunity to do this kind of tweaking.

Finally, the launch phase for services can be particularly challenging. For one thing, services need constant monitoring to ensure they are efficiently meeting customer needs and expectations; this is why the best service providers (think restaurants, hotels, and hospitals) are constantly getting customer feedback. Also, the successful launch of a new service depends greatly on the service delivery personnel training.

Coca-Cola employees, for example, rarely interact with the final consumer; by contrast, services of all types are delivered by company personnel (the bank teller, the hotel clerk, the hairdresser, the financial advisor). Excellent training of the service delivery personnel is a key component of any service firm's customer retention program. A training program will include instruction on the strategic importance to the firm of excellent service delivery as well as lessons on crisis management and troubleshooting, in addition to basic service delivery training.

FedEx is a prime example of a service provider that excels in new service development. FedEx places the customer experience at the center of its new products process. Customers are involved early in the new products process as co-innovators; this helps FedEx identify their needs early. FedEx has set up market councils comprising executives, sales and marketing personnel, and even corporate lawyers to call on key customers and learn from them.

They complement these activities with ethnographic studies (such as the observational techniques to be discussed in Chapter 5) to get at the heart of emerging customer needs. A classic example of this was FedEx's realization that the customer's experience would be enhanced if they provided greater access and more digital services. The solution was the 2004 acquisition of Kinko's (now FedEx Office), which immediately increased the number of shipping points, and at the same time widened service offerings to include photocopying, faxing, binding, and printing.

As customer needs evolved (in particular those of small business customers), FedEx was able to grow with them and keep pace.

A key factor in FedEx's new products success was the establishment of the Portfolio Management Team (P.M.T), a group of senior executives that lead business units and functional areas. The P.M.T is charged with developing strategic direction, conducting the evaluation tasks in the new products process, and maintaining a balanced portfolio of projects. FedEx has found that the principles stated in Chapter 1 are effective: Following a phased new products process, risk is managed down through time, such that it is effectively reduced by the time costly development and launch phases are reached, and there is a high degree of confidence that a newly launched service will be successful and provide expected returns on investment. For its excellent service development program, FedEx won the 2007 P.D.M.A Outstanding Corporate Innovator award.

$ ^{15} $Scott Edgett, “The Traits of Successful New Service Development,” Journal of Services Marketing, 8(3), 1994, pp. 40–49. For a discussion of whether a formal new products process works in service development, see Ian Alam and Chad Perry, “A Customer-Oriented New Service Development Process,” Journal of Services Marketing, 16(6), 2002, pp. 515–532. $ ^{16} $The next paragraphs, and the JetBlue example, are drawn from Thomas D. Kuczmarski and Zachary T. Johnston, “New Service Development,” in Kenneth B. Kahn, George Castellion, and Abbie Griffin (eds.), The PDMA Handbook of New Product Development (New York: John Wiley & Sons, 2005), pp. 92–107.

What about New-to-the-World Products?

As seen in Chapter 1, the term new products can refer to new-to-the-world products, close-to-home extensions of existing products, or just about anything in between. The phased process seen in Figure 2.1 may not work as well with new-to-the-world products due to the high levels of technical and market uncertainty and associated risks. Research confirms these risks: Firms that launch pioneering new-to-the-world products into the market incur a significantly lower long-term survival rate than those that enter the market later. That is, the long-term advantage of going first is greater for firms that launch incrementally new products than for those that launch really new ones! Still, the lower survival rate for a new-to-the-world product is offset by higher profits, since the market for such a product is often larger and also often offers bigger profit margins.

Figure 2.1 summary: A flowchart displaying a five-phase new products process. The sequence flows from Phase 1, Opportunity Identification and Selection, through Concept Generation, Concept/Project Evaluation, and Development, culminating in Phase 5, Launch. Phase 4 specifically divides work into technical tasks, such as prototyping and scaling, and marketing tasks, such as strategy and branding. The diagram maps the systematic transition from high-level market opportunity identification to the final commercialization of a product.

Part of the reason for the higher failure rate for new-to-the-world products is that they are difficult to manage. Almost by definition, new-to-the-world products, like the first cell phone or the first personal computers, require discontinuities (sometimes several of them) in order to succeed. Consider the introduction of the personal computer. Contributing to its rapid adoption were discontinuities in technology (computer companies, including some new startups, had to design essentially a totally new computer), in the market (individual homeowners and small businesses now were buying computers, and not just big firms), organizational (personal computers were sold in electronics shops and department stores, not through a professional sales force), and social (millions of people realized how much they needed a computer). Much new research is aimed at understanding the management processes that are most appropriate for high-uncertainty, high-ambiguity environments, yet we still have a long way to go.

Many managers recognize how profitable a well-managed new-to-the-world product can be: Corning's optical fiber, General Electric's C.T scanner, Apple's iPhone, and many other examples come to mind. They also realize that one successful breakthrough product is usually not enough to guarantee success. The best innovating firms, like Apple, seem to be able to launch one successful breakthrough product after another, seemingly at will. These firms seem to have a system for breakthrough innovation that provides them with a competitive capability, and other managers have caught on to the idea that they too need a system to increase their breakthrough capabilities as well.

We are still learning about how such a system works, and it may vary from one firm to another. But a good starting point is the recognition that the process for managing breakthrough innovation will differ from managing ongoing product development processes. Once a breakthrough innovation is identified, it must be nurtured. Many business opportunities may present themselves, and some may look very promising, but all have uncertain outcomes. Experimentation in the marketplace can assess the opportunities and may even identify new ones.

The goal is to consider the innovation, together with the identified business opportunities, and to develop from this a new business model that provides the market with breakthrough value and, ultimately, is profitable for the firm. This can be an expensive proposition, and certainly management must not plan on instant decision making, but the due diligence is required due to the uncertainties involved. process sounds a little like a business laboratory, and indeed this is sometimes called the incubation stage. As leading researcher Gina O'Connor says, “Companies do not realize that breakthrough technologies do not yield breakthrough businesses without enormous investment far beyond the technology itself, requiring lots of experimentation on many fronts.”

To do incubation correctly, failure must be tolerated, but at the same time learning from the failure so that the firm continues to move toward the launch of a successful breakthrough innovation. According to Marissa Meyer, vice president for search products and user experience at Google Notes, Google's failure rate of innovative products is over 60 percent, but this is the cost of doing cutting-edge technology. It should be noted that incubation is not the same as business development (finding new customers, managing acquisitions, etcetera). Business development is often done over a one-to two-year time horizon and may be completely done by marketing or management personnel. Due to its focus on business model development for a radical innovation (in an uncertain environment), the time horizon for incubation can be three to five years, and typically technical development, as well as customer and market interaction, is involved.

Breakthrough innovation requires a planning approach that acknowledges the unknowns and uncertainties involved. This approach, called discovery-driven planning, requires that managers make assumptions about the future in order to build their forecasts and targets, recognizing that these assumptions may be quite wrong. As more information becomes available, the targets are rethought, the forecasts adjusted, and the plan evolves.

This is different from the approach more typically seen in less-uncertain markets, where past results can be used to build predictable forecasts of the future. A guiding principle in discovery-driven planning is the reverse income statement, which starts from the bottom (required profits) and works backward to required levels of revenues and allowable costs. Management would also need to keep track of assumptions, and set up periodic checkpoints to test assumptions and to update market and technology information as it becomes available.

Coupled with discovery-driven planning, the firm should also be pursuing a real-options orientation to investment. The firm can make low-cost test investments to gather information on the technology and its marketplace potential. The test investment can be thought of as buying an option to continue the development of the breakthrough innovation. If the small investment suggests there is great upside potential, the project is continued to the next phase; otherwise it is terminated.

To accomplish all of this may require organizational shakeups. At Corning, a new senior position, vice president for Strategic Growth and New Business Development, was created, who reports to the chief technology officer and who is located in the R&D division. This individual's main role is to assist in opportunity identification, and in particular, those that required breakthrough innovation. In addition, breakthrough innovation project teams are assisted by a newly created business development team, which helps identify potential applications and business partners, build the customer base, and plan a technology development path.

While the challenges involved in the development of new-to-the-world products are different, the first phase must still be opportunity identification and the development of a strategic statement. Later phases may be quite different, depending on how new-to-the-world (or to-the-company) the product is, but these must always roll out from some strategic starting point. There should be a clear connection between the radical innovation and the firm's strategic vision as articulated by senior management. Without top management encouragement, business units involved in product development will often focus on improving operational efficiency and will therefore be reluctant to accept radically new product projects because of the new product personnel involvement in corporate strategic planning when the environment is very changeable and turbulent. In order to move promising radical innovation projects forward, senior management at some firms establishes a transition management team charged with moving an R&D innovation project to business operating status. The transition team receives appropriate funding as well as support and oversight from senior management. Figure 2.6 illustrates the transition management process at Eastman Kodak.

$ ^{17} $The FedEx example is drawn from Donald Comer, “How FedEx Uses Insight and Invention to Innovate,” Visions, 31(4), December 2007, pp. 12–14.

$ ^{18} $Sungwook Min, Manohar U. Kalwani, and William T. Robinson, “Market Pioneer and Early Follower Survival Risks: A Contingency Analysis of Really New Versus Incrementally New Product-Markets,” Journal of Marketing, 70(1), 2006, pp. 15–33.

$ ^{19} $Rosanna Garcia, “Types of Innovation,” in V. K. Narayanan and Gina C. O’Connor (eds.), Encyclopedia of Technology & Innovation Management (Chichester, UK: John Wiley, 2010), Chapter 13.

$ ^{20} $A good reference is Gina C. O'Connor, Richard Liefer, Albert S. Paulson, and Lois S. Peters, Grabbing Lightning: Building a Capability for Breakthrough Innovation (San Francisco, CA: Jossey-Bass, 2008).

$ ^{21} $Much of this section derives from O'Connor et al., op. cit.

$ ^{22} $O'Connor et al., Chapter 4; the quote is from p. 82.

$ ^{23} $P. Sellers, “The Net’s Next Phase,” Fortune, November 13, 2006, pp. 71–72.

$ ^{24} $Rita Gunter McGrath, and Ian C. MacMillan, "Discovery-Driven Planning," Harvard Business Review, July–August 1995, pp. 44–54.

$ ^{25} $Ian C. MacMillan, Alexander B. van Putten, Rita Gunther McGrath, and James D. Thompson, “Using Real Options Discipline for Highly Uncertain Technology Investments,” Research Technology Management, January–February 2006, pp. 29–37.

Figure 2.6 The Transition Management Process at Eastman Kodak

In 2001, Eastman Kodak successfully implemented a Transition Management process to be able to move R&D projects more effectively to its business units and ultimately improve its innovation rate. In order to get the required commitment, Eastman Kodak held several transition management workshops, and System Concepts Center (S.C.C) team members were involved directly in the tasks of transition management. Senior managers in R&D and at the business units were called on to champion the new innovation program, and senior S.C.C members got involved in business unit strategy development.

By 2003, an unprecedented number of projects were being successfully transferred to Eastman Kodak's business units, and were meeting Eastman Kodak's initial requirements for commercialization (the equivalent of Phase 1 in this text's new products process) on the first pass. Though Eastman Kodak designed this process to facilitate transfer of radical innovation projects, it discovered it was also successfully speeding fast-track incremental innovation opportunities into development.

Source: Gina O'Connor, Joanne Hyland, and Mark P. Rice, "Bringing Radical and Other Major Innovations Successfully to Market: Bridging the Transition from R&D to Operations," in P. Belliveau, A. Griffin and S. M. Somermeyer (eds.), The PDMA Toolbook 2 for New Product Development (Wiley, 2004).

$ ^{26} $O'Connor et al., pp. 7–8.

$ ^{27} $A good general reference on radical new products is Gary S. Lynn and Richard R. Reilly, Blockbusters: The Five Keys to Developing Great New Products (New York: HarperCollins, 2002). An influential article on this topic is Erwin Danneels, “Disruptive Technology Reconsidered: A Critique and Research Agenda,” Journal of Product Innovation Management, 21(4), July 2004, pp. 246–258.

$ ^{28} $Roger Calantone, Rosanna Garcia, and Cornelia Dröge, “The Effects of Environmental Turbulence on New Product Development Strategy Planning,” Journal of Product Innovation Management, 20(2), March 2003, pp. 90–103.

$ ^{29} $Gina O'Connor, Joanne Hyland, and Mark P. Rice, "Bringing Radical and Other Major Innovations Successfully to Market: Bridging the Transition from R&D to Operations," in P. Belliveau, A. Griffin, and S. M. Somermeyer (eds.), The PDMA Toolbook 2 for New Product Development (New York: John Wiley, 2004).

Leading firms in radical product development tend to use a more informal process, supported by a budget, for idea selection for radical new product projects. Alliance partners make a larger contribution, so more effort and time is spent on identifying the best partners in order to obtain resources and negotiate the terms of the relationship.

The fundamental market-related question for a new-to-the-world product is whether the market will ultimately value the offering. It is usually very difficult for potential customers to provide useful information about likely acceptance (or perceived value) of a new-to-the-world product, since they have nothing to which they can compare it; they may not even be able to visualize its potential. (For example, the microwave oven took a long while to catch on despite obvious consumer benefits.) As Alexis Girard from the Future Image Report noted, “Ninety-nine percent of the time with technological breakthroughs, people hadn't been asking for it.” Hence, gauging market opportunity is challenging, and conventional market research may not be as much help as one would like. Consider the personal digital assistant (P.D.A). While most people might be able to draw a crude sketch of their dream car or dream kayak, it is hard to imagine someone drawing their dream P.D.A before having ever seen one! Complicating the matter is the fact that new-to-the-world products often require major commitments in firm resources and technology, and years or decades of R&D. Yet, in the case of the P.D.A, product development proceeded, and quite successfully.

Nevertheless, this does not mean that one goes about new-to-the-world product development without consideration of possible customer need, especially given the high financial stakes and resource commitments involved. To be able to make the difficult link between breakthrough technology and market need, firms need to be adept at market visioning. While this process is not well understood yet, some have likened it to focusing on “what could be”—identifying how things will be in the future and then figuring out a way to get there.

For example, senior management at Black & Decker simply called for the next big idea and allocated an appropriately sized budget: The Snake Light emerged. In such a case, the process is more exploratory, becoming more customer-oriented as the product becomes further formulated and developed. While the technology may be breakthrough, the firm cannot simply guess at its customer applications.

Obviously, with a new-to-the-world product, it is especially important that the voice of the customer (V.O.C) be brought in as early as possible. In fact, customers can be brought in as early as concept generation to provide input to both marketing personnel and the R&D department. A critical issue here is identifying the right customers to bring in: For example, a medical-equipment manufacturer developing a next-generation diagnostic machine might want to partner with the leading research hospitals to determine what performance features need to be built in. Researchers at these hospitals, having found available products to be unsatisfactory, may already have internally developed simple working prototypes of their own. What better guidance could the equipment manufacturer obtain? Identifying and working with these customers is central to lead user analysis, which we will explore more fully in Chapter 5.

Early customer involvement for new-to-the-world products is sometimes accomplished by using focused prototypes: early, limited-performance versions that customers can try out and comment on. Early in 1994, Iomega's first internally developed prototypes of the Zip Drive (a plug-in laptop drive that allowed the user to access large-storage floppy disks called zip-disks) were plain-looking gray boxes with a flip-up lid (much like many C.D players); early focus groups disliked the top-loading feature and wanted something"personal, portable, and powerful." Several days later, R&D hit upon the front-loading design (much like a floppy-disk drive); ultimately, over 50 prototypes were built to test out many different ideas before one was selected. The Zip Drive ultimately marketed by Iomega featured the now-familiar front-loading mechanism and was indeed personal (attractive blue plastic cover), portable (small enough to fit in a briefcase), and powerful (capable of storing 100 megabytes of data). Figure 2.7 recounts how an electric bicycle was developed using a succession of focused prototypes.

The new products process employed in these examples is sometimes called probe-and-learn: Through interaction with customers, designers are inspired to probe, experiment, and improvise, and as a result, may come up with a successful new-to-the-world product. Another term sometimes used to describe this iterative process is lickety-stick: The developing team develops prototypes from dozens of different new product ideas ("lickety"), eventually settling on a prototype that customers like ("stick"). As Mike Santori of National Instruments said, the goal at this early stage is not to determine how to cut costs, but to see what functionality customers are looking for. Rolling out several prototypes quickly and efficiently"gives you flexibility to try out different ideas and audiences." Thus, the new products process for radical new products may be less linear and more flexible than is implied in Figure 2.1: Several versions of focused prototypes might be built and tested before concept generation takes place!

The story of General Electric's computed tomographic (C.T) scanner illustrates the development of a new-to-the-world product with a large assist from the voice

$ ^{30} $Marjorie Adams, Competitive Performance Assessment (CPAS) Study Results, PDMA Foundation, 2004; also Christopher M. McDermott and Gina Colarelli O'Connor, "Managing Radical Innovation: An Overview of Emergent Strategy Issues," Journal of Product Innovation Management, 19(6), November 2002, pp. 424–438; and Mark P. Rice, Donna Kelley, Lois Peters, and Gina Colarelli O'Connor, "Radical Innovation: Triggering Initiation of Opportunity Recognition and Evaluation," R&D Management, 31(4), October 2001, pp. 409–420.

$ ^{31} $Gina Colarelli O'Connor, "Market Learning and Radical Innovation: A Cross-Case Comparison of Eight Radical Innovation Projects," Journal of Product Innovation Management, 15(2), March 1998, pp. 151–166.

$ ^{32} $Laurie J. Flynn, "LightSurf Piggybacks a Tiny Camera on a Cell Phone," The New York Times on the Web, July 9, 2001.

$ ^{33} $Gina Colarelli O'Connor and Robert W. Veryzer, "The Nature of Market Visioning for Technology-Based Radical Innovation," Journal of Product Innovation Management, 18(4), July 2001, pp. 231–246.

$ ^{34} $For the Iomega story, see Gary S. Lynn and Richard R. Reilly, Blockbusters, op. cit.

$ ^{35} $“Lickety-stick” was coined by Gary S. Lynn and Richard R. Reilly in Blockbusters, op. cit.

$ ^{36} $Quoted in Heidi Bertels, “The 7th Annual Front End of Innovation Conference Adopts a New Format and Content,” Visions, 33(3), October 2009, pp. 34–37.

Figure 2.7 Prototype Development of an Electric Bicycle

The initial opportunity seemed relatively clear: Fitness-conscious Americans would like an electric-powered bicycle that would be superior to Japanese-made competitive products about to hit the U.S. market. In 1996, Charger Electric Bicycles, L.L.C, embarked on a project to develop a "fast and fun" electric bicycle that would be the "mur-say-dees-Benz of electric bikes." The designers put together pieces of all sorts: various electric parts, old bicycle frames, and so on. A major design contributor, Peter Zwaan, built several nonfunctional models of the bike as well as of its component parts (such as the drive train and power pack), using wood, foam carvings, and plastic models. With these nonworking prototypes, the designers could make assessments of appearance, performance, weight, and cost tradeoffs.

A crude working prototype was finished within eight weeks—suitable for the team to "play around with." Several prototype improvements later, an improved (though still crude) bicycle was ready to be tried out by potential users. Inputs from this early prototype test were gathered and built into later prototypes, presented at the Interbike trade show.

The final round of technical and cosmetic tradeoffs were made by taking the best parts and accessories from the various prototypes. The bike went into production a short 18 months from the start of the product project and has gone on to win several design awards.

The process employed for this bicycle did not have any traditional stages or gates, but rather was driven by continuous prototyping—sometimes called a “probe and learn” procedure. The designers were inspired to probe, experiment and improvise and, as a result, came up with a few brilliant ideas.

Source: Ronald Mascitelli, “From Experience: Harnessing Tacit Knowledge to Achieve Breakthrough Innovation,” Journal of Product Innovation Management 17, no. 3, May 2000, pp. 187 to 188.

of the customer. The original instrument was developed as a head scanner; later versions included a breast scanner and a full-body scanner. In each case, the physicians said the product did not work appropriately.

On the fourth try, G.E developed the 8800 full-body scanner, which was a huge success when launched, eventually gaining a 68 percent market share. G.E did not simply create a solution looking for a problem—that implies having no strategy. G.E did have a strategy: Develop a breakthrough scanner technology for medical diagnostic applications, and learn from early trials specifically what applications would be the most valuable to their physician customers.

Closing Thoughts about the New Products Process

As we discussed in Chapter 1, many firms use a new product process much like the one shown in this chapter, though of course the details will vary. We have, however, not yet achieved full adoption of the best methods (see Figure 2.8). Some of the best techniques are widely used by the most successful new product firms, but many still are used only by a minority. It is clear from the recent P.D.M.A Comparative Performance Assessment study, however, that the best firms in new product development do indeed have some kind of new products process, resulting in a higher success rate of products as they move through development, test, and commercialization.

Figure 2.8 summary: Product development technical work is the most widely used step across all reported groups, utilized by 99 percent of PDMA Members, 89 percent in Canada, 93 percent in Australia, England, and Belgium, and 64 percent of PDMA Members Plus Others. For PDMA Members, other highly utilized steps include concept searching at 90 percent and business analysis at 89 percent. In contrast, market testing is among the least common steps, used by only 23 percent of firms in Canada and 34 percent in Australia, England, and Belgium.

Some exciting developments are being noted in the auto industry. Almost half of the automotive engineers in a recent survey said their companies used a traditional new products process, while about a third used a modified process, which allows them to improve efficiency without sacrificing product novelty. Using a modified process has allowed as much as a 50 percent reduction in time to market while maintaining new product quality and novelty.

The role of senior management cannot be overlooked, especially in the case of radical new products. Speaking at a P.D.M.A meeting, Al Lopez, former vice president of R&D at ExxonMobil, mentioned his company's many radical new products, including high-strength steel for pipelines, low-sulfur fuel processes, improved catalysts, and so on. Senior management supports productive R&D in several key ways: by recognizing and building the firm's core technical competencies and capabilities, by encouraging knowledge flow (both internal and external) throughout the firm, by developing effective, streamlined work processes,

$ ^{3} $Gary S. Lynn, Mario Mazzuca, Joseph G. Morone, and Albert S. Paulson, “Learning Is the Critical Success Factor in Developing Truly New Products,” Research-Technology Management, May–June 1998, pp. 45–51.

$ ^{*} $Product Development & Management Association, in Albert L. Page, “Assessing New Product Development Practices and Performance: Establishing Crucial Norms,” Journal of Product Innovation Management, September 1993, pp. 273–290.

**In Abbie Griffin, “PDMA Research on New Product Development Practices: Updating Trends and Benchmarking Best Practices,” Journal of Product Innovation Management, November 1997, pp. 429–459.

$ ^{1} $Robert G. Cooper and Elko J. Kleinschmidt, “An Investigation into the New Product Process: Steps, Deficiencies, Impact,” Journal of Product Innovation Management, June 1986, pp. 71–85.

Larry Dwyer and Robert Mellor, "New Product Process Activities and Project Outcomes," K&D Management, January 1991, pp. 31–41.

$ ^{38} $Marjorie Adams, CPAS Study Results, op. cit.; see also Abbie Griffin, “PDMA Research on New Product Development Practices: Updating Trends and Benchmarking Best Practices,” Journal of Product Innovation Management, 14(6), November 1997, pp. 429–458. $ ^{39} $John E. Ettlie and Jorg M. Eisenbach, “Modified Stage-Gate $ ^{\circledR} $ Regimes in New Product Development,” Journal of Product Innovation Management, 24(1), January 2007, pp. 20–33.

Summary

by clearly linking basic and applied research, and by assuring an exciting work environment in which learning and achievement are rewarded.

Finally one can ask whether firms can be ambidextrous—that is, be excellent in both new-to-the-world and incremental innovations. Barriers to ambidexterity no doubt exist: Fears of brand dilution, channel conflict, or even a “we've always done it this way” culture. There is also the issue of resource allocation: Investing in developing competencies that lead to radical new products may mean divesting those resources away from bettering one's existing competencies. These are serious concerns of managers at highly innovative firms; to avoid problems of this sort, often a highly projected venture is spun out as a separate organizational unit to pursue the radical innovation; more on this topic in Chapter 14.

In this chapter, we studied essentially one thing: the system of phases and activities used in the process of developing and marketing new products. We looked at a simplistic version of this process in a hypothetical situation in P&G's cosmetics division. We then went through the basic process phase by phase. Be careful: don't think this, or any, new product process is etched in stone. It is a guide and an integrator, not a straitjacket.

We now turn to Chapter 3, in which we will discuss two more strategic elements: the product innovation charter and managing the portfolio of new products. Chapter 3 introduces the first of the five major phases in the process—Opportunity identification and Selection. This will include the various forms of strategy to guide the evaluation of available opportunities. That will prepare us to begin the study of concept generation.

Applications

1. "I've got to make a speech down in Dallas next month. It's part of a conference S.M.U is having on the general topic of opportunity identification (O.I). They want me to explain why O.I is sometimes more important than brainstorming and other techniques of concept generation. Seems to me it isn't. What do you think?"

2. “I work for a financial services firm. We do new product development all the time, and a lot of it is of the incremental variety. You know, bundle credit card access to a savings account, bundle the savings account to a money market account, add an I.R.A investment option, things of that sort.

Explain how the new products process is relevant in my industry, and to my company. Seems like it's more tailored to physical goods. Isn't it a little misleading?”

$ ^{40} $For more information, see Peter Koen, “Tools and Techniques for Managing the Front End of Innovation: Highlights from the May 2003 Cambridge Conference,” Visions, October 2003. $ ^{41} $Erwin Danneels, “From the Guest Editor: Dialogue on the Effects of Disruptive Technology on Firms and Industries,” Journal of Product Innovation Management, 23(1), January 2006, pp. 2–4.