Strategy, Process Organisation and Timing

Key Steps For NPD Success Clear strategic direction

Ensure NPD goals and objectives: • Fit with strategy • Are challenging • Are adequately resourced • Are well prioritised

Speed

Responsive process

• Adaptable steps • Minimum possible bureaucracy • Clear tasks and responsibilities

Timely, Effective NPD

Speed Speed

Appropriate organisation/ philosophy

• Organisation according to product type and priority • Clear but moderate top level input • Atmosphere of creativity

Clear strategic direction

NPD strategy must: • Fit with company strategy • Fit with company skills and capabilities • Fit with company ethos/style

•

Danger of new products NOT fitting strategy/capability/style

NPD is risky enough anyway, why make it riskier?

• Management takes its eye off the ball in core business • “Opportunity cost” is high : resources are finite • Existing customers may be alienated

Examples of ill-fit between products and strategy

• Pierre Cardin • Arcadia (Burton) • Prudential • SAS • Kingfisher • Downmarket jewellery • Shopping centres • Estate agencies • Catering • ISP (Liberty Surf)

Ill Fit Can Be Justified BUT

If you’ve weighed all that up and it still makes sense....

GO FOR IT!

(eg. Securicor and Cellnet)

How Can You Tell Whether Products Are Appropriate?

Approaches to Innovation Leadership in Innovation

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Concept

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Product High Low Low High Barriers to “followership”

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Patents

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Capital Spend

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Advertising spend

Generic NPD Strategies

High Leadership in Innovation Market Driven Modifier You’re good at innovation but it can easily be copied

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stream of product modifications

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incremental changes

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first to market Moderate Investment Low Next Generation Innovator You’re good at innovation and others can’t follow easily

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new product categories

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high internal investment

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first to market High Investment Fast Follower You’re not so good at innovation, but the types of innovation can be copied

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standby research

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flexible staff

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fast second market Moderate Investment Acquirer You’re not so good at innovation andits tough to copy

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acquire capabilities

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leapfrog existing leader

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build on acquired capabilities High Investment Low Barriers to Followership High

Key Skills Required

High Leadership in Innovation Market Driven Modifier

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Vigilance regarding improvements

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Rapid innovation

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“Tweaking”

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Consumer knowledge Low Fast Follower

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Market intelligence

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Reverse engineering

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Rapid response

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Flexible manufacturing Next Generation Innovator

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Technological prowess

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“Out of the box” thinking

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Rapid innovation

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Consumer knowledge

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Acquirer

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Commercial intelligence

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Financial analysis

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Efficient implementation of commercial synergies Low Barriers to Followership High

High

Industry Types

Market Driven Modifier

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Food companies eg Nestle

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Consumer Goods eg P&G

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Japanese cars Next Generation Innovator

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Electronics eg Sony

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Pharma eg GSK

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Software eg Microsoft

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Acadaemia eg Cambridge University Leadership in Innovation Low Fast Follower

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Fashion eg M&S, Zara

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Electronics eg Matsushita

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Fast Food eg Burger King Acquirer

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Electronics eg Marconi

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Software eg Microsoft

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Hanson Low Barriers to Followership High

Matrices Compared

High Leadership in Innovation Low Approaches to Innovation Market driven modifier Fast follower Next generation innovator Acquirer Low High Barriers to “followership” “Newness” of the Product Me-Too Product New to World New to Company Yes No Product Improvement Repositioning Yes New to Market No

Conditions for Proactive vs. Reactive Strategies Proactive

• • • • •

Appropriate when: Patents protect the invention The product offers high volumes and/or margins There’s the possibility of entering new markets Company holds power in the distribution channel The Budget exists for substantive advertising Reactive

• • • •

Appropriate when Patent protection is unlikely Company needs to concentrate on existing products or markets Market too small to recover development costs Distribution chains are in the hands of another competitor

SWOT Analysis

SWOT

Strengths Weaknesses

Internal

Opportunities Threats

External

NPD Strategy: Conclusions

1. Generally, NPD strategy should fit corporate strategy/skills/style 2.

SWOT analysis is very helpful in illustrating appropriate areas of NPD (at a personal level too) 3.

There are 4 key generic strategies - each is appropriate in different circumstances. It’s worth considering which approach may suit you best

How is it Done?

Market facts & ideas Technical facts & ideas Phase I Concept Generation Phase II Business Proposition Development Phase III Launch Preparation Launch/ Rollout Activities

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Gather ideas

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Conduct demand research

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Develop project briefs >>>>>>>>>

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Build total proposition

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Determine, test, refine components (packaging, name, etc) >>>>>>>

• •

Organise logistics Prepare marketing campaign ITERATIVE

• • •

Launch marketing campaign Distribute product Monitor progress

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Brief salesforce

Phase 1: Concept Generalisation

• • •

Cross functional inputs required: fusion of ideas from R&D, marketing, logistics open sharing of ideas formal and informal interdisciplinary forum

Phase 2: Business Proposition Development

Change from concept to sound business

• • • • •

propositions: Prototyping Market research Test marketing Pre-production engineering and costing New product business plan/proposal

Phase 3: Launch Preparation

• • • • • • •

Close multifunctional approach required: Establish marketing mix (4Ps) Packaging development Market testing Product refinement Sourcing Production engineering Begin manufacture

Launch

• • • •

Put marketing mix (4 Ps) into practice Monitor progress Log successes and failures Redeploy team thoughtfully

New Product Development Stages

Motorola – 4 stages

Product Definition Contract Development Development through manufacturing start-up Program wrap-up

New Product Development Stages

Kodak- 6 stages

Customer mission/vision Technical demonstration Technical operation/feasibility Capability demonstration Product/process design Acceptance and production

New Product Development Stages

Xerox - 7 stages

Pre-concept Concept Design Demonstration Production Launch Maintenance

New Product Development Stages

Generic Get an idea Prove it works Develop and test it Scale it up Launch it Monitor things

Stage

Cost of product screening

Ideas Pass ratio Cost/ idea, $k Total cost, $k Idea screening 64 1: 4 1 Concept test Product Development 1:2 1:2 20 200 Test Marketing 1:2 500 Launch

------------------------------- Successful idea

1 ------ 1:2 ------ 5,000 ------ -------

Stage

Cost of product screening

Ideas Pass ratio Cost/ idea, $k Total cost, $k Idea screening 64 1: 4 1 64 Concept test Product Development 16 8 1:2 1:2 20 200 320 1,600 Test Marketing Launch

Successful idea

4 2 1 1:2 1:2 500 2,000 5,000 10,000

13,984

Approximate Costs of NPD: % Stage Opportunity Identification Design Testing Launch Consumer Goods 2 3 16 Total 100% = $12.6m

Source:McKinsey analysis

79 100 2 Industrial Chemicals 28 13 $4.7m 57 100

Who Does NPD and What Do They Do?

R&D

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Investigate emerging technologies re: new products

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Design new products Senior Management

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Evaluate fit with corporate strategy

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Hold the purse strings Manufacturing

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Ensure the product can be manufactured at economic cost

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Establish production line Marketing

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Discover what the customer wants/needs

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Design marketing mix NPD Legal

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Apply for product patent

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Check product liability Finance

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Evaluate financial impact of NPD on cashflow of business

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Conduct NPV calculations

Who Does It ? Textbook View

R&D Engineering Marketing Production Finance

Role of Finance

NPD via NPV • Build cashflow models • Calculate the rate of return • Compare to the company’s cost of capital Key considerations: • Risk of project • Reliability of key assumptions (whose agenda?) • Volume assumptions affecting economies of scale • Cannibalisation of existing products

Manufacturing: NPD input

• Early input to design process (ie “don’t design for 1 unit but for 100,000”) • Extensive use of technology (eg CAD/CAM) • Clear view of ultimate manufacturing location – crucial effect on costs (eg labour vs capital)

Manufacturing: Efficiency of Process

JIT – Just in Time • Pull inventory through system • Produce on schedule, not +/ • Focus on quality via visibility TQM – Total Quality Management • Emphasis on quality throughout • Culture change from inspection to prevention • Employee awareness and motivation key • All responsible for satisfying customer

Manufacturing:effect of external pressure:WWII example

Saginaw Steering Gear – to make machine guns: Nov 1940

Plan

Start plant March 1941 1 -

Achieved

Dec 1941 1 March 1942 280 28,000

Process: Conclusion

1. A typical process will have several clear and distinct phases 2. The further along the process an idea moves, the greater the accumulation of cost 3.Most of the organisation is involved to some extent

Organisational Options for NPD

• As part of R&D • As part of marketing • Within its own department • Throughout the organisation

Common options

• Via NPD committee • Via new product task-force • Small permanent staff • Matrix organisation • Entrepreneurial division • Alliances

Less frequently used options

NPD as part of R&D

Pros • NPD closest to those who understand technical side • Projects tend to be more technically successful Cons • Little consumer perspective • Poor for brand improvements • Projects tend to go into cost overruns

Comments

•

If NPD is within R&D do you organise round pure research or products ie development?

•

Rule of thumb: if over ¼ of R&D budget goes to basic research then separate research from development

NPD as part of Marketing

Pros • Emphasis on consumer understanding • Good for incremental improvements Cons • Poor for truly innovative products • Marketing often has short time frame

Comments Incremental improvements to brands fit well within product manager’s responsibility and ensure automatic product champion

NPD in Separate Department

Pros • Establishes NPD as high priority • Brings diverse skills together • Frees itself from day to day pressures Cons • Threatens power base of existing department heads • May be overly structured to use true entrepreneurial talent • Inappropriate for incremental improvements

Comments Needs high profile within the organisation otherwise heads of department who need to supply personnel will be reluctant to do so

Description of Rugby vs Baton Approach

Hand picked, multidisciplinary team Members work together throughout Phases overlap and merge

Rugby Approach vs Baton Approach

Baton Phase 1 Rugby 1 2 3 4 5 6 Phase 1 Rugby 2 Phase 1 2 3 4 5 6 2 3 4 5 6

Pros and Cons of Rugby vs Baton Approach

Direct benefits Faster development Increased flexibility Indirect benefits Shared responsibility and cooperation Lasting understanding of others’ agendas Diversified skills Wider problem solving capabilities Direct problems Communication throughout large team Maintaining cohesion Heightening tension Indirect problems Resentment of other departments (?) Erosion of specialist skills(?)

Role of Communication

“Communication. There’s more crap talked about communication than any other single topic in industry today.

The reason? To most managers communicate means transmit information. Any communication mechanism is, at best, only half effective if it doesn’t receive as well as transmit.” Barry Gibbons Chairman, Burger King 1989-94

Value of communication

…

R & D versus Marketing Culture – R & D view (exaggerated stereotype)

R&D culture • Deep • Scientific • Perfectionist • Understands product Marketing Culture • Shallow • Airy-fairy • Get it out quick • Misunderstands product

R & D versus Marketing Culture – Marketing view (exaggerated stereotype)

R&D culture Marketing Culture • Anoraks • Realists • Takes forever • Speedy and reactive • Poor customer • Deep customer understanding understanding • Priority is discovery • Priority is profit

Manufacturing and R&D Cultures – (Stereotypes)

R&D culture • Creative • Can-do • Iterative mindset • Tolerance of ambiguity Manufacturing Culture • Rigid • Discipline-oriented • Stable • Tolerance of repetition

R&D and Manufacturing Working Together-Example

• • •

IBM Dot Matrix Printer Needed cheap effective printer Small team of R&D and manufacturing Mandate: work together to simplify product with tight deadline Result:

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150 parts down to 60

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Developed in half normal time

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Very reliable product

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Became market leader in 5 months

Organisation: Conclusion

There priorities.

is no prima facie optimal organisational structure for NPD. It depends on the type of product and the company’s • For improvements, marketing input is key • For greater innovation, R&D is key • As department after department is involved, interaction and overlapping stages are crucial

Advantages of reducing development time

• Keeps you close to customer requirements • Keeps you a step ahead of the competition • Infuses the whole company • Good for profitability

33%

Time is money

3.5% Profit lost when product shipped 6 months too late Profit lost with 50% overspend on budget

Source:McKinsey analysis

Ways of Reducing time to market examples

Use baton approach Improve communication Avoid perfectionist mentality Flexibility to cope with change Use standard components Early customer input Log “ready to go” ideas Fewer approval stages Alliances

Timing: Conclusion

Get a move on!

Conclusion

• NPD strategy should fit with company strategy • The process should be responsive • The NPD group needs to be organised according to the product type • Teams should be multifunctional • Speed is essential