A common misconception is that new product development (NPD) is strictly the responsibility of an organization’s technical staff who are typically part of the R&D or engineering functional group. Many senior managers or business owners, those responsible for the financial performance of their businesses, believe the following: “If only R&D could just deliver products faster, meet their schedules, work harder, and stop talking about project risk, then new products could deliver the growth necessary!” If that is how innovation is viewed in your company, then likely senior management does not understand either the nature of new product work or that NPD and innovation management in general are key business processes, not just an R&D function.
Consider this: new product development is the most complex of all business processes. I speak from experience having managed an R&D organization in a mid-sized analytical instrument manufacturer in addition to previous roles in manufacturing, sales, marketing, and customer support. I have intimate knowledge of most business processes in a manufacturing organization and there is no doubt that NPD is the most complex and least understood. In many ways, this might be why many senior managers are uncomfortable with new product development. It is messy and can seem to be chaotic when compared to other business processes, especially for technically complex and risky projects. Managing the new product development process is like no other business process. Every other process can be driven to maximum efficiency because the tasks and the processes themselves tend to be well defined and effectively measured. The processes can be driven ultimately in many cases to function like a well understood “algorithm”. New product development is different. Every project is unique and has to be managed accordingly. There are general management techniques and principles for designing experiments that can be universally applied to NPD projects, but the detailed problems that must be solved and work flow will vary widely from one project or program to the next. The new product development process by its very nature cannot be turned into an “algorithm”.
The NPD framework proposed in the figure to the right illustrates the complexity of the process. It starts with a solid understanding of your customers, the competitive landscape, technological changes impacting your industry, and political and economic factors in the geographic locations you serve. In addition, there may be regulatory and industry standards that you have to consider. These factors define the overall business environment the company operates in. For the company to prosper in its environment, it must have a robust, well-articulated business strategy that is understood by the entire organization. It must have a clear and defined competitive strategy, and finally a culture that supports innovation. The new product development process relies on these in defining new products, allocating resources, and executing projects. There are both process and organization issues associated with developing new products, and both planning and execution activities.
New product development and innovation involves every functional group in the business and is a team-based effort. Significant coordination is thus required across all functional boundaries. For instance, marketing and product management play a key role in defining new products and collaborating with the project team during the project in making decisions and trade-offs that characterize a new product project. Manufacturing, finance, and service organizations play important roles as well. There are many ramifications to the cross-functional nature of NPD. For instance, structuring the recognition and reward system in every department in a way that reflects the importance of innovation is crucial to the success of these efforts.
Finally, NPD requires a high level of senior management engagement and leadership. Again, if you think about the NPD framework described above, you realize that NPD is a key business process. That means the senior manager, whether a president of a business unit, an owner, or whoever is responsible for the overall business success is ultimately responsible for new product success. If NPD is treated strictly as an R&D function, you are doomed to failure over the long run.
In an excellent book (1) by Marvin L. Patterson entitled “Build an Industry Hot Rod” and a subsequent article published in Research Technology Management (2), this former HP executive proposed that new product development be viewed as a closed-loop system. The concept of “innovation as a system”, as illustrated in the figure below is an excellent mental model that emphasizes why innovation and new product development are key business processes and not simply an R&D function. Mr. Patterson goes a step further and uses the Patterson-Hartmann model to integrate the roles and relationships between the key elements of the investment-to-income system and link future results with present day actions. The model developed helps managers see how decisions made today about investments in new products are connected to future revenues and profits, and is a powerful decision-making tool.
Looking further into the primary components of the system, let’s first focus on the “innovation engine”. This consists of all the strategic and development activities that are related to innovation, and not strictly limited to R&D. Investment, information from external sources such as new information related to technology and markets, and information from existing and potential customers flows into this engine. Incoming information and investments are then transformed into value-added information. This knowledge, other related outside information, information from customers and income from the revenue stream make up the inputs that that are utilized by “Operations”. Operations in this sense includes both the manufacturing and sales/marketing functions. The output of this system element is delivery of new value along with the continued delivery of value related to mature products and services. Customers judge the value offer, and then vote with their dollars for the best offerings. Winning these votes generates the top-line revenue for the company. From that stream of revenue, the cost-of-goods and cost-of-sales is siphoned off to operations, other expenses are incurred, specific decisions on innovation investment are made, then finally net income is generated after taxes.
Thinking in terms of “innovation as a system” illustrates the importance of the linkage between innovation investment, the “innovation engine” necessary to create new knowledge, and ultimately financial performance. Clearly, if innovation is viewed in this way, managing successful innovation is the responsibility of the senior manager or owner responsible for financial performance of the enterprise, and is arguably the most important business process.
How is innovation treated in your company? Is it relegated to R&D or viewed as a key business process? What do think about the proposed NPD framework? What about the “innovation as a system” model? Do you believe there is any business process more important than the innovation process described above?
Special thanks to Marv Patterson of the Dileab Group for his editorial comments to this article.
(1) Marvin L. Patterson, Build an Industry Hot Rod. (Los Altos,CA: Dileab Group LLC, 2008)
(2) Patterson, Marvin L. 2009. Innovation as a System. Research Technology Management 52(5):42-51.
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