In a recent survey (1), only about 61% of all products launched by existing companies turn out to be successful in the market. When you investigate further, however, you will find that the “best” companies have much higher success rates of around 82% vs. 59% for the “rest”. In this case, the “best” were defined as the most successful or in the top third in their industry for new product development (NPD) success, being above the mean for their new product program success, and being above the mean for sales and profit success from NPD. Why such a significant difference? What differentiates the “best” from the “rest?”
I believe the reasons fall into three major categories:
1) How projects are chosen and defined from the beginning.
2) How projects are executed.
3) How management views innovation and new product development (NPD).
In order to be successful at innovation, the firm must have a well-honed process to manage the portfolio of ideas, illustrated in the figure below. Most every company has many more ideas they could develop relative to the resources. There has to be a process, called a portfolio management process, in place in order to prioritize and decide what projects will provide the greatest return on investment. Once a project is selected, the project must be properly defined. Innovative products can be based on the technology, factors associated with the market or both. For instance, a product might use existing technology, but serve a market or customer segment in a new way and be successful. It might include an incremental improvement of existing technology and serve a well understood market segment and be successful. It might be based on radical new technology and serve a whole new customer segment and become a market-leading product. This is typically part of what is called the “fuzzy front end” of innovation. Many new products fail from the very beginning. A company develops the wrong product, for the wrong customers, at the wrong price and at the wrong time.
A second major issue is project execution. A common tool for managing a portfolio of projects are the phased development processes, where a project has to progress through a series of phases and “gates” to reach the market. Many that use these processes, however, confuse them for project management tools (3). Each project must be managed based on the risk of the project (4). Typically, many new product projects have relatively higher risk at the beginning, and as the project progresses, risk is reduced. When risk and uncertainty are very high, the project management tools used are different compared to the tools used when risk is low. For instance, common tools like critical chain and Gantt charts are appropriate when the tasks are clear and the task duration can be estimated. For some projects, task uncertainty is so high because of “unknown unknowns” and/or complexity, that other techniques are more useful such as iterate-and-learn or multiple trials. Understanding project risk and managing appropriately requires a competent project manager.
Finally, and perhaps most importantly, the “best” companies have senior management that understand that innovation and new product development is a key business process, and take full responsibility. They are fully engaged and understand that the NPD process is unlike any other business process. It is a complex system as illustrated in the figure below (5). Every other process in the business can be driven to maximum efficiency. In other words, these processes can be turned into an “algorithm” and run over and over again with increasing efficiency. Every NPD project is different. What worked from a management standpoint with the last project won’t necessarily work for the next project. The “best” companies have senior managers who create a culture of innovation that rewards learning and does not penalize “good” failure. Not all failure is bad, and in fact, leads to learning as to what works and what does not. The successful firms will figure out how to learn and fail faster than the competition.
The “rest” have senior managers who approach new product development as strictly a function of the R&D department, not a key business process. They expect that a product can be defined, handed off to R&D, and they can disengage until the product is ready to ship. They feel if the new product team just works harder, all will be well. They foster a culture that punishes failure, regardless of whether that failure is actually “good” failure. As a result, they drive their organizations to become more risk averse that can lead to mundane products and individual employees becoming dis-engaged from the company. Over time, this leads to financial ruin in most companies.
What about startups? These types of firms are typically new businesses that are working on one product or idea. In these cases, failure is very high because of the high degree of uncertainty. These types of firms are typically working with technology that may be new-to-the-world and how the technology will actually be used by the customers, or even who the customers are, might be very uncertain. Of course, this same set of characteristics may exist for a new product project in an existing firm that has an existing portfolio of products, so the techniques used will be similar.
For start-ups to be more successful requires a mind-set of iterate-and-learn, which is a classic project management technique when uncertainty is high. They need to start with basic assumptions about what the product is, who the customers are, how they will use the product, and how they will grow the business. The most successful will quickly develop a “minimum acceptable product”, introduce the product and start to rapidly test their assumptions. They will develop more than just cosmetic, feel-good metrics about how they are doing, and critically look at the results of early market feedback. They will need to know when it is time to “pivot”, or change direction, or persevere longer with the current assumptions (6).
Do you track your success rates for new products? How do you measure it? Do you believe there are other reasons for the lack of success other than the three (3) listed above? Which one do you think is the most important?
(1) For a review of this survey, see: Markham, Stephen K. and Lee, Hyunjung. 2013. Product Development and Management Association’s 2012 Comparative Performance Assessment Study. Journal of Product Innovation Management 30(3):408-429
(2) For information on portfolio processes, see these articles: The Importance of a Balanced Project Portfolio; Critical Aspects of Project Portfolio Management in NPD Success
(3) See this article for more information: Is a Phased Development Process a Project Management Technique?
(4) See this article for more information: How Project Risk Impacts Project Management in New Product Development (NPD)
(5) For more information on treating “innovation as a system”, see this excellent book: Marvin L. Patterson, Build an Industry Hot Rod. (Los Altos,CA: Dileab Group LLC, 2008)
(6) This is an excellent book on the techniques that can be used in high-uncertainty projects: Eric Ries, The Lean Startup. (New York, NY: Crown Business, 2011)
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