I recently read an article that challenged small companies, especially start-ups, to consider an HR (human resource) function. The article provided several reasons why this is typically not considered by small companies and went on to make an argument for a focus on building HR capabilities. The article made me wonder: Do small companies and start-ups have a similar bias against formal NPD processes? I suspect so. Here, I address why small companies should embrace an NPD process rather than resist it.
Small companies, with revenue of less than $20M for example, are typically run by the original founder(s). The company would have likely started with one or two products, and the senior leadership may sense that how innovation has been managed in the past, may not work as well in the future.
When considering implementing an “NPD process”, however, there may be strong resistance. Reasons might include:
“We don’t have time for a process. We are too busy innovating and a process will slow us down.”
“Having a process is only necessary for large companies. Small companies don’t need to worry about that.”
“Having a process implies bureaucracy typical of big companies. We need to be more flexible.”
“Our company is informal and we want to keep it that way. It is why we have been successful.”
While many of the reasons above are rational, why might a small company or start-up consider implementing or enhancing their existing process? Of course, whether the company realizes it or not, they do have a process. It just may not be explicit and will continue to grow, albeit haphazardly and without any forethought, as the company grows.
Let’s start with some survey results from multiple sources. They all make the case that companies with strong, coherent processes are more successful innovating over the long run compared to companies who ignore process. A recent survey conducted by Planview says it well: “Operationalizing innovation does not crush creativity; rather it can encourage more calculated risk taking with a strong set of checks and balances based on data (and some gut).” (1) In a recent Accenture survey (2), companies who have a formalized innovation management system were almost twice as likely (43% vs. 24%) to say they were very satisfied with their initial idea generation capabilities, compared to companies who did not have a formal process. In that same survey, those who had formal processes said again by almost twice (21% vs. 12%) that their innovation strategy delivers competitive advantage and they were 35% more likely (50% vs. 38%) to be first to market with new products or services. And finally, in a survey conducted by the Product Development Management Association (3), those companies considered “best” utilize formal processes to a higher degree than the “rest” (4).
A second reason to consider the process is that as the company grows in revenue and headcount, the “project portfolio” will grow. As a start-up, or small company, you may very well only run one project at a time. When that project is done, and the product introduced to market, you start on the next project. Over time as the company grows, the need emerges to manage multiple projects simultaneously. How you managed innovation when you have only one project is not how you will manage when you have multiple projects, including support of legacy products that typically use the same R&D resources as new product projects. With multiple projects, for instance, resource allocation becomes a significant issue. In the same Planview survey previously cited (1), too many projects for the resources available remains the top “pain point” for most organizations. It is only through a structured NPD process that effective resource allocation is possible. A purposeful NPD process that can grow as the company grows can help enhance your innovation effectiveness and improve your “return-on-innovation-investment”.
Related to this second point, is that not only will managing multiple projects become an issue that needs to be addressed from a process standpoint, but the mix of projects will also be a consideration. This gets to the heart of “portfolio management” and is an important sub-process of the overall NPD process. I have written extensively about portfolio management (5), both from a practical process standpoint, and from the perspective of achieving “balance”. Portfolio balance will mean different things to different companies, industries and technologies, but at the heart is the question: What is the right mix of incremental projects (e.g., extensions or enhancements of existing products), vs. new (e.g., “new” products or technologies to the company, but currently exist in the market), vs. radical, new-to-the-world products (e.g., do not exist anywhere)?
A third point is that while many small companies and start-ups will equate a process with the bureaucracy typical of big companies, that is only the case if you end up working for the process, rather than the process working for you. What does that mean? First, as with any process, it is not the documents that are part of the process that are most important, but the process that you go through to arrive at the documents. I make this case in two recent articles I published that deal with product definition (6). Second, a process can still be informal or implemented in a way to maintain flexibility. In the Product Development Management Association survey previously referenced (3), one of the final conclusions is that many companies are moving away from overly formal processes toward more flexible processes, and more specialized NPD process structures. Finally, you have to implement processes that consider the culture, and have buy-in from those who will operate within the process. If no formal process exists, there can be a tendency in many organizations to create an overly restrictive process the first time one is established. When there are subsequent problems in innovation management (e.g., late projects, ill-defined projects that are not successful when launched, projects over budget, etc.), the process is blamed rather than where responsibility really lies: with management who implemented the process in the first place!
Another reason for implementing an NPD process is related to decision making. In a small company or start-up, the original founder(s) typically makes most every decision in the company. Those decisions encompass every facet of the business from what products are going to be developed and the definition right down to who is going to clean the floors and everything in between! As the company grows, however, effective decision making has to be decentralized to some degree otherwise the entire decision making process will become bogged down as it has to flow through potentially only one person. This is a very typical problem in small companies and where an NPD process can help. In the Planview survey previously mentioned (1), 53% of those surveyed said that decisions that go back and forth and get made late or ineffectively is a major issue in their efforts to innovate.
Finally, for many small companies and start-ups, the endgame may be to package the business to sell to a larger company. From my personal experience, having an NPD process in place is one area where small companies can greatly enhance their value. While a specific process in the small business may not survive an acquisition, more than likely the key players in the business will be retained and just the knowledge of how innovation is managed in larger, multi-project environments will smooth the transition and help potential buyers see the value in the technology and tacit knowledge of the employees.
Other than those cited, what other reasons might small companies and start-ups be resistant to implementing an NPD process? Are there other benefits for implementing an NPD process that in your experience are missing from this article? Which ones do you feel are most important?
(1) Fourth Product Portfolio Management Benchmark Study. Commissioned by Planview and conducted by Appleseed Partners and OpenSky Research. 2013.
(3) 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
(4) 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.
(5) For information on portfolio processes, see these articles: The Importance of a Balanced Project Portfolio; Critical Aspects of Project Portfolio Management in NPD Success
(6) See this two-part article on product definition: The Role of Product Definition in Innovation Success-Part I and The Role of Product Definition in Innovation Success-Part II.
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