Evaluating New Product Innovations

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Pierce Harrell
8 years ago
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2 2 Innovation is essential. INNOVATION R&D SPENDING (Good news for Chief Financial Officers) R&D spending must be done wisely and is only part of the spend required for successful innovation!

3 Innovation and research 3 Research converts money into knowledge Innovation converts knowledge into money Research Innovation! Knowledge

4 Innovation 4 Because it is its purpose to create a customer, any business enterprise has two and only these two basic functions: marketing and innovation. They are the entrepreneurial functions. marketing and innovation create value, all the rest are costs. Peter Drucker, 1954, The Practice of Management Innovation is the spark that makes good companies great... Companies that know how to innovate don't necessarily throw money into R&D. Instead they cultivate a new style of corporate behaviour that's comfortable with new ideas, change, risk, and even failure. "America's most admired companies, Fortune, March 3, 1997

Peter Drucker, 1954, The Practice of Management Innovation is the spark that makes good companies great.

5 Top 20 global R&D spenders (Booz & Co., Winter 2010) 5 Is it enough?

6 Innova on R&D spending (Booz & Co., Winter 2010) 0) 6

7 Innovation is Risky 7 Innovation has an inherent variability, but rate of success can be improved through better &differentmanagement: 85% of new ideas never reach a market 60% of R&D projectsaremarket ktfil failures 40% of consumer products & services fail 20% of business products & services fail

ideas never reach a market 60% of R&D projectsaremarket ktfil failures 40%

8 Implement New Product Development 8 Success rates Most new product ideas (>90%) never make it to market! 25% to 45% of those that get to market FAIL PDMA: 59% of new products launched are successful Product Development Managers Association In a review of 122 industrial product firms, the average success rate of fully developed products is 67% Robert G. Cooper, Winning at New Products Summary: 1 in 3 launched products fail, on average not including failures through development

Managers Association In a review of 122 industrial product firms, the average success rate of fully developed products

9 New Product Development success rates 9 1 in 7 new product concepts gets to be a commercial success. Approx ½ of all R&D expenditures are on failed R&D projects Num mber of conce epts Screening & evaluation Business analysis Development Testing Commercialisation % of project time

Approx ½ of all R&D expenditures are on failed R&D projects Num mber of conce

10 Role of senior management in New Product Development (ref. Robert G. Cooper) 10 Product Approval Committee Establish the vision clear product strategy & vision, at a high level Cultivate the NPD process support adherence to the process manage risk and ensure business return Make decisions definite decisions, as early as possible Motivate leadership, appreciation Recruit the right staff

high level Cultivate the NPD process support adherence to the process manage risk and ensure

11 11 Effect of good NPD management 25% of US firms spend 30% of all NPD and commercialisation resources on new products that are cancelled or fail to yield adequate return. Average firms spend estimated 45 50% of these resources on such products. 30% of firms consistently achieve 80% post launch success rate! Average firms achieve 66% post launch success rate. Sources: PDMA, Robert G. Cooper, et al.

Average firms spend estimated 45 50% of these resources on such products.

12 Why must we innovate? Increased global competition Science and Technology advances Changing customers characteristics and needs Requirements for increased productivity and quality Shortening product life cycles factor of 4 reduction in last 50 years A.D. Little, Pharmaceuticals Food items Tools Toys Today 50 years ago Cosmetics

characteristics and needs Requirements for increased productivity and quality Shortening

13 Top 10 NPD success factors (PDMA) 1. Ahigh quality new product process 2. A defined new product strategy for the business unit 3. Adequate resources people and money for new products/services/ideas 4. R&D or Design spending on new products (as % of the business'ssales) 5. High quality new product development teams 6. Formal, consistent encouragement for creative thinking within the organisation 7. An innovative climate and culture in the business unit 8. The use of cross functional teams for product development 9. Senior management accountability for new product results 10. Capacity and willingness of the business to engage in networks and collaborations to develop new technologies andideas

High quality new product development teams 6. Formal, consistent encouragement for creative thinking within the organisation 7.

14 NPD Success Factors ref. Robert G. Cooper Resource commitments Superior, differentiated product Organisational structure, culture, climate International outlook Leverage core competencies Market attractiveness Market need, growth, size competitive situation Speed is everything 14

Organisational structure, culture, climate International outlook

15 How can we innovate 15

16 DOBLIN 10 ways to innovate

17 Innovation must be managed as a strategic business process 17 Tidd & Bessant model of the innovation process: INNOVATION STRATEGY SEARCH SELECT IMPLEMENT CAPTURE INNOVATIVE ORGANISATION

18 Stage Gate process for NPD 18

19 Stage Gate process 19 Each stage: has well defined objectives has a set of deliverables has a full resource commitment for its duration is cross functional costs more (more commitments) than the previous one Each gate requires a set of defined deliverables has defined criteria against which to evaluate the deliverables for the GO/KILL decision, e.g. does the proposed project fit our business strategy? does it meet our environmental, health and safety policies? core competencies, market attractiveness? defined outputs decision, action, resource plan, deliverables, date for the next gate

to evaluate the deliverables for the GO/KILL decision, e.g. does the proposed project fit our business strategy?

20 Stage Gate decision making

21 Open Innovation 21 accessible Innovation output is achieved by creatively using a firm sown assets to bring about the customer s value adding experience. Assets access to market knowledge access to technology knowledge technology competence and supports design competence and supports process and organisation systems and management It s increasingly dff difficult impossible to own all these. Access, rather than control, is the goal. Absorptive Capacity is the pre requisite.

22 Closed v. Open Innovation from know how to know who 22 Closed innovation principles Open innovation principles The smart people in the field work for us. To profit from R&D, we must discover it, develop it, and ship it ourselves. If we discover it ourselves, we will get it to the market first. The company that gets an innovation to the market first will win If we create the most and the best ideas in the industry, we will win. We should control our IP, so that our competitors don t profit from our ideas. from: eu Not all the smart people in the field work for us. We need to work with smart people inside and outside the company. External R&D can create significant value: internal R&D is needed to claim some portion of that value. We don t have to originate the research to profit from it. Building a better business model is better than getting to the market first. If we make the best use of internal and external ideas, we will win. We should profit from others use of our IP, and we should buy others IP whenever it advances our business model.

23 Open Innovation web examples 23 Corporate websites examples of open innovation and crowdsourcing-like initiatives: Open innovation / crowdsourcing intermediaries and platforms: 3M Zukunft Innovation (in German) BMW Virtual Innovation Agency Boots Centre for Innovation Campbell s Ideas for Innovation Cisco I-Prize Clorox Connects Colgate-Palmolive Dell IdeaStorm DSM Licensing Ei Ericsson Ford Story General Electric Ecomagination General Mills G-WIN GlaxoSmithKline Hershey s Ideaworks HP Labs Open Innovation Office IBM Collaboration Jam Huawei Intuit Collaboratory Intuit Labs Johnson Controls Open Innovation Kraft InnovateWithKraft LG Medtronic Nestlé Netflix Prize Nokia Nokia Beta Labs P&G Connect+Develop Pepsi Refresh Project Philips Psion Reckitt Benckiser SAP SAP Sapiens (In German) Sara Lee Shell GameChanger Siemens Starbucks MyStarbucksIdea Unilever Weyerhaeuser YTL Communications Xerox Big Idea Group Chaordix EdisonNation Exnovate Hypios Ideas4All IdeaConnection IdeaWicket InnoCentive InnoGet Innoradar MillionBrains Napkin Labs NineSigma Pharmalicensing TekScout Topcoder Yet2.com Your Encore Open innovation / crowdsourcing software: BrightIdea Fellowforce Imaginatik Inno 360 InventionMachine Spigit

24 NPD Project evaluation 24 Mitigating risk and ensuring financial return Portfolio level & Project level

25 Expected commercial value (options) 25

26 NPD Portfolio management 26

27 Project Assessment scoring model Strategic Alignment Degree to which project aligns with our strategy Strategic importance Product/Competitive Advantage Offers customers/users unique benefits Meetscustomerneedsbetter Provides value for money for the customer/user Market Attractiveness Market size Market growth rate Competitive intensity in the market (high=low score) Synergies (Leverages Our Core Competencies) Marketing synergies Technological synergies Operations/manufacturing synergies For GO/KILL decisions and for Project Prioritisation S i (L O C C i ) Score each factor and aggregate them (weighted or unweighted) to yield a Project Attractiveness Score. Technical Feasibility Size of technical gap (large=low score) Technical complexity (barriers to overcome) (many/high = low score) Degree of technicaluncertainty (high=low score) Risk Vs. Return Expected profitability (magnitude: NPV) Return on investment (IRR) Payback period (years; many=low score) Certainty of return/profit estimates Low cost & fast to do 27

28 Market diffusion and adoption area of greatest uncertainty Commercialisation Factors that influence adoption 28 Timing Targeting and positioning Inter firm relationships Product Distribution Advertising and promotion Pricing

Closed innovation vs. open innovation 2 What is open innovation, and how does it differ from previous models, like the closed innovation systems?

Closed innovation vs. open innovation 2 What is open innovation, and how does it differ from previous models, like the closed innovation systems? Open Innovation Basics and the Local Environment Introduction Micro-, Small- and Medium-Enterprises are global drivers of innovation and business development depending on the knowledge-base as a key resource.