Winning at New Products: Pathways to Profitable Innovation

Dr. Robert G. Cooper, 2005
The Research Behind
this Whitepaper
Most of the findings reported in
this whitepaper are from a recent
and major benchmarking study
undertaken by the author with the
APQC (American Productivity
& Quality Center, Houston).
This study of a large number of
firms looked at the product
development practices that led to
superb performance (see endnote
2). This APQC study is just one
of a long tradition of research
investigations into what leads to
successful performance in product
innovation undertaken by the
author and colleagues (for an
overview of this ongoing research,
see endnote 3). Thus the
conclusions and prescriptions
presented in this whitepaper are
very much fact-based.
Who Are the Best Performers?
Best performing businesses in
new product development (NPD)
were identified in order to uncover
best practices. Best performers are
defined as those that achieve the
highest NPD productivity—they
obtain the greatest output for a
given input. NPD performance
in the APQC study2 was judged
on multiple criteria such as: NPD
profitability for money spent; NPD
profitability versus competitors;
percentage of projects meeting
sales targets; meeting profit
targets; on-time performance;
and the ability to open up new
windows of opportunity.
Winning at New Products: Pathways to Profitable Innovation
What Are the Keys to Success in
Product Innovation?
New product success is vital to the growth and prosperity of the modern
corporation. In the U.S., almost half of CEOs rate innovation as “very critical”
to their future business success, according to a recent Cheskin & Fitch
Worldwide study.
1
A 2005 ADL study reveals that “enhanced innovation
abilities” is rated as the number one lever to increase profitability and growth
among European companies, even higher than cost cutting and mergers-
and-acquisitions.
2
Developing and launching a steady stream of new product successes is no
easy feat, however. Only one product concept out of seven becomes a new
product winner; and 44% of businesses’ product development projects fail to
achieve their profit targets!
3
Some companies, like Procter & Gamble, Johnson & Johnson, Hewlett
Packard, Sony, Kraft Foods and Pfizer, make it seem easy, however —they are
the consistent winners with one big new product winner after another. But
exceptional performance in product development is no accident. Rather, it is
the result of a disciplined, systematic approach based on best practices.
4
What are the secrets to success in new product development (NPD) that
these winning businesses share? This whitepaper highlights the key factors
and drivers that distinguish the best performing businesses in NPD from the
rest. Those factors and drivers that are common across high-productivity,
best performing businesses in NPD were uncovered in a recent and major
APQC study into best practices (and in a number of previous investigations).
5
,
6
Prescriptions on how to translate these best practices into action in your
business are also outlined in this paper.
By: Dr. Robert G. Cooper, Professor Marketing,
McMaster University, Canada, and President,
Product Development Institute Inc.
Winning at New Products: Pathways to Profitable Innovation
2
The Innovation Diamond
Four major factors or forces drive a business’s new project performance, according
to the studies, and are illustrated as
four points of performance
in the Innovation
Diamond shown in Exhibit 1. They are:
1. A product innovation and technology strategy
for the business
2. Resource commitment and focusing on the
right projects—solid portfolio management
3. An effective, flexible and streamlined idea-to-
launch process or
Stage-Gate
®
system
4. The right climate and culture for innovation,
true cross-functional teams, and senior
management commitment to new product
development.
While many investigations have identified different
facets of new product management as key to success,
the major “aha” of this recent APQC study is that there
is
no one key to success
in product innovation. Thus
management must step back from looking just at single drivers or even individual
new product projects, and consider the broader picture. For example, having a great
idea-to-launch process is not sufficient—it’s not a standalone driver of positive
performance.
The Innovation Diamond in Exhibit 1 highlights the main drivers and practices that
are common to the best performers in NPD. So do what the winners do—emulate
them! This Diamond proves to be a
valuable model
for helping senior managers
focus their efforts to improve their business’s NPD productivity and performance. For
example, Procter & Gamble models their new product effort at the business unit level
closely on the Innovation Diamond of Exhibit 1.
7
Here now is a more in-depth look at each of the four points of performance, along
with prescriptions for how to make each point work in your business.
1. A Product Innovation and Technology
Strategy for the Business
Best performing businesses put a product innovation and technology strategy in
place, driven by the business leadership team and a strategic vision of the business.
This is the
first point of performance
in the Innovation Diamond in Exhibit 1. This
product innovation strategy guides the business’s product development direction
and helps to steer resource allocation and project selection. Elements of this product
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