Innovative Business Growth Through The Development Of New Products/Services
March 2008 (Professor Jay Mitra, Dr Madhumita Banerjee, Nick Pronger )
The “checklist” is not a substitute for action. It does not claim to be the definitive guide, and readers are encouraged to examine the literature and other sources of information for new product development.
For a business to be innovative and identify NPD opportunities, it is recommended that the owner/managers go through an iterative checklist of key questions (to obtain insights) and critical actions.
THE ‘A-J’ GUIDE
A: The Basic Check ListA basic checklist allows the new product developer to carry out an initial test of intention, purpose and capacity for developing a new product.
Does the business:
have a clear idea for the development of the new product;
have the necessary resources (people, infrastructure and money)
have a system for opportunity identification and ideas generation
have a system for opportunity analysis
have a system for idea generation
have a system for idea selection
have a system for concept and technology development
have flexibility in product development even at later stages of development
have quality assessment tools such as Six Sigma- DMAIC (define, measure, analyse, improve, control), and DMADV (define, measure, analyse, design, verify);
have market prospectors have champions, gatekeepers and developers have succession and sustainability planning mechanisms for its products?
B: Cognitive Capability – Knowing the product?
What is a new product? Any new product is a complex combination of core and other elements, making up what is called the “anatomy” of the product.
The typical “anatomy of a product” is made up of specific components, with each component representing a stage in the development of the product. The following table show how these different stages can be identified.
|Potential Product||What the product can/should be in the future|
|Augmented Product||Extras that increase the attractiveness of the core product|
|Tangible Product||Communicates the benefit of the core product|
|Core Product||The heart of the product: functional and/or psychological benefits|
Knowing and recognising these “components” is a vital second step in the development of a new product.
C: Extending the Cognitive Capability – What is “new” about a new product?
But what exactly is new? Knowing what is “new” depends on the perspective of the business (the firm) and most importantly the customer.
a) Looking at what is new from the point of view of a business could mean:
• the product is new both to the business and/or new to the market – if so typical questions such as “will it work” (suspicion of the concept within and outside the business) or “ do I need it?” (identifying the need for the product);
• the product is new to both to the business but is an incremental innovation for the market
Types of Newness – The firm’s view: 1
1. New to the company, and new to the market “– i.e. the product developed by your firm does not exist in the market
• Will the new product we are developing work?
• Is there a need for us to develop a new product?
Example of this innovation: The Apple iPod
2. New to the company, and but not a “significant” innovation for the market
This is slightly less challenging:
• Core product is familiar to the market but has additional benefits
Example of this innovation: trolley bag
3. New to the company, but a “minor” innovation for the market
This is even less challenging than (2) above:
• Here, the burden of newness rests on the organisation
• The challenge is to convince the market of the “newness”
4. New to the company, but “no” innovation for the market
• This can be described as a “me too” product – which may or may not work
b) What is “new” for the customer?
The answer to this question will depend on the type of innovation that the new product generates. What matters is the impact it is likely to have on the behaviour of the customer. The particular type of innovation will have a specific impact on such behaviour.
Types of Newness – The customer’s view
Continuous innovation – This is a regular innovation, which requires no new customer behaviour. Example of this FMCG product updates.
Dynamically continuous innovation – Significant innovation, with some adaptation in customer behaviour required. Example – the introduction of CD ROM for home PC.
Discontinuous innovation – This is a totally new innovation which requires complete change in customer behaviour. Example – the first video recorder.
Source: Brassington and Petitt (2003: 335)
D: Identifying the development stage of the product and business life cycles
Each product has its own life cycle which starts from its ‘new’, innovative stage through to growth, maturity and decline. We are concerned here mainly (but not exclusively) with the “innovative stage” but it is important to note that the growth curve for the product can decline pretty quickly if the market for the product and its competition is not identified carefully.
Note also that innovation can occur at different stages and sometimes it can help the firm from declining.
The stages that a new product goes through after it has been launched are:
•Innovation:After a period of development, the new product is launched into the market and it gains more and more customers and begins to generate income and profits for the firm
•Growth:If the product is successful, the profits of the company continue to grow as the company gains more and more customers. Products become more profitable and companies form alliances, joint ventures and take each other over.
•Maturity: After a period of growth, the market stabilises and product becomes mature, and therefore the profits generated by the product stabilise. Price wars and intense competition occur. At this point the market reaches saturation. Soon after producers begin to leave the market due to poor margins. Promotion becomes more widespread and uses a greater variety of media.
•Saturation and Decline:After a period of stability, competitors introduce superior products, therefore the profits of the company decline and is eventually withdrawn. For example, the introduction of VHS, which offered a longer playing time, led to the decline of Betamax. Thus, there is a downturn in the market.
Note: Many products fail in the introduction or innovation phase
The key to enhancing the product’s worth is to extend the life cycle by considering market-based improvements such as entering new markets or by combining new technologies.
Companies may also use other strategies to extend the life cycle such as:
• Discounted price
• Increased advertising
Stages of Business Development
What is also important is the particular stage of development of the business.
Key questions to note:
• Is the business at a nascent stage of development (post inception);
• Is the business at its early threshold period (between 1-3 years);
• Is the business at a formative period of establishment (after 3 years)?
Each stage will have a specific influence on the capability of the firm to develop its new product and seek business growth. Questions of resources (including the nature of finance required, and the skills (technical and managerial) base of people, will vary according to each stage Locating the business in its appropriate stage in the “innovation map” is critical for the decision makers of the firm. These stages are also referred to as the “critical points for innovation”.
Critical Points for innovation and Entrepreneurship
Early Market: After a new venture is launched, especially if it is one of the pioneers, the firm experiences revenue growth. Revenues continue to grow until it reaches maturity.
Main Street: After a period of growth, the market stabilises and company becomes mature, and therefore the revenues generated tend to stabilise or flatten out. At this point the market reaches saturation.
Decline: After a period of stability, competitors introduce superior products, therefore the revenues generated by the lead firm decline and it may eventually continue to decline and die.
Key point – Good understanding of business life cycle is important for strategic planning. Poor strategic planning can result in both the product/service and the business failing.
Source: Moore (2004)
E: Identifying the Nature of the Demand for the New Product
Typical questions for the early stage of a new product in the market are as follows:
1. What is the nature of the demand for the new product?
• Inchoate demand or articulated demand?
• Wouldn’t it be nice, would you like to buy at this price?
• Difficulty of identifying demand with new innovations?
• Pull of demand restricted by constraints on the supply side?
Notes: “Inchoate demand” refers to unclear or unknown demand especially for a product that has never been in the market before. Not only is it difficult to identify demand, but even if any demand where to be found, the absence of similar products in the market place may mean that there might be an inadequate supply of resources, skills, etc. to help develop the product.
2. What needs to be understood when developing new products?
The learning process in selection mechanism is of particular importance and it includes:
• Choosing timing for entry into market – implementation
• New inventions are more successful when demand is vibrant
• General surge in population when market grows
F: Generating the Product Idea
In developing new products, working with well-informed ideas about the product, its market and its end users, is often the biggest obstacle. The problems that emerge form part of what is referred to as “associative barriers”, and breaking them down can be a useful exercise to perform in the development of new products. “Associative barriers” are those barriers to innovation which stem from associating a product/service with a typical outcome or characteristic. For example, a mobile phone is an audio product! This is because we associate a ‘phone with what we have always used it for in the past. However, when it was discovered that it could also be used to take pictures, a different product was created.
How to generate ideas for new products?
Breaking down associative barriers:
• Learning differently
• Reversing assumptions
• Acquiring multiple perspectives
Try the “reverse assumption test”!
The Reverse assumption test:
• Think of a product or concept and its market
• Think about the assumptions associated with the product/concept
• Write down the assumptions
• Reverse them
• Make reversals meaningful in the same or different market
Reverse Assumptions – An example:
Source: Johansson (2004)
|Restaurants have menus||Restaurants have no menus|
|Restaurants change money for food||Restaurants charge do not charge money for food|
|Restaurants serve food||Restaurants do not serve food|
What can we learn from the above questions and tests?
Key Lessons about the Market for New Innovations
• Unknown territory
• Creativity, lateral thinking, diversity and innovation
• Learning and innovation
• Not just given things in technology, and business functions, and the 4 Ps of marketing – product, price, place & promotion
G: Managing the New Product Development Process
Starting with some “basic management principles” is a priority. Armed with these principles key steps should be followed in developing the new product. But note that the developmental process is not always a linear process. New and raw ideas can emerge at any of the stages enumerated. What needs to be understood is that they will still need to go through the iteration process and the critical hoops of development as identified below.
Innovation through New Product Development in New Organisations:
Some basic principles:
• Analysis of all opportunity sources
• I = Conceptual and perceptual – go, look, listen
• Simple and focussed
• Start small
• Should aim at leadership
• Work, knowledge, ingenuity, focus
• Works general in one field (Edison in electrical field)
• “Imaging, Incubating, Demonstrating, Promoting, Sustaining”
Typical Steps in New Product Development:
• Raw ideas
• Ideas Submitted
• Small projects
• Large Developments
• Major Developments
(Industrial Research Institute, Washington D.C., USA)
Who should be involved in the management process? They are the ‘I’ players! There are many roles to be played but this does not mean that a firm needs separate or different individuals for each role. It is quite common to see one individual combining a number of roles. They key is to ensure that these roles are performed and that are supported within a firm.
The Many Roles for New Product Development and Innovation in Firms
The ‘I’ Players:
• Ideator = idea generator
• Reduce ideas to practice, putting solution into tangible form
• Inspector (Technology)
• Gate keeper = technology and Reality Experts
• Champion = advocates
• Sponsor = Financial supporter
• Entrepreneur = risk taker
H: The Financing Process
How will the new product development be financed? Here too, planning is critical. Knowing the type of product, the processes involved in identifying the right type of finance, and assessing the worth of the product together with the ability to communicate its worth, are crucial to the financing process.
The Financing Process Planning
• Inputs (Funding requirements for the new product)
• Process (Identifying best sources of finance and staff to source and manage the funds)
• Outputs (New products, value added)
• Where does one start? Start with outputs!
• What needs to be achieved? Or what do you expect to achieve?
• Then consider what needs to be brought to play (inputs) to achieve outputs
• What matters most is how outputs are achieved given a set of inputs (process)
Key Features of Planning for New Venture:
• Opportunity: new combination, magnitude, trends, value
• Concept, competency, competitive advantage
• Team Elaboration
• Scenario integration
• Financial link
• The deal
Having understood the need for financing a new product it is necessary also to plan for the investment as the next section shows.
“Show me the Money!”:
• Basics – Investment Readiness
• How organised are we?
• Company Structure?
• Management Team?
• Intellectual Team?
• Intellectual property
• Vision, purpose, plans and positioning ideas?
• Advisors “Grey hairs and wisdom”? Basics – e.g. Accounts and Control?
• “Rumsfeld Questions” – What we don’t know
• Understanding the “money supply chain”
• Research and help – where to find it
• What’s the best for our business
• “Money on its own may not bring the money you need”
• Friends, Angels, Venture Capitalists etc
• Resourceful, resilience and recovery”
• Learning from encounters with Investors
• Attention to detail – “Nitty gritty”
Obtaining the help of an accountant is well worth considering especially when you are ready to identify the source of finance.
Source: Alan Barrell (2007)
Sources of Business Finance:
• “Our Money” - Our decisions – no strings
• Family Friends and Fools – Few Strings, great faiths
• Business Angels - Money “plus” – use my expertise
• Seed Funds - Support proof of principle
• Early Stage - Management Support – experience of roll-out
• Expansion - Lower level of support – but experience of business development
• Pre-IPO - Opportunistic
• Other financial organisations - Not risk takers
Source : Alan Barrell (2006)
I: Assessing Performance
Assessing the performance of a new product can be done by means of an “Innovation Performance Index” such as the one below. This index tracks the development of the product from its initial design stage through to its sustainability and future expectations.
Assessing Performance: The Innovation Performance Index
1. The Product Innovation Factor: factored from the product life cycle index for manufactured products, leading edge levels, sustaining/disruptive level in product design
2. Process Innovation Factor: factored from the sustaining/disruptive manufacturing and business processes employed
3. Creativity Factor: factored from the process of empowerment and use of idea conversion mechanisms
4. Futures Investment factor: made up from R&D spend levels, technology focus, market awareness, succession planning, empowerment levels
5. Leading Practice Adoption: formulated from adherence to a defined # of leading processes and methodologies;
6. Communication Factor (Trust Level): made up from the differences between management perception and manufacturing/service reality
7. Morale Factor: factored as before from turnover rates, absenteeism, discipline incidents
8. Succession Factor: factored from the succession planning efforts employed within the firm, weighted in favour of management succession planning
9. Waste Awareness Factor: made up of Q and A identifying and valuating internal waste
10. Operational Cost: inverse of pre-tax profit
Source: Adapted from ‘the Innovation Corporation’, The Institute of Enterprise Education’ Ontario, Canada
J: Other Issues
a) Intellectual Property and New Product Development
When developing a new product many legal questions arise, including:
• How do I protect the innovation from imitators?
• Can the innovation be legally protected? For how long?
• How much will this cost?
The answers are complicated by the fact that several legal concepts may apply to any given innovation, product, process, or creative work. These include patents, trademarks, service marks, trade names, copyrights, and trade secrets. It is necessary to know which are applicable and when each is appropriate. This varies somewhat from jurisdiction to jurisdiction. The advice of a lawyer that specializes in these matters and is knowledgeable with your corporate philosophy regarding IP protection is essential.
Generally, copyrights are fairly easy to obtain but are applicable only in certain instances. Patents on the other hand, tend to involve complex claims and approval processes, tend to be expensive to obtain, and even more expensive to defend and preserve.
b) What types of market analysis should be undertaken?
• Estimate likely selling price based upon competition and customer feedback
• Estimate sales volume based upon size of market
• Estimate profitability and breakeven point
c) What issues need to be considered for technical implementation?
• New program initiation
• Resource estimation
• Requirement publication
• Engineering operations planning
• Department scheduling
• Supplier collaboration
• Resource plan publication
• Program review and monitoring
• Contingencies - what-if planning
d) What is Six Sigma, DMAIC and DMADV ?
Six Sigma is a system of practices originally developed by Motorola to systematically improve processes by eliminating defects. Defects are defined as units that are not members of the intended population. Since it was originally developed, Six Sigma has become an element of many Total Quality Management (TQM) initiatives.
The process was pioneered by Bill Smith at Motorola in 1986 and was originally defined[ as a metric for measuring defects and improving quality, and a methodology to reduce defect levels Defects Per (one) Million Opportunities (DPMO).
Six Sigma is a registered service mark and trademark of Motorola, Inc. Motorola has reported over US$17 billion in savings from Six Sigma as of 2006.
In addition to Motorola, companies which also adopted Six Sigma methodologies early-on and continue to practice it today include Bank of America, Caterpillar, Honeywell International (previously known as Allied Signal), Raytheon and General Electric (introduced by Jack Welch).
Recently Six Sigma has been integrated with the TRIZ methodology for problem solving and product design.
Key concepts of Six Sigma
At its core, Six Sigma revolves around a few key concepts.
• Critical to Quality: Attributes most important to the customer
• Defect: Failing to deliver what the customer wants
• Process Capability: What your process can deliver
• Variation: What the customer sees and feels
• Stable Operations: Ensuring consistent, predictable processes to improve what the customer sees and feels
• Design for Six Sigma: Designing to meet customer needs and process capability
Six Sigma has two key methodologies: DMAIC and DMADV. DMAIC is used to improve an existing business process. DMADV is used to create new products.
Basic methodology consists of the following five steps:
• Define the process improvement goals that are consistent with customer demands and enterprise strategy.
• Measure the current process and collect relevant data for future comparison.
• Analyze to verify relationship and causality of factors. Determine what the relationship is, and attempt to ensure that all factors have been considered.
• Improve or optimize the process based upon the analysis using techniques like Design of Experiments.
• Control to ensure that any variances are corrected before they result in defects. Set up pilot runs to establish process capability
• Transition to production and thereafter continuously measure the process and institute control mechanisms.
Basic methodology consists of the following five steps:
• Define the goals of the design activity that are consistent with customer demands and enterprise strategy.
• Measure and identify CTQs (critical to qualities), product capabilities, production process capability, and risk assessments.
• Analyze to develop and design alternatives, create high-level design and evaluate design capability to select the best design.
• Design details, optimize the design, and plan for design verification. This phase may require simulations.
• Verify the design, set up pilot runs, implement production process and handover to process owners.