Chapter 2 The new products process

The Product innovation charter (PIC)

Can be a starting point for a turnaround

- Starts with an honest situation assessment and opportunity identification

- It is a systematic way for managers to develop a new product strategy that considers the
goals for their product innovation efforts and how these efforts fi t overall business strategy.
- It involves identifying a strategic focus (which markets and which technologies will be
targeted)

The new products process

A second strategic element, the path the new product takes from idea to the time of launch and
beyond

- Having a new products process, and actually implementing it correctly, are two different
things.

The new product portfolio

In addition to a well-functioning new products process, there needs also to be an assurance that the
fi rm is developing the right products with respect to its product portfolio.

Important: the new products process does not usually begin with a new product idea. the process
usually begins with what amounts to strategy

- The development does not take place behind the closed doors of a research lab. The cross-
functional team includes personnel from many departments, not just the product engineers
or R&D people.
- Marketing is involved very earl in the process
- Last, the process is not over when the new product is launched. It ends when the new
product is successful, usually after some in-flight corrections.

The Phases in the New Products Process

Phase 1: Opportunity identification and selection

The first phase is strategic in nature; successful
completion of this phase yields strategic guidance
to the new products team, which guides idea
generation and all remaining phases in the new
products process.

 Opportunity concept: A company skill or

resource, or a customer problem (we don’t like
watered look of milk)

Three main streams of activity feed strategic

planning for new products

- Ongoing marketing planning

- Ongoing corporate planning
- Special opportunity analysis One or more persons (in the fi rm or a consulting fi rm) are
assigned to take an inventory of the fi rm’s resources (people, facilities, reputations,
whatever).
From these activities, the opportunities identified can be sorted into four categories.

- An underutilizes resource: A bottling operation, a strong franchise with dealers, or that

manufacturing process engineering department.
- A new resource
- An external mandate: The market may be stagnant, the competition may be threatening, or
customer needs may be evolving.
- An internal mandate: Long-range planning often establishes a fi ve-year-out dollar sales
target, and new products people often must fi ll part of the gap between current sales and
that target. That assignment is called the product innovation (and/or acquisition ) gap.

The process of creatively recognizing such opportunities is called opportunity identification. The
opportunities are carefully and thoroughly described, then analyzed to confirm that a sales potential
does, indeed, exist

Not all opportunities are exploited. Firms have ongoing strategies covering products innovation. E.g.
Gillette and Sony usually choose leading edge innovation strategies

Once an opportunity is approved, managers turn to various techniques to guide new product people
in exploiting it. This we will call the product innovation charter (PIC)

Phase 2: concept generation

Creating new product ideas, usually called product concepts

- The problem find solve approach: study specific group of people and find what problems
they have
- Ideas pour in from different sources, these are reviewed to see whether they are relevant to
the firm and its strategies. They are then put into the pool with the ideas that came from
problem-solving activities.

 Idea concept: The first appearance of an idea (maybe we could change the color)
 Stated concept: A form or a technology plus a clear statement of benefit (Our fi rm’s patented
method of breaking down protein globules might make the liquid more cloudy)

Phase 3: Concept/project evaluation

Before development work can begin on new ideas, they need to be evaluated, screened, sorted out.
This activity, sometimes called screening or pretechnical evaluation, varies tremendously.

- But most firms generally follow a sequence from quick looks to complete discounted cash
flows and a net present value. The quick look is needed because there is a flow of thousands
of ideas
- Next is the first formal type of evaluation. Could be an end user screening or technical
screening
- A proposed product is followed by a concept test, to see what potential consumers think
about it. These views come together in so called full screen. It uses a scoring model of some
type and results in a decision to either undertake development or quit.
- f the decision is to go ahead, the evaluation turns into project evaluation, where we no
longer evaluate the idea but rather the plan we propose for capitalizing on that idea.
o Quality function deployment is used to see the first list of customer needs (product
description/definition)
 o In this book it is called product protocol agreement between various groups before
extensive technical work gets under way. Has to be on the benefits, not on the
features.
- Fuzzy front end: the first three phases

 Tested concept: it has passed an end user concept test; need is confirmed
 Fully screened concept: it passes the test of fit with the company’s situation
 Protocol concept: product definition that includes the intended market user, the problem
perceived the benefits that a less watery skim milk would have to have, plus any mandatory
features

Phase 4: Development
This is the phase during which the item acquires finite form—a tangible good or a specific sequence
of resources and activities that will perform an intangible service. The marketing plan is sketched
and gradually fleshed out

 Prototype concept : a tentative physical product or system procedure, including features and
benefits. (A small supply of a full-bodied skim milk, ready to consume, though not yet produced in
quantity)
Batch concept: first full test-of-fi t with manufacturing; it can be made. Specifications are written
stating exactly what the product is to be, including features, characteristics, and standards. (Skim
milk ingredients: Vitamin A source, fat, fiber, and so on.
 Process concept: the full manufacturing process is complete.
 Pilot concept: a supply of the new product, produced in quantity from a pilot production line,
enough for field testing with end users

Resource preparation
Overlooking this for product improvements and some line extensions is fine, because a firm is
already up and running in a mode that fits products that are close to home

- Special training, new reward systems etc.

The major body of effort

The development of

- The item/service itself

o Industrial design, prototypes, product specifications etc.
- The marketing plan for it
o Periodic market scans, package design, brand name selection etc.
- Business of financial plan that final approval will require

By the time this phase end, the product should be solving the problems we began with

Comprehensive business analysis

If the product is real and customers like it, some fi rms make a comprehensive business analysis
before moving into launch. The financial analysis is still not firm but it is good enough to assure
management that this project will be worthwhile.

- The financials will gradually be tightened during the launch phase

Phase 5: Launch
This decision is associated with building factories or authorizing agencies to proceed with
multimillion-dollar advertising campaigns
 - Launch includes the last few weeks or months before and after the product is launched
- The critical step (if a company takes it) is the market test, a dress rehearsal for the launch,
and managers hope any problems discovered are fixable between dress rehearsal and
opening night.
- Launch management is a critical factor that is important in order to successfully launch the
new product.

 Marketing concept: output of the scale-up process from the pilot—a milk product that is actually
marketed, either for a market test or for full-scale launch.
 Successful concept (i.e. new product): it meets the goals set for it at the start of the project.

Evaluation Tasks Throughout the New Products Process -> 56

After each phase there is some kind of evaluation

- A new product process turns an opportunity into profit.

Speeding the Product to Market

Accelerated product development (APD), or speeding the product to the market offers many
benefits to the firm

- The product will be on the market for a longer period of time before becoming obsolete,
- it can attract customers early and possibly block competitors with similar products that hit
the market at a later time,
- or it can help to build or support a fi rm’s reputation.

A firm that implements the strategic elements, the product innovation charter, the new products
process, and portfolio management—has advantages in reducing cycle time.

Five point to accelerate time to market

- Clear product innovation charter leads to better product design specifications and less time
lost due to returning to earlier phases in the process to fix errors.
- Third generation new products process permits overlapping phases or parallel processing
results in more getting accomplished in a shorter span of time; streamlined evaluation tasks
means that less time is wasted in evaluation.
- A portfolio management approach minimizes the chance that the fi rm’s human and
financial resources are spread too thinly over too many projects; better project selection
focuses the fi rm’s scarce resources and uses them more efficiently.
- A focus on quality at every phase complements the PIC; by following the adage “do it right
the first time,” the fi rm will avoid unnecessary recycling.
- An empowered cross-functional team that works on a project from the earliest phases,
supports parallel processing and eliminates over-the-wall product development.

The first three are the three strategic elements, and the last two are methods that help to
implement the strategic elements

Time to market= cycle time metric= getting the idea to shipping dock faster. It assumes that
research is already done. It is also important to postship technical speed.

- Marketing can strive to accelerate premarket speed and also post announcement speed.
 - It is important to create first of mindshare, to make sure people associate your brand with a
dominant position in the market.
- It is also important that the top management plays a role in speeding up the products to the
market.

The firm with mindshare in a given product category is the one that the target market associates
with the product category and that is seen as the standard for competitors to match. Firms that
strive for mindshare think not about the speed of an individual product’s development and launch,
but rather about creating a dominant position in the mind of the customers

Risks and guidelines in speeding to market -> figure 2.5 63

A company speeding may be tempted to concentrate on only easy, incremental product project or to
cut critical steps in the new products process in order to get cycle time down.

- Leads to quality sacrifices, late decision that product quality is inadequate -> product delay

The temptation to go too fast must be resisted, so that the fi rm does not mishandle a new-to-the-
world opportunity, miss out on key customer information, or develop a technologically inferior
product

- A better way to cope when facing a high-turbulence environment is to keep product

development as flexible as possible: Do not freeze the product concept until the last possible
moment, but allow later phases in the new products process to run concurrently with
concept development -> principle of postponement
- You can also bring out a product with bugs
- Cash to cash metrics can used to measure not just how quickly the product is launched, but
also how long it takes to break even.

It is also important to do the job right the first time, seek a lot of ideas, train all involved people,
communicate, be flexible, make fast decisions and cut things wisely. The use of metrics can help a
firm to manage the whole launch phase.

What about services

Services and goods are often arrayed on a scale of (1) pure service, (2) primarily service and partly a
good, (3) primarily a good and partly service, and (4) pure good. Examples, in order, are counseling,
insurance policy, automobile, and candy bar.

- New service process follows the same steps as new product process
- New services take less time in development
- Services are individualized to the individual customer.
- Services are intangible, customized, about receiving the service and a human interaction
between service provider and customer.
- Customer interaction is important in service success. Getting customers participation earl is
critical to successful new service development. Important to receive feedback to improve
overall performance. services are often evaluated by customers as the sum of their parts.
- Services are unpatentable and often easy for competitors to replicate. it is important to
ensure that the service has been “tweaked” as much as possible before launch to make sure
customers are very satisfied with the offering.
- Launch phase can be challenging
 o For one thing, services need constant monitoring to ensure they are efficiently
meeting customer needs and expectations. his is why the best service providers
(think restaurants, hotels, and hospitals) are constantly getting customer feedback
o the successful launch of a new service depends greatly on the service delivery
personnel training.

New-to-the-World Products
Research confirms that fi rms that launch new-to-the-world products incur a significantly lower long-
term survival rate than those that enter the market later. But the lower survival rate for a new-to-
the-world product is offset by higher profits, since the market for such a product is often larger and
can offer bigger profit margins.

- They are difficult to manage

- They need discontinuities in order so succeed.
- Need of system of breakthrough innovation, which requires an incubation stage.
- This creates a nurturing environment. It is as well market and customer interaction, where
business development is mostly about market interaction.
- Breakthrough innovation requires discovery driven planning, which requires assumptions
about the future in order to build forecasts and targets. Afterwards, assumptions can be
adapted.
- The reverse income statement is the base, which starts at the bottom and works back to
required levels of revenues and allowable costs.
- Important to maintain partners to maintain resources.
- Question whether customers will value it. Important to bring the customers in as quickly as
possible ( VOC). Importance of lead users. Can be done with focused prototypes, in which
early, limited performance versions will be produced in order to get feedback from users.
o It is called probe-and-learn or lickety-stick( many ideas(licketies), one will stick)
methods.
o Transition management is needed in order to neutralize the opinion of reluctant
people.

Serial innovators: These are usually mid-level, technical employees who think and work differently
and follow their own new products process. In fact, a challenge for senior management is to be able
to identify serial innovators and once identified, to manage them and reward them properly. -> steps
70

The problem many fi rms have with radical innovation is that technology-driven innovation may be
very exciting from a technical viewpoint, but doesn’t really solve a customer problem, therefore
there is no application that can be brought to market

- They have a deeper understanding of customers, the fi rm’s product strategy, and political
processes, and can act themselves as the product champion.
- They focus not just on solving customer problems, but on understanding the situation so
well, from so many different perspectives, that they find the optimal solution to the
customer problem.
- They can handle discovery, invention, and launch themselves, and therefore are highly
valuable to the fi rm, and allow the fi rm to be consistently successful with radical new
products.
- Characteristics
o Systems thinking (can see ways to connect disjointed information).
 o High creativity (though, interestingly, not exceedingly high!).
o Curiosity in several areas of interest.
o A knack for intuition based on expertise.
o A sincere desire to solve customer problems

Spiral development and the role of prototypes

In the case of radical product innovation, a fluid, agile new products process might lead to more
innovative results.

Spiral development: trying several prototypes in rapid succession, until an acceptable form is
identified. Many iterations between firms and customer. Also known as build-test-feedback-test
process.

- the spiral development process allows phases in the new products process to be done out of
order. Early prototypes are built even before customer specifications are determined

A n early, nonworking version of the product, called a focused prototype , is built (cellphone made
of wood of foam) -> tested with customers -> changes made -> next prototype is made.

- probe-and-learn: Through interaction with customers, designers are inspired to probe,

experiment, and improvise, and as a result, may come up with a successful new-to-the-world
product.
- lickety-stick: The developing team develops prototypes from dozens of different new
product ideas (“lickety”), eventually settling on a prototype that customers like (“stick”).