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How to Maximise Productivity in New-Product Development
The concept of productivity is simple: It is output over input or “the most bang for the buck”. In new-product development (NPD), productivity is defined as output (measured as new product sales or profits) divided by input (measured as R&D or NPD costs and time). Insights into NPD productivity by industry is provided in Exhibit 1. Compare the productivities of the most productive companies versus the least productive and note the huge differences in productivities – on average, almost a 1200 percent difference! In some industries, such as pharmaceutical, the differences are even greater. For example, the top 25 percent pharmaceutical firms are 31 times more productive in NPD than the bottom 25 percent! These exceptional productivity differences between top and poor performers lead to the obvious question: Why? What is it that these high-productivity businesses do so differently? And can your business learn from them? Our research reveals the seven most important factors that distinguish the high-productivity businesses from the rest – what the best performing companies do so differently.
These seven drivers – we call them “principles” – of high-productivity NPD have been identified from a long tradition of research investigations; each principle is thus very much fact-based: The research reveals that businesses that employ each principle achieve superior performance results. For example, in Exhibit 2, the bar chart shows that high-productivity businesses employ each of these seven principles far more so, and that poor performers tend to ignore these principles. Note that these research results have been widely published in refereed journals, providing credibility and authenticity to what is presented; this is not simply “a theory” based on a handful of experiences, some stories or case studies, or home-grown research. #1. Customer Focused Developing and delivering new products that are differentiated, solve major customer problems, and offer a compelling value proposition to the customer or user is the number one key to NPD success and profitability. But conceiving such unique, superior products is not easy. Sometimes it’s the result of a genuine technological breakthrough or a disruptive technology. But most often, developing a differentiated, superior product begins with a thorough understand of the customers’ and users’ unmet and often unarticulated needs through in-the-field voice-of-customer (VoC) work. That is, the customer or user must be an integral part of the entire development process from scoping, through product definition, development and right to validation and beyond. #2. Front-End Loaded Due diligence in the early days of a new product project pays off! The right up-front homework saves development time and also results in higher success rates. Consistently, high-productivity businesses excel here: they demand and get the right front-end homework done on projects – the right market, technical and business assessments. This homework is not excessive, but is designed to yield just enough of the vital information to make the Go-to-Development decision, and to define the product and project sufficiently to proceed. The right homework is also instrumental to yielding a winning product and project definition. 
#3. Spiral DevelopmentIn traditional linear development, the project team moves into the Development Stage with a locked-in product definition. However, things go wrong, and when it comes time for field trials, everything has changed – and the product is not what the customer wanted. Thus launch is delayed and it’s back to the drawing boards! Note that unstable product specs and project scope creep are two of the main causes of long times to market, significant project delays, and even product failure. By contrast, as shown in Exhibit 3, smart development teams practice spiral development: These fast-paced teams remove unnecessary re-work by building a series of iterative steps or “spirals” – build-test-feedback-and-revise/ rebuild – into their project. They develop a first version of the product, perhaps a virtual prototype, which they test with the customer, seeking immediate and early feedback; which they then use to produce the next and more complete version, a working model or protocept… and so on through to Launch. #4. A Holistic Approach Driven by Effective Cross-Functional Teams Product innovation is very much a business function (not just an R&D activity) and team-based endeavour. And the core team – an effective cross-functional project team – is the number one key to cycle time reduction and to getting to market on time. Many firms miss the keys to fostering a team culture, however. In high-productivity businesses, effective cross-functional teams are comprised of members from different parts of the organization; and team members are clearly assigned with release time from normal work. Further, each team member has an equal stake in and commitment to the project, while the team members remain on the project until the end, not just for one phase of the project. The team is led by a carefully-selected leader, driving the project in an entrepreneurial fashion, and who also remains leader until the end. Team accountability – results measured against success criteria – is also key to effective team performance. And senior management provides strong support and commitment to the project team. #5. Metrics, Accountability and Continuous Improvement You can’t manage what you don’t measure. Yet only 30 percent of businesses measure the outcomes of new product projects once launched. Further, the post-launch review is one of the worst rated activities in the entire innovation process, and is executed proficiently by only 22.1 percent of businesses. Top performing businesses put metrics in place: They measure how well projects perform by building a post-launch review into their idea-to-launch process. Here, project teams are held accountable for delivering promised results against these metrics. When gaps are identified, problem-solving sessions are held that focus on root causes, and corrective actions designed to stop future recurrence are identified. Thus, learning and continuous improvement become an integral part of the development process. #6. Focus & Effective Portfolio Management Most business’s have too many development projects underway, and often the wrong ones. That is, they fail to focus, spreading their resources too thinly across too many initiatives; and their project choices result in the wrong mix and balance of development projects in the portfolio. Making the right Go/Kill decisions and effectively allocating development resources is fundamental to maximizing productivity in NPD. Recognize that every development project is an investment, and like stock market investments, these development investments must be carefully scrutinized and focused through an effective portfolio management system. This is achieved through a funnelling approach: Start with many solid new product concepts, and successively remove the weak ones via a series of tough gates with teeth. The result is fewer projects, but higher value projects to the company, and a significant improvement in productivity. 
#7. The NexGen Stage-Gate® Process – a flexible, adaptable, scalable, efficient and open NPD processMany businesses’ idea-to-launch processes contain much bureaucracy, time wasters and make-work activities. Even worse, they are rigid procedures, demanding too much paperwork, forms, meetings and committees, regardless of the project. By contrast, smart companies have streamlined their NPD processes, removing waste and inefficiency at every opportunity. Stage-Gate systems in high-productivity businesses are also flexible and scalable, designed to suit the needs and risk levels of different types of projects. (For example, use the full five stage process for large high-risk product developments, but an abbreviated three-stage and even two-stage process for smaller, well-defined ones – see Exhibit 4). And their processes are adaptable, dynamic and open – they adapt to the changing situation and fluid circumstances of the project as the project evolves, and embrace the concept of “open innovation”. Moving Forward If you’re not satisfied with the results of your business’s product innovation efforts, now is the time to take a hard look at the methods and systems that you use to conceive, develop and launch new products. And when you do overhaul your “innovation system”, be sure to base your new model on solid principles. The list of seven principles in Exhibit 2, derived from practices in top performing companies, is a good place to start. |
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