Many senior managers including presidents and owners of companies large and small make a serious mistake. They assume that new product development (NPD) can be managed identical to every other business process. The implications can be disastrous for a company’s ability to innovate.
New product development consists of multiple cross-functional sub-processes, each with work, information and decision flow. Based on the business and product line strategy, NPD processes help the business collect and prioritize ideas for new products, drive decisions on what products to develop given limited resources, assure full definition of new products and support successful execution of individual projects. The result should be a steady stream of new products that drive revenue and earnings growth by meeting customer needs better than competitive alternatives. Customers may be able to articulate their needs or they may be latent needs waiting for a company to discover and capitalize on. In today’s competitive, fast-moving, global market, no company can afford not to innovate.
The problem is today’s dominate management model (1) focuses on business efficiency. “Lean” is touted as a way to save every organization. You can, however, “lean” yourself out of business, and the mentality has begun to permeate management of NPD processes. There are of course opportunities to cut fat and become more efficient but rather than focusing on increasing efficiency in NPD, maybe a better question is how to better meet customer needs that can drive improved margins.
In NPD, my preference is to think in terms of “effectiveness”, not efficiency. Let me give an example. Most senior managers will judge a new product project as “successful” if it 1) meets the original definition, 2) comes to market on-time and 3) meets the development budget. But what’s missing? Not considered is whether the new product actually meets a customer need and whether post-launch it meets financial targets. You might have introduced a new product on time, exactly as defined at the outset and within budget. The team is heralded and rewarded. But quickly the business realizes several months after launch that it’s not what customers want and will not meet financial targets. Alternatively, a project might be 2 years late and way over budget. The team is penalized and maybe some even lose their jobs. But a year after introduction the product is generating 50% of the company’s revenues and a majority of profits. So which project was more successful? By focusing only on efficiency, you will never truly be innovative.
NPD is unlike any other business process. In every other process, whether in sales, manufacturing, or finance, it is true that you can drive those processes to maximum efficiency. In essence if the process is repetitive then efficiency is the name of the game. NPD is not that type of process. Every project is different. Some projects are incremental using an existing technology for a line extension. Others are higher risk and involve technology or serve markets new to the organization. Some may be radical, new-to-the world products. Others require an entirely new business model. How an incremental project is managed is entirely different than a new-to-the-world innovation. The same goes for managing the R&D staff, typically those who hold the key tacit knowledge. If you are a senior manager with a background in sales or finance, and think you can manage and motivate an R&D organization the same way as the sales force, you are wrong.
In summary, if you are a senior manager responsible for the financial performance you must think about new product development in terms of effectiveness, not efficiency. If you focus strictly on efficiency you will miss opportunities to be innovative and create new products and services that drive new sources of revenue. A singular focus on efficiency will over time force the organization to rely on existing knowledge and incremental development (2). You need a balanced approach. While existing knowledge is crucial to financial success today, long-term growth in revenue and earnings is predicated on generating new knowledge.
(1) Refer to this article on issues with the existing management model and how it is changing: What’s the Next Big Thing in Innovation Management?
(2) See this article on how whether companies are more risk averse today: Are Companies Becoming More Risk Averse in New Product Development (NPD) Decisions?
About the Author
Jeff Groh is President of New Product Visions located in Flat Rock, NC. New Product Visions helps small to mid-sized companies improve their innovation management practices. We focus on processes, organization, management engagement and culture. Services include consulting, Innovation Coach™ Workshops and software enablers. Mr. Groh spent 30+ years in industry in a variety of management roles in sales, manufacturing and new product development prior to starting New Product Visions. He is particular passionate about the role of senior management and the culture that supports innovation success. Mr. Groh can be contacted at firstname.lastname@example.org or (302)-367-3160.