Key Factors for Product Innovation Success

By Allan Anderson

Key Factors for Product Innovation Success

By Allan Anderson

Allan Anderson

Product innovation is often described as the “l(fā)ife blood” of a company. Just like blood that flows through the human body, product innovation provides sustenance and the basis for growth. But product innovation is very challenging for most companies. The costs involved and the risk of failure are high. Research indicates new product failure rates of between 60%-80% and that up to 50% of product innovation resources are allocated to new products that will fail in the market place. Still, the best companies return in excess of 30% of current year’s revenue from products that have been developed in the past 5 years. How do they achieve this success and avoid the high product failure rate experienced by many companies? What are the key factors for success?

Over many years, the Product Development and Management Association (PDMA) has researched the factors that contribute to product innovation success. It has identified what differentiates the Best companies from the Rest of companies with regards their success rate and returns from product innovation. Following are some of the key success factors:

Innovation culture. The Best companies develop and promote a culture of innovation. This culture is led from the most senior executives of the company. Specific features of an innovation culture are:

? Failure is understood: management understands that occasional failures are to be expected in pushing the boundaries of innovation

? Risk taking is valued:the support of risk-taking encourages people to experiment and try new things

?Effective communication both internally and externally

?Consideration of innovation attitudes in recruitment: selecting people with an understanding of, and a drive for innovation

New product strategy. The Best companies have a welldefined new products strategy that is clearly linked to the overall company’s vision, mission and goals. Specific features of a good new products strategy are:

?Focus on being “first to market”: although a higher risk strategy, companies that are first to market generally gain higher market shares and profitability

?Focus on sustainable product design: social and environmental sustainability are increasingly being value by consumers

?A strong emphasis on value capture from intellectual property: a strategic approach to intellectual property management adds significantly to company value

?Application of a “geocentric” business model (operations in multiple countries): maximizes growth potential andspreads risk

Portfolio management. The Best companies apply well defined practices for the selection and on-going management of new and existing products. Specifically, they:

?Have a well-defined set of criteria, linked to overall company strategy, for project selection: ensures optimal resource utilization and product innovation focus

?Use portfolio management tools to select the right projects: the right tools ensure consistency and objectivity in project selection

? Ensure an appropriate balance of projects consistent with the company’s strategic direction and resource availability.

New products process. The Best companies have a welldefined process for product innovation. This includes:

?The use of a formal cross-functional process: a process that is well understood, accepted and applied across all functions of the company

?Flexibility of the process across different product categories; use different processes or modifications of a process for different products, for example breakthrough innovations compared to line extensions

? Senior management support for, and involvement in the process: not just signing off on processes but actually being involved

?Continuous re-design of the process based on learning and benchmarking from others

Front end of innovation. This includes initial opportunity identification, evaluation and early stage business analysis.This is the relatively inexpensive part of the product innovation process. As the process proceeds to design for manufacture, the costs, and the associate risk of failure, increase significantly.

The Best companies put a significant emphasis on the front end of product innovation to minimize the risks and cost of failure later in the project:

?Put considerable effort into understanding customer needs

?Use formal process for opportunity assessment

?Use “open innovation” to gather and develop new ideas

Development tools. The Best companies use a range of tools to enable decision making throughout the product innovation process:

? Market research to gather and confirm stakeholder needs

? Engineering and design tools such as rapid prototyping,failure mode analysis, six-sigma, TRIZ

?Project planning tools such as GANTT charts, PERT, resource allocation

Performance metrics. The Best companies apply performance metrics to both assess the outputs from product innovation and as a learning tool for continuous improvement. They use:

Output focused metrics such as the “vitality index” which measures the percentage of current year’s revenue generated from product developed over the past x years (x, the number of years will vary according to the product category, for long life cycle products x may be 5 years, whereas for short life cycle products x may be one or two years).

Process focused metrics such as project milestones on time or break-even time to market.

Companies that address all, or some of these key factors will improve their product innovation success. But the very best companies are those that have a “l(fā)earning culture” focused on product innovation. These are companies that constantly up-skill their staff in product innovation practices, that learn from the latest research and that benchmark themselves against the practices of other high-performing companies.They seek to learn and, more importantly, they focus on continuous improvement.

Over the past 30 years the PDMA presented it Outstanding Corporate Innovator Award (OCI) to companies that have demonstrated great leadership and success through innovation. Most of the winning companies have focused on specific aspects of product innovation that they have defined as particularly important to their on-going success and growth. For example, the 2016 winner, Xerox demonstrated the application of its business and innovation strategies to disrupt its industry through moving from office equipment to the supply of a “full business process model. In the words of Xerox’s Innovation Director “… were looking for partners rather than vendors,partners who could simplify their operations and streamline their processes leaving them more time to concentrate on their distinctive competencies, their “real business.” Another OCI award winner, Starbucks, showed a specific commitment to“voice of the customer” research and a geocentric business model as its expands its global market. And yet another winner, Baker Hughes,an industrial service company, and one of the world's largest oil field services companies, demonstrated the application of a standard set of product innovation practices across all of its business units. This enabled more effective communication across the corporation and greater clarity of product innovation goals for each business unit and their contribution to overall company growth.

Yes, product innovation is challenging. It is risky. And for many companies it leads to failure. But companies who ignore product innovation will not survive and grow. Product innovation does not have to be risky. Just learn from those companies that generated significant company growth from product innovation, and apply the key factors for product innovation success. (the author is President of the Product Development and Management Association)

「Executive Editor: Zhang Xiao」