Bang for your bucks
You've seen the statistics: 72% of every £1 spent on new product development (NPD) goes into products that never make it to market or are unsuccessful when they do, and nine out of 10 new food and drink products fail when they hit the market. I could go on; but what it basically amounts to is a lot of bucks, and very little bang.
So what's going on? The answer is a lot of great NPD work (think St Ivel Advance, Vie shots and Heinz Mean Beanz); but also a lot of time wasting, silly mistakes and money down the toilet, says Mike Connolly, UK director of sales at NPD software firm Sopheon, which works with clients including Cadbury and Campina.
"Everyone approaches NPD differently," says Connolly. "But most companies are juggling hundreds of spreadsheets and their systems are woefully inadequate."
More disturbing than the pitiful state of the systems underpinning one of the most important functions of the business, however, is how few companies have the systems enabling bosses to get a 'dashboard view' of what is happening on the NPD front, he says. "You can talk to chief executives of companies that are spending enormous sums of money on NPD and they have absolutely no idea where it is going."
Because companies do not regularly evaluate their portfolio and kill bad projects, cash that should be devoted to truly innovative ideas gets diverted into 'me-too' products, line extensions and modifications, he adds. Resources are in turn spread too thinly and spending doesn't reflect the strategic priorities of the business.
A decent NPD process, ideally underpinned by a good IT system, manages risk by controlling the cost and the time taken to develop new products, says NPD guru Dr Bob Cooper, who developed the stage gate concept now increasingly used in the industry.
Apart from anything else, he says, stage gate ensures that no critical steps are left out. If this sounds like a trivial point, he refers to the case of a leading drinks firm, which famously forgot to register the trade name of a major new product, simply because there was no formal system in place that would pick up such an embarrassing blunder.
Another major drinks firm also famously let itself down by failing to apply sufficient rigour to every step of the NPD process, he recalls. "They had this great new beer product aimed at women. The consumer taste testing had gone really well and everything looked encouraging. But it bombed. Why? It had a ridiculous name, something in Celtic dreamed up by one of the NPD people. They had done their homework on everything else, but they hadn't test marketed the name, and it was a disaster."
The problem with breakthrough products - the ones that will meet customers' unmet and often unarticulated needs three, four or even five years down the line - is that they take time and money, two things most companies are reluctant to part with, says Jonathan McIntyre, research and development boss at ingredients firm The Solae Company.
"True innovation is inherently risky. It involves reaching beyond the boundaries of what your customers are able to tell you and anticipating what they are going to need. A principle reason we adopted the Sopheon system was that it brings consistent rigour to our examination of the business risks associated with each project entering our product development pipeline."
Heinz, which wants to generate 15% of its growth from new products (compared to the current 2-5%), recently set up new management structures to help facilitate a more strategic approach to product development. Likewise, resources are only allocated to the most promising projects across multiple departments, rather than spread evenly across each one, says European marketing and innovation director Jane Edwards. "We've always used stage gate, but we have really tightened up the front end, which was too fuzzy, to make sure that projects are properly rooted in consumer insight."
Coca-Cola, which is currently rolling out a new global product lifecycle management system called Clarity, has probably spread NPD resources too thinly in the past, says director of commercialisation Paul Stanford. "There is always a danger that you fragment resources instead of focusing on a few big bets that fit within the key growth paths you've defined as market opportunities." However, all systems are open to abuse, he says. "It's tempting to exaggerate [predicted] volumes."
Pam Hume, head of NPD at McCain, is equally frank. "You can bump up the volumes and suddenly make something look a lot more attractive if your scoring system is largely based on financial criteria. We probably have too many projects floating around, which means the best ones don't get the attention they deserve. However, we're rolling out a global system over the next 18 months that will address these issues."
Young's Bluecrest is also developing a new system to help it get more bang for its NPD bucks, says NPD controller Guy Miller. "We've been very successful on NPD, but our processes are paper-based and inefficient, which is not sustainable when you are creating up to 300 new lines a year. What we need is real-time data held in one place so that we can move quickly and managers can make more informed decisions."
Consolidated, up-to-date information is the cornerstone of any successful product lifecycle management system, says SAP value engineer Lionel Schwirtz. "Most large companies do use stage gate principles. The problem is that data is is not properly shared and systems are not integrated. Basically, they have a communication problem. Get it right and you could speed time to market by 20-30% and pick the right products!"
Given the lousy returns that many companies get on NPD, however, why aren't more of them investing in systems that are proven to improve their returns and speed time to market?
Aside from the understandable concern that approaching NPD more systematically inevitably means an expensive new IT system, one of the key factors delaying progress is a feeling that building a process around innovation could stifle creativity, says Connolly at Sopheon. "Your gut isn't always the best judge of what will succeed in the marketplace, and pet projects are more often than not big white elephants that should be eliminated much, much earlier.
"If you don't measure projects against objective criteria, the ones that get picked will be the ones that shout the loudest."
Another barrier is suspicion that automated NPD systems will merely create more tedious bureaucracy for already overburdened staff, says product development and lifecycle management software firm RedSky IT. This is somewhat ironic, given that the whole point of these systems is to reduce bureaucracy, says the company, which works with all of the leading UK food retailers plus a clutch of manufacturers from Premier Foods to Greencore.
"With our system", says RedSky sales and marketing director Paul Woodward, "you are automatically updating the central NPD system just by doing your day job - whether it's recipe development, cost and suitability analysis or whatever. One of the most compelling aspects of the system is how much time it saves."
Indeed, research shows that a shocking percentage of time spent on NPD (up to 60%) is invested in chasing someone in order to get the answer, 'yes, I've done that', claims Woodward. Still more time is wasted duplicating effort by manually inputting data from one system to another, which is error prone and time consuming, he adds. "Senior managers don't realise how inefficient the process is because people don't quantify how much time is spent on tasks that add absolutely no value."
If a major manufacturer can speed up time to market by four to six weeks for a significant launch, it could generate millions in extra revenue through having products on shelf for those additional weeks, he points out.
"There is also raw materials, the price of which can fluctuate wildly over a period of weeks. If you bring the whole process forward, the economics of your proposition could look very different."
Funnily enough, he says, one of the biggest issues raised by implementing RedSky systems has been cultural. "If everyone knows who is supposed to be doing what when, it makes them accountable. Emails get sent out and you suddenly see where the bottlenecks are and who is responsible for delays.
"But this is not necessarily a bad thing. It can often highlight that someone's workload is too high, for example."
At Oracle, a leading supplier of enterprise resource planning (ERP) and product lifecycle management (PLM) systems, this electronic kick up the backside is known internally as 'auto-nag', says business development manager Charles Lennard.
"Communication is key in NPD," he adds, "because it involves almost every part of the business at one point or another, and typically a lot of third parties such as packaging suppliers and designers as well. Keeping everyone in the loop and able to access the same information is absolutely critical."
Equally important is using the system to go back and reassess the market opportunity for projects - especially those responding to possibly transient consumer trends, he says.
"Take Atkins: all these food and drink manufacturers were doggedly developing their low-carb products, and by the time they got to market, there wasn't a market." FM
STAGE GATE PROCESS
A stage gate process is a conceptual and operational road map for moving a new product from idea to launch by dividing the effort into time-sequenced stages separated by decision gates.
The stages are where the action occurs. The players on the project team undertake key tasks to gather information needed to advance the project to the next gate or decision point. Stages are cross-functional (there is no R&D or marketing stage) and each activity is undertaken in parallel to enhance speed to market. Each stage costs more than the preceding one, so that the process is based on incremental commitments.
As uncertainties decrease, expenditures are allowed to rise and risk is managed. Gates provide the funnels where mediocre projects are culled out and resources are allocated to the best projects
- Stage one - Scoping: a quick assessment of a product's merits and market prospects
- Stage two - Building the business case
- Stage three - Development: business case translated into concrete deliverables.
- Stage four - Testing and validation
- Stage five - Launch: commercialisation
