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BA458

Innova-on & New Product


Development
Evan Smouse, PhD
Oregon State University
College of Business
Winter 2013

BA 458 Class 2 Agenda

Strategic Elements of Product Development


New Products Process
Form Teams
Team Exercise

DeniLons
Entrepreneur someone who organizes a
business venture and assumes the risk for it
wordnetweb.princeton.edu/perl/webwn

Entrepreneur one who organizes, manages,


and assumes the risks of a business or
enterprise
hTp://www.merriam-webster.com/dicLonary/entrepreneurship

DeniLons
Entrepreneurship the act and art of being an
entrepreneur or one who undertakes innovaLons or
introducing new things, nance and business acumen in an
eort to transform innovaLons into economic goods
This may result in new organizaLons or may be part of
revitalizing mature organizaLons in response to a perceived
opportunity.
The most obvious form of entrepreneurship is that of
starLng new businesses; however, in recent years, the term
has been extended to include social and poliLcal forms of
entrepreneurial acLvity.

hTp://en.wikipedia.org/wiki/Entrepreneurship

The Entrepreneurial Process


Involves all of the elements of business
Product development
Market development
Building a team
Finance and investment
Legal

IdenLfy an
Opportunity

Develop a
Concept

Determine
Resources
Required

Acquire the
Necessary
Resources

Implement &
Manage

Timmons Model of Entrepreneurship


Business Plans That Work: A Guide For Small Business, by Jery A. Timmons,
Andrew Zacharakis, Stephen Spinelli, McGraw Hill, 2004

Entrepreneurship
Starts with an entrepreneur (founder) who sees
an opportunity then assembles a team, gathers
resources, creates a plan and launches a venture

Entrepreneurship & Product


Development
Starts with an entrepreneur (founder) who sees
an opportunity then assembles a team, gathers
resources, creates a plan and launches a venture

Product development is a fundamental part of
this, but product development is also a
fundamental part of any business new or old.

New Products not so easy


Urban myth: 80% of new products fail.
Research shows closer to 40% failure rate overall
varies by industry but sLll points to diculty in
gejng it right
Percent of Products that Fail
90
90
80
70
60
50
40
30
20
10
0

40

10

Sometimes Quoted
in Press

Research Reports

Sometimes Claimed

New Products
For every 100 ideas,
Fewer than 70 make it though iniLal screening
Fewer than 50 pass concept evaluaLon and tesLng
A liTle more than 30 make it through development
About 30 make it through tesLng
About 25 are commercialized
15 of these 25 (about 60%) are successful.
Success rate is lower in consumer goods (51%) and as high
as 65% in healthcare.

Source: ComparaLve Performance Assessment Study, PDMA, 2003.

New Products
For the top new product rms, about 49% of
company sales and prots come from
products that were introduced in the last ve
years.
For other rms, this average is about 21%.
Lesson: rms that maintain their commitment
to new products are rewarded with sales and
prots!

GlobalizaLon & New Products


Top rms deploy over 50% of their R&D spending in
foreign countries.
Global product teams allow rms to leverage their new
product skills across their subsidiaries.
Design, R&D, and manufacturing may occur in dierent
subsidiaries around the world.
DiculLes: coordinaLng the eorts across mulLple
countries to launch a successful new product.
Having a global innova*on culture being aware of
dierences in business and cultural environments and
being open to global markets is important to success.

What is a New Product?


New-to-the-world (really-new) products (10% of new
products): InvenLons that create a whole new market.
Ex.: Polaroid camera, Sony Walkman, Palm Pilot,
Rollerblade skates, P&G Febreze and Dryel.
New-to-the-rm products (20%): Products that take a
rm into a category new to it. Ex.: P&G brand shampoo
or coee, Hallmark gip items, AT&T Universal credit
card, Canon laser printer.
Addi*ons to exis*ng product lines (26%): Line
extensions and ankers that esh out the product line
in current markets. Ex.: Tide Liquid, Bud Light, Apples
iMac, HP LaserJet 7P.

What is a New Product?


Improvements and revisions to exis*ng products (26%):
Current products made beTer. Ex.: P&Gs conLnuing
improvements to Tide detergent, Ivory soap.
Reposi*onings (7%): Products that are retargeted for a
new use or applicaLon. Also includes retargeLng to
new users or new target markets. Ex.: Arm & Hammer
baking soda sold as a refrigerator deodorant; aspirin
reposiLoned as a safeguard against heart aTacks;
Marlboro retargeted as a mans cigareTe.
Cost reduc*ons (11%): New products that provide the
customer similar performance but at a lower cost.
May be more of a new product in terms of design or
producLon.

Strategic Elements of Product


Development
The New Products Process
A phased process that takes the new product idea through
concept development, evaluaLon, development, launch,
and post-launch.
The Product Innova*on Charter
A strategy for new products that ensures that the team
develops products in line with rm objecLves and
marketplace opportuniLes.
The Product PorKolio
A way to assess which new products would be the best
ones to add to the exisLng line, given nancial and
strategic objecLves.

New Product Development is All About Teams


The new products team is a cross-func*onal team
with personnel from markeLng, R&D,
engineering, manufacturing, producLon, design,
and other areas.
All members of the team make a contribuLon to
the new products process and the success of the
team depends on how well they interact.
Try to avoid narrow funcLonal viewpoints and
stereotypes.

The Basic New Product Development


Process
Phase 1: Opportunity Identification/Selection
Phase 2: Concept Generation
Phase 3: Concept/Project Evaluation
Phase 4: Development
Phase 5: Launch

New Products Process


Between the phases of the process are evaluaLon
tasks or decision points, where hard Go/No Go
decisions are taken.
There is pressure to accelerate Lme to market (speed
the product through this process), and phase
overlapping and cross-funcLonal teams are used to
accomplish this.
Fuzzy gates are commonly used: this is a condiLonal
Go so as not to slow down the process in analysis.
SLll, fuzzy gates must have teeth! A potenLal problem
is that the result should be No Go but the project goes
through anyway.
Another problem: hollow gates (the Go decision is
made but no nancial support is provided).

New Products Process Reality


Most rms use a exible interpretaLon of the
basic process that allows overlapping phases
and fuzzy gates.
This exibility is parLcularly important in the
development of new-to-the-world,
breakthrough products.

NPD Process Spiral Model

Boehm B, "A Spiral Model of Sopware Development and Enhancement", ACM


SIGSOFT Sopware Engineering Notes", "ACM", 11(4):14-24, August 1986

The New Products Process Interacts With the


Other Strategic Elements
Without the strategic direcLon provided by the
Product InnovaLon Charter, the rms aTempts at
product development will be unfocused. The PIC
helps the team idenLfy opportuniLes and focus
eorts.
Product Porvolio consideraLons help the rm decide
whether a new product opportunity adds nancially
and strategically to the current line and avoids
spreading scarce nancial and human resources too
thin.
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Proctor & Gamble Case


Leading US consumer goods company
(detergent, food, other packaged goods)
Entered cosmeLcs business in 1989 by
acquiring Cover Girl and Clarion added Max
Factor in 1991
Established new strategic business unit (SBU)
for cosmeLcs and tried to develop and launch
new products using methods that had worked
in P&G SBUs

Proctor & Gamble Case


Failure to develop clear product development
strategy and process led to discussions about
divesLng or closing CosmeLcs SBU by mid-1990s
Too many customer segments and target
markets, no coherent processes, supply chain
problems, tried to create products for the whole
body
Senior management understood problems and
need for a turnaround

P&G CosmeLcs and the PIC


SituaLon Assessment:
Underserved consumer market that wanted
quality facial product such as cleansers, eye
products, etc.
Supply chain was uncoordinated as producLon
and shipments were not Led to demand;
market forecasts were not driving shipping
schedules.
PIC recommended a strategic focus on products
for the face other opportuniLes would not be
pursued.

P&G CosmeLcs and the New Products


Process
P&G CosmeLcs implemented a phased
product development similar to the one here
Project teams established early in process
Consumer research done early and used in the
process (the voice of the customer)
Tough evaluaLon steps were carefully
implemented as new products were
compared to best pracLces and benchmarks

P&G CosmeLcs and the New Product


Porvolio
P&G CosmeLcs systemaLcally added new
products such that maximum buzz and
excitement was created in the marketplace.
If several eye makeup products were already
on the market, they would not immediately
launch another. Management called this an
iniLaLve rhythm for product launch.

Proctor & Gamble Case


Senior SBU and corporate management were
commiTed to the turnaround
IniLaLve managers hired to oversee changes
Result was textbook example of gejng it
right used all three strategic elements of
product development with appropriate
support and changed the business into a
leader in its industry

EvaluaLon Tasks in the New Products


Process
Opportunity Identification/
Selection

Direction;
Where should we look?

Concept Generation

Initial Review:
Is the idea worth screening?

Concept/Project Evaluation

Full Screen:
Should we try to develop it?

Development

Progress Reports:
Have we developed it?

Launch

Market Testing:
Should we market it?
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The EvoluLon from Concept to New


Product

Corresponding New Products Process Phases:


Opp. Identification Concept Generation Project Evaluation Development Launch

Market Opportunity Analysis Project


Team-based course project
Work on a new product concept based on a real
technology/real companys situaLon
Generate/describe concept, conduct market
research, analyze market segmentaLon, evaluate
market potenLal, and pitch the idea for funding
Two checkpoints
Project Plan due Wednesday, 6 Feb (in 4 weeks)
Final PresentaLon/Report due week of 4 March

Homework
Course Packet Chapter 3 (Opportunity
IdenLcaLon and SelecLon)
Prepare Case: Microsop Windows 95 and
Windows Vista (pp. 77-78 in Course Packet)