Assuming Doesn’t Feed the Bulldog!

InventVermont Meeting June 9, 2005 Montpelier, VT

New Product Categories
New Product Line 20%

30% 25% 20% 15% 10% 5% 0% High Medium Low
Repositioning 7% New-to-world 10% Existing Line Addition 26% Existing Prod Improvements 26%

Newness to Company
InventVermont - June 9, 2005

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Cost Reductions 11%

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June 9. 2005 .New Product Mix All Industry 7% 11% 10% Industrial Product Firms (moderate-to-high technology) 2%1% 20% 20% 20% 26% 20% New to World 26% New Line Additions Improvements Cost Reductions Repositionings 38% InventVermont .

June 9. 2005 .Product Development Challenges • • • • • Technology making more possible Life cycles cut by 400% Customer expectations increasing Global competition strengthening Building company “worth” InventVermont .

June 9.Majority of Ideas Fail 7 Product Ideas 4 Developed 1. 2005 .5 Launched 1 Succeeds 14% Success Rate InventVermont .

June 9.Significant Resources Wasted 25% New Product Expenditures 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Exploration & Screening 4% 11% Development Testing Business Analysis 2% 3% 18. 2005 .5% 11% 6% Commercialization 18% 7% Successful (54%) Unsuccessful (46%) InventVermont .5% 18.

9% of projects featured all 13 activities Initial Screening Prelim Market Assessment Prelim Technical Assessment Detailed Market Study Business/Financial Analysis Product Development In-House Product Tests Customer Tests of Products Test Market/Trial Sell Trial/Pilot Production Pre-Launch Business Analysis Production Start-Up Market Launch 92% 77% 85% 25% 63% 89% 89% 66% 23% 49% 35% 56% 68% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Projects Where Activity is Undertaken InventVermont .June 9. 2005 .Key Activity Frequency Only 1.

June 9.Key Activity Dollars Initial Screening Prelim Market Assessment Prelim Technical Assessment Detailed Market Study Business/Financial Analysis Product Development In-House Product Tests Customer Tests of Products Test Market/Trial Sell Trial/Pilot Production Pre-Launch Business Analysis Production Start-Up Market Launch 1% 1% 3% 1% 1% 29% 7% 3% 1% 6% 1% 20% 27% 0% 5% 10% 15% 20% 25% 30% 35% Percent of Total Cost of Project InventVermont . 2005 .

2005 .Key Activity Time Initial Screening Prelim Market Assessment Prelim Technical Assessment Detailed Market Study Business/Financial Analysis Product Development In-House Product Tests Customer Tests of Products Test Market/Trial Sell Trial/Pilot Production Pre-Launch Business Analysis Production Start-Up Market Launch 32 26 61 16 14 419 98 36 9 79 5 49 62 0 50 100 150 200 250 300 350 400 450 Average Person-Days of Work per Task InventVermont .June 9.

Top Reasons for Failures Inadequate Market Analysis Product Problems or Defects Lack of Effective Marketing Effort Higher Costs than Anticipated Competitive Strength or Reaction Poor Timing of Introduction Technical or Production Problems All Other Causes 24% 16% 14% 10% 9% 8% 6% 13% 5% 10% 15% 20% 25% 30% 0% Percentage of Companies Citing InventVermont .June 9. 2005 .

25%) 49% of profits (versus 22%) 97% return on investment (median ≥ 33%) 47% market share (median >35%) InventVermont .4 ideas) 49% of sales (v.June 9.5 ideas to achieve “winner” (v. 8.Best Companies Do Better • • • • • • 22% of companies surveyed 3. 2005 .

June 9.Managing Risk-Reward Risk/Uncertainty Risk/Uncertainty Expenditures InventVermont . 2005 Expenditures .

Stage-Gate™ System Initial Screen Second Screen Decision on Business Case Postdevelopment Review Precommercialization Business Analysis Postimplementation Review Idea Gate 1 Stage 1 Gate 2 Stage 2 Gate 3 Stage 3 Gate 4 Stage 4 Gate 5 Stage 5 PIR Preliminary Investigation Detailed Investigation (Build Business Case) Development Testing & Validation Full Production & Market Launch • • • • Robert Cooper – “Winning at New Products” Incremental (staged) commitment process Successfully implemented in many companies Scales from small to large organizations InventVermont . 2005 .June 9.

Stage Framework Stage 1 Market Product Business Preliminary Market Assessment Technical Feasibility Stage 2 Market Requirement Document Product Requirement Document Revenue & Financial Plans Stage 3 Formalized Marketing Plan Stage 4 Initiate Marketing Plan Stage 5 Fully Execute Marketing Plan Prototype Development ProductionReady Product Production & Launch Strategic Alignment Refine Financials Refine Financials Manage Product (P&L) InventVermont .June 9. 2005 .

June 9.Keys to Effective Gates • • • • • Seasoned gatekeepers Cross-functional representation Control over required resources Constructively critical discussions Portfolio and other tools InventVermont . 2005 .

June 9. core competencies Market – segments. 2005 . financials InventVermont . feasibility Business – capital requirements. customers. competitors Product – unique advantages.High-Level Criteria Company – strategic fit.

Company Criteria • Strategically aligns with defined objectives • Leverages: – Organizational capabilities. 2005 .June 9. structure – Technical know-how – Operational (supply channel) infrastructure • Limited-to-no new competencies InventVermont .

2005 .June 9. growing target market(s) Confirmed market requirements First-to-market advantage Defendable competitive position Clear channels to customers InventVermont .Market Criteria • • • • • Sizable.

Porter’s Industry Structure Potential Entrants Barriers Suppliers Manufacturing Direct Competition Differentiators Channels Markets Substitutes InventVermont .June 9. 2005 .

increased demand Mature Increased competition drives channel incentives and turnover Decline Consolidation of vendors and channels begins. execute exit strategy Evaluate licensing to further expansion and/or exit business InventVermont .June 9. 2005 .Sales Channels Introduction Limit channels (direct sales only) until product acceptance Growth Scale channels with customer acceptance.

June 9.Marketing Communications Objectives Customer • Rapidly build awareness • Drive request for information • TBD Messages • Must-have features • Lowest overall cost solution • TBD Programs • Direct mail • Tradeshows • Advertising • TBD Budget $$$$ Direct Influencers Indirect Influencers Sales Channels $$ $ $ • TBD • TBD • TBD • TBD • TBD • TBD InventVermont . 2005 .

Product & Technical Criteria • • • • Unique product capabilities Technical feasibility Clear and compelling value Sustainable leadership position InventVermont .June 9. 2005 .

June 9.Business & Financial Criteria • Revenue & profit contributions • Operating expenses & capital requirements • Financial metrics: – Net present value – Internal rate of return – Payback period • Sensitivity analysis InventVermont . 2005 .

June 9. 2005 .Built-In Success Factors • • • • • • • Emphasizes homework Multidisciplinary and cross-functional Parallel processing No single department ownership Strong market orientation Weed out weak early Pre-development product definition InventVermont .

2005 .June 9.The Experience Effect 120 Relative Development Cost 100 80 60 40 20 0 1 2 4 8 16 32 64 128 Number of New Product Introductions Every 2X introductions leads to 29% cost reduction InventVermont .

Thank You! .

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