Benchmarking best NPD practices--III: driving new-product projects to market success is the...

Success in new product development depends on the tactics that project teams employ to drive new product projects from the idea stage through to launch. These tactics are the focus of this final article of our three-part report on the results of a benchmarking study of NPD practices in 105 U.S.

Part I reported NPD performance results of these businesses, and identified a group of Best Performing businesses, which become the "benchmark businesses." A large number of practices were considered, and those that separated the Best from Worst Performing businesses were identified as "best practices" (see RTM. Jan-Feb. 2004, pp. 31-44).

Part II of the series moved to strategic issues, namely the role and elements of a product innovation strategy for the business, resource sufficiency and resource allocation for NPD, and portfolio management (see RTM, May-June 2004, pp. 50-59).

In this final Part III, we focus on tactics and the following issues:

* Quality of execution of key activities from idea generation through to market launch--and their impact on performance.

* Firms' new product processes and their components.

* Best practices built into this NPD process.

* The impact of voice-of-customer research, solid market information, product advantage, and getting the product definition nailed down early.

In order to identify best practices, we probe what distinguishes best performing businesses, and what they do differently from the rest. Best Performers are those businesses that assessed their NPD effort as profitable, meeting objectives, successful versus competitors, time efficient, and opening up new markets, technologies and product categories.

Performance Drivers: Distinguishing Best from Worst

A systematic process

A new product process that guides projects from idea to launch is a well-recognized key to NPD success (1). By "new product process," we mean more than just a flowchart: the term includes all process elements: the stages, stage activities, gates, deliverables, and gate criteria that constitute a well-defined new product process. Having such a process is the strongest practice observed in our sample of businesses:

* 73.7 percent of businesses claim to have such an NPD process, with 66.7 percent indicating that it is well-documented and visible.

* 72.4 percent have defined stages in their NPD process, complete with activities spelled out for each stage.

* 73.8 percent have built gates into their NPD process, and 46.7 percent have well-defined Go/Kill gate criteria.

* 71.0 percent have an explicit menu of deliverables for gates.

* 71.9 percent have designated gatekeepers who make the Go/Kill decisions.

* 52.4 percent of businesses really make use of their NPD process, but only 43.8 percent report that their process is an enabling one.

* 65.2 percent view their NPD process as flexible, adaptable and scalable.

* 41 percent have put a Process Manager in place to oversee the process.

Not surprisingly, all five of the best-practices companies singled out for site visits have in place a well-designed NPD process, such as Stage-Gate[R] (2). An outline of each company's process is provided in the full American Productivity and Quality Center report (3). Each company indicated that a solid, well-defined process with clearly defined activities in each stage and a well-defined decision framework for the gates (decision points) was a critical best practice. For example:

* ExxonMobil Chemical--"This process, a company-wide stage-gate framework, has become institutionalized and is ingrained in the language and culture of the company."

* Bausch & Lomb--"B&L's new product development process, called the product development management process (PDMP), is simple, easy to follow, and built on internal and external successes and best practices. The NPD team has built a process with stages/phases and gates that is practical, but not restrictive."

* Air Products and Chemicals best practice.--"An integrated work process for technology innovation involves integration along two axes: business and technology, and development pipeline."

The results of such processes have been impressive. For example, Bausch & Lomb's management observed, "A contact lens project would typically have taken three years before the PDMP was implemented. Today we are looking at 18 months to two years. The payback is real."

Conclusions

Putting a formal NPD process such as Stage-Gate[R] in place is clearly a strong practice among better performers. But merely having this NPD process does not separate the Best from the Worst Performers, because almost every business has such a process. Rather it is how the process and its" activities and recommended practices are implemented that makes the difference. As we shall see next, in spite of the fact that most businesses do have a formal NPD process, quality of execution of the activities within that process varies considerably between Best and Worst Performers--some companies really do practice their process, others do not!

Quality of execution

How well NPD projects are executed proves to be pivotal to performance. Figure 1 shows the quality-of-execution results for 18 commonly-cited activities in NPD projects. Note that most of the 18 activities strongly differentiate between the Best and Worst Performing businesses: the eight activities with the greatest impact on performance are (in descending order, and based on correlations with a number of performance metrics):

1. Conducting a Post-Launch Review.--The PLR is a weak area overall, with only 22.1 percent of businesses conducting a solid and formal post-launch review.

However, twice as many Best Performing businesses undertake this PLR very well; they review results achieved versus targets and hold the project team accountable; they learn from their mistakes and strive to do the next project better; and they formally terminate the project while Worst Performers do not. This is a standout best practice.

2. Value assessment.--This is the weakest area overall; only 16.5 percent of businesses do a solid assessment of the project's value to the business, while 28.2 percent claim they do this very poorly! (not shown). Best Performers are nine times more likely than Worst Performers to undertake a solid assessment of the value of the product to the business.

3. Test market or trial sell to a limited set of customers.--Again a weak area, especially for Worst Performers.

4. Concept testing (to determine the customer/user reaction to the proposed new product and gauging purchase intent before Development begins).--This is yet another weak area, with only 27 percent of businesses undertaking proficient concept testing, and 32.1 percent of Best Performers doing well here.

5. Idea generation.--Another area needing improvement, with 25 percent of businesses claiming that they do a very poor job here; and only 19 percent are proficient.

6. Customer tests of product under real-life conditions.--A fairly strong activity overall, with 51.5 percent of businesses doing it well. Best Performers excel (70.4 percent are proficient), while Worst Performers fare poorly.

7. Detailed market study/research, or Voice of Customer. One of the weakest areas (only 18.3 percent of businesses fare well here). Best Performers are five times more likely than Worst Performers to handle this activity proficiently.

8. Pre-Launch business analysis.--Best Performers also excel here, with 51.9 percent undertaking a proficient pre-launch analysis, versus 16.0 percent for Worst Performers.

What we witness is that the most important activities in the NPD process--those that separate the Best from the Worst Performers--are also those activities that, on average, are executed most poorly! This is solid evidence of a quality-of-execution crisis in NPD, and that too many businesses are under-emphasizing decisive activities.

Conclusions

First, quality of execution remains an elusive goal, at least for many of the activities that comprise the new product process, and for the overwhelming proportion of businesses that rated themselves low. Note how few businesses proficiently execute many of the key activities in Figure 1! Senior managements must redouble their efforts to demand and promote higher quality of execution in NPD projects from idea through to launch.

Second, the business and marketing activities are far weaker than the technical ones. For example, of the eight exceptionally weak activities in Figures 1A and B, four are marketing, business or customer related. By contrast, the technical work appears much stronger: the three best-rated activities are the technical development of the product, in-house product testing, and production startup. Clearly there are major deficiencies on one side of the field in the new product arena.

Third, activities are generally more poorly executed in the front half of the project. Only 24 percent of businesses, on average, execute well for the front-end of projects (those activities listed in Figure 1A. By contrast, 42.3 percent are proficient for the back-end of the process (activities in Figure 1B). Indeed, all three of the top-rated activities occur in the back half of the project, while five of the eight worst-rated occur in the front half. More time and attention must be devoted to the front-end of NPD projects.

Finally and most important, quality of execution is critical to NPD success, across the entire range of activities from Idea Generation to Post Launch Review. The most decisive activities listed above, however, are among the most poorly executed.

The message is clear: managements must get back to basics in NPD, and begin to emphasize quality-oil execution doing it right the first time. Many of the root causes of poor quality of execution have been highlighted in Parts I and II of this article series: a lack of resources, too many projects, and not enough time or resources to do a quality job. Note also that a disciplined adherence to an NPD process should yield better quality of execution, because best practices, quality-ofexecution standards and prescribed deliverables are laid out in such world-class NPD processes.

Best practices built into the NPD process

Four potential best practices, that are part of the new product process were initially identified in a focus group discussion with those firms sponsoring and overseeing the research. These are areas where the sponsor firms were particularly weak, yet it was hypothesized that they might prove important to success. Thus, they were included in the research, and all four proved to be decisive to performance. These are, in descending order of impact (Figure 2):

1. Emphasis on pre-Development homework--The front end of the NPD process has been identified as the most problematic phase (4). It is here that the new product idea is fleshed out into a clear product definition; that the magnitude of the opportunity is assessed and the business case constructed; and the action plan for the project is mapped. Solid up-front homework is clearly a best practice: 62.1 percent of Best Performers place considerable emphasis on this homework phase, while only 38.5 percent of Worst Performers do.

2. Performance measurement--The use of metrics to gauge how projects perform--success, profitability, NPV, etc.--is a major weakness in NPD processes, with only 30 percent of businesses having such metrics; most firms don't keep score when it comes to new product projects! While 44.8 percent of Best Performers keep score only 15.4 percent of the Worst do.

"People are mobilized by what is measured," claims the VP of R&D at EXFO Engineering, a small but best-practice company. NPD metrics, however, are often not well instituted in many businesses. Not so for the benchmarked best-in-class companies. For example:

* ExxonMobil conducts two post-launch reviews that capture metrics. The first is 1-3 months after launch and includes comparisons of the project cost and timing targets with actual performance. The second occurs 312 months later and captures early commercial results, such as market receptivity and manufacturing and technology performance.

* EXFO Engineering measures time-to-volume, project cost, earned value, and ROI of each completed project.

*. Metrics on how well the NPD process is working--These metrics focus on whether or not the NPD process is working well--whether projects are following the process, effective gates are being held, etc. These metrics are also a major weakness in NPD processes, with 34.6 percent of businesses scoring poorly, and only 26.9 percent using such metrics effectively. Again, Best Performers tend to have such metrics in place three times as often as Worst Performers.

Air Products, for example, has a quarterly metrics review for the process. The metrics highlight projects performing well, projects behind schedule, and potential impacts--a broad view of the process.

4. Tough and demanding Go/No-Go decision points. where projects really do get killed--Some businesses claim to have gates in their NPD processes, but a closer inspection reveals that these are largely "project review points" with no tough decisions, with the result that projects are rarely killed. For 18.1 percent of the businesses, this lack of rigor at the gates is the case; but one-third of businesses have tough, demanding gates where projects really are killed. Although Best Performers fare much better here, with 51.7 percent having tough Go/Kill gates, this is still a relatively weak area.

Conclusions

These best practices, included at the suggestion of sponsor firms, are missing in a great many companies. They are embraced much more by the Best Performers, however. Thus, when implementing or overhauling your new product process, make certain to emulate the Best Performers:

* Put metrics in place to gauge both how successful or profitable your projects are (as part of a Post-Launch Review), and how well your NPD process is working.

* Build in tough Go/Kill decision points or gates, where bad projects really do get killed.

Both of the above are very weak areas, yet strongly separate the Best from Worst Performers.

* Emphasize the up-front or homework phase in your NPD process--solid homework is a common practice among the Best Performers.

Spending on up-front homework

A frequently-asked question is, How much homework is enough? How much should be spent on the predevelopment or homework stages of the project on those activities that occur in its first few phases? The spending breakdown by the sample of businesses provides a guide (Figure 3):

* On average, 12.1 percent of the project's total costs-labor, material, equipment--is spent on the up-front, homework, stages before Development begins.

* But this 12.1 percent is skewed by the 17.9 percent of businesses that spend more than 20 percent of the project cost on the homework stages!

* By contrast, 59 percent spend less than I 0 percent on up-front homework, and one-third spend only 5 percent or less.

Does spending more on the early phases pay off? Note that the average business spends 12.1 percent of the project's total costs on the up-front homework--a fairly limited amount of effort. The Worst Performers spend 10.7 percent (see Figure 3), Best Performers spend 13.4 percent--not a large amount, but 25 percent more than the Worst.

Conclusions

Spending more on up-front homework appears to be a better practice. Still, we are somewhat surprised by:

* How little the amount is overall (12.1 percent of the project cost, on average); and

* The fact that there is only 25 percent difference between the Worst and Best performers,

Yet Best Performers do a much better job on all eight of the up-front homework activities listed in Figure 1A, and in the next section, we see that they do a superior job on voice-of-customer work and get much better market information. The conclusion is that it is the nature and quality of the work they do in the early stages (and not so much the money and time spent) that matters. Most important, Best Performers place far more emphasis on the business/marketing side of projects early on; thus, instead of moving too far ahead on the technical side, they adopt a more balanced approach balancing technical assessment activities with market information activities in the early stages of the project.

A possible solution: Air Products recognizes how important the front-end activities are: thus, it allows a person to work on concept development (20-30 hours of budgeted time) and to be dedicated to only one idea at a time. This ensures that the idea gets the necessary focus, and that the required front-end activities receive attention and effort.

Voice-of-Customer information

Countless studies have cited the need for better voice-of-customer information as one key to NPD success (5). Thus, voice-of-customer studies are proposed as a best practice, and were investigated in this study.

Voice-of-customer and market input is one of the strongest discriminators between the Best and Worst Performing businesses (Figure 4). Thus, given their impact on performance, all five items below must be considered "best practices":

1. Market and buyer-behavior studies are a valuable source of information for planning the market launch.--Such studies are noticeable for their absence, with only 17.3 percent of businesses conducting such market studies. This is the second weakest area among the five in Figure 4, but a very strong best practice and a key discriminator between the Best and Worst Performers.

2. Market research as a tool to help define the product--its requirements, features, functionality of, and high-level specs is a key recommendation of studies of new product success and failure. Again, we witness deficiencies here, with only 11.4 percent of businesses claiming that their product definitions are truly based on market research of the customer or user. Best Performers, however, generally do employ such market research to define the product, and this activity separates the Best from the Worst Performers in a strong way.

3. The customer or user ought to be an integral part of the Development process.--Each iteration of the product should be tested with the customer as it is being developed. "Spiral development" or a series of "build-and-test" iterations is the proposed scheme; for example, rapid prototypes-and-tests. But only 23.8 percent of businesses report that the project team constantly interlaces with key users of a new product during the entire Development stage to validate product acceptance. This is also a strong activity in terms of separating the Best from Worst Performers.

4. Identification of customers' or users' real or unarticulated needs and their problems is considered fundamental to voice-of-customer research, and should be a key input to product design.--Only 33.4 percent of businesses, however, work closely with customers. This is a most important activity, and we rate the identification of customers' real needs via voice-of-customer research as a strong best practice, with Best Performers embracing this method more than the four other approaches in Figure 4.

5. Working with highly innovative users or customers--This is yet another tool employed by voice-of-customer practitioners. The argument is that if one works with average customers, one gets average ideas, but innovative customers are likely to be the source of much more innovative ideas (6). This is a relatively weak practice, with only 33.4 percent of businesses indicating strengths here. Again, this is a critical practice: Best Performers generally use this approach, and it helps to discriminate between the Best and Worst Performers.

Conclusions

This study confirms what many voice-of-customer advocates have been arguing for years: voice-of-customer research and market inputs are vital to a successful NPD effort. Not only is this one of the strongest factors to separate Best from Worst Performers, it is also an area where major deficiencies were identified. Seeking market inputs and building voice-of-customer into your NPD process must become an area of top priority if stellar results are the goal.

Quality of market information on entering development

Much has been written about the need for better market information in NPD (7), while other studies show that the lack of solid market and customer information is a major cause of new product failure (8). Thus, the quality of market information is an area of focus of the current study--just how good or solid is that market data?

Seven different types of market information were investigated, ranging from market size and market potential data to knowledge about customer needs in a new product (Figure 5). On average, market information across the seven types is rated as poor-to-moderate. Additionally, there are major differences among the businesses in terms of quality of market information, with a sizable majority making decisions based on limited market information.

Some types of market information appear vital to NPD performance: Best Performing businesses seek and obtain this vital market information while Poor Performers do not (Figure 5). In rank order, the key market information is:

1. Information on customer needs, wants and problems--While only 33.4 percent of businesses gain good information here, this is a key discriminator between Best and Worst performers; it is also an area where the Best Performers are particularly strong.

For example: ExxonMobil reports that customer alliances are an effective vehicle for voice-of-customer research in order to gain insights into customer needs. With these alliances, regular exchanges and face-to-face meetings occur. And EXFO Engineering views seeking information on customer needs, wants and problems to be so important that 20-25 percent of product and marketing managers' time is spent visiting clients to seek insights.

2. Competitive information (products, pricing and strategies)--This is the strongest area across all businesses, but still only 38.1 percent of businesses gain solid information here. Best Performers rate very high on this information area, and solid competitive information also separates the Best from the Worst Performers.

3. Information on the customer's reaction to the proposed product (e.g., degree of liking or purchase intent) This is a weak area (only 23.8 percent of businesses obtain good information here), but a strong discriminator between Best and Worst Performers in Figure 5. Seeking such information is a clear best practice.

For example: Kraft Foods seeks customer input as early as possible in its NPD process to gain quick, initial reactions to the new product concept, and to identify ways to improve the concept. The company conducts qualitative research using early prototypes so that consumers can experience how the product might look or taste.

4. Information on customer price sensitivity for the new product--This is another weak area, with only 20.0 percent of businesses proficient here. It is also a discriminator between Best and Worst; but even the Best Performers are weak, although much better than the Worst.

5. Data on expected non-revenue performance of the product--This is a very weak area, but another strong discriminator between Best and Worst businesses.

6. Data on market size and potential.--a moderately-rated area.

7. Expected sales revenue from the new product.--also moderately-rated.

Conclusions

The results here parallel those in previous sections: market information is lacking in many areas in NPD. The only information areas that are rated moderately-proficient are quantitative information on market size and expected sales, and competitive information. But qualitative information on customer needs and wants, price sensitivity and reaction to the proposed product are quite weak. These weaknesses are closely linked to the lack of voice-of-customer work identified previously.

Sharp, early product definition

The need for early, fact-based definition of the product prior to moving into the Development stage has been well documented in previous studies of new product performance (9). But have managements heeded the message? The results (Figure 6) show that some businesses do quite well on some elements of product definition before Development begins; in a considerable minority of businesses, however, this product definition needs to be sharpened in major ways. In order of impact, they are:

1. The benefits to be delivered to the customer--the value proposition--clearly defined--Only 37.1 percent of businesses spell out the value proposition well before Development starts. Best Performers excel here, while only 15.4 percent of Worst Performers manage to define the product benefits.

2. The target market defined--the segment at which the product will be targeted--"From market segmentation, all else flows" claim the marketing gurus; thus, an important element of product definition is to specify the target market or intended user for the new product. Surprisingly, this element of product definition is quite deficient, with only 30.5 percent of businesses defining the target market before Development begins.

3. The positioning strategy defined--how the product will be positioned in the eyes of the customers/users versus competitive products. Again there are weaknesses, with only 36.5 percent of businesses doing a solid job on defining the positioning strategy, while 65.5 percent of Best Performers do well.

4. The product concept defined--what the product will be and do--While the majority of Best Performers define the product concept well, only 15.4 percent of the Worst do.

5. Maintaining stable product specifications throughout the Development stage--"Unstable specs" and "scope creep" are phrases often used to describe problems project teams face that lead to longer time to market. The businesses studied generally fail in terms of stable products specs, with 22.5 percent scoring poorly here and only 30.0 percent rating well. Almost half of the Best Performers do achieve stable specs--a clear best practice.

6. The product's features, requirements and specifications defined--The technical side of the product definition is undertaken somewhat better, with 48.6 percent of businesses doing an excellent job specifying the product requirements and features before Development starts.

7. Using a "teaming contract" between the project team and management to define the product, the project and expectations before the Development phase begins--This too is considered a better practice by some businesses in an attempt to bring stability and rigor to the product and project definition. But 40 percent of businesses have no such teaming contract and only 30.8 percent do; however, 44.8 percent of Best Performers do.

The concept of a "teaming contract" is one that is gaining increasing popularity. For example, 3M relies on a "team charter" to gain agreement between project team members and their executives, while Bausch & Lomb uses a "project strategic decision package." Once signed, any subsequent changes must be approved by all team members and management who have signed the original agreement. This contract, coupled with the essential signatures, prevents unnecessary scope creep in the project.

Conclusion

Overall, product definition and its elements remain weak facets of NPD practices. Not only are businesses failing to get the necessary market and voice-of-customer inputs, but perhaps as a result, the product is not well defined before Development begins. The target market, product concept, value proposition, and positioning strategy are all moderately weak elements of product definition. Only the technical facet the technical specs and requirements--scores well. Furthermore, the stability of these specifications remains a serious challenge, with many businesses faring poorly. The use of teaming contracts to nail down this product definition may be a partial solution, but it is not practiced widely among the businesses studied.

Managements in best-practice companies demand and get sharp, early product definition prior to the commencement of the Development stage. This definition includes some or all of the seven elements listed in Figure 6, and is typically a deliverable as part of the project team's Business Case. Moreover, the product definition is fact-based and signed off on by all members of the project team. No project should enter Development without this definition in place.

Competitive and product advantage

One of the strongest drivers of NPD performance found in numerous studies is the product itself--developing a differentiated product with a superior value proposition. The current study investigates some of the dimensions of product advantage and how businesses fare on these (Figure 7). In order of impact, they are:

[FIGURE 7 OMITTED]

1. Offers customers/users main benefits that are important to them--This is the strongest element of competitive advantage, with 52.4 percent of businesses claiming that their products do indeed deliver important benefits to customers. It is also a strong discriminator between Best and Worst Performers, with 86.2 percent of Best Performers and only 23.1 percent of Worst providing important product benefits.

2. Offers customers/users new and unique benefits (not found in competitive products)--Businesses perform moderately well here, on average, with 34.3 percent of businesses claiming strengths in terms of new/unique benefits in their products. Best Performers excel when compared to Worst Performers.

3. Better value for money for the customer--a superior value proposition--The result is again similar, with 44.1 percent of businesses claiming proficiency in terms of value propositions offered and Best Performers again scoring well.

One best practice observed is the use of a specific gate deliverable to ensure that the project team has indeed created a winning product concept: The project team must provide the gatekeepers with a demonstrated confirmation from potential customers that the product will deliver a true value to them. The team chooses the most appropriate approach to demonstrate this value. The best practice is not the techniques used, but rather the discipline of the procedure. This approach has also been credited with creating better product definitions, as they are now fact-based and verified by the target user.

4. Superior to competitors products in terms of meeting customer needs--Businesses perform moderately well here, with 58.6 percent of Best Performers and 38.8 percent of all businesses developing superior products.

5. Offering product with superior quality to competitive products (however the customer measures quality)--Again, businesses perform moderately well here, with the majority of Best Performers and 40.6 percent of all businesses scoring well on this dimension.

Conclusions

Overall, the sample of businesses appear to have internalized the message from previous studies of NPD success factors: that product advantage is critical to profitability and success. Note that businesses, on average, fare moderately well across the five dimensions in Figure 7. The only disconcerting evidence is that, with the exception of the first item--offering important benefits to customer--still less than 50 percent of businesses score exceptionally well; however, very few businesses score exceptionally poorly.

Product and competitive advantage--delivering new products with unique customer benefits, a superior value proposition (better value for money), with important customer benefits, better quality, and meeting customer needs better--is one of the top best practices we uncovered. There are two main recommendations here:

* First, emphasize product advantage and superiority in your NPD process. For example, the items in Figure 7 should become part of your check-list of criteria at Go/Kill decision points; they should be key topics of discussion at project reviews; and senior management should challenge project teams when they fail to deliver a product definition that scores well on the items in Figure 7.

* Next, arriving at unique, superior value products is not easy. Occasionally it is the result of inspiration or a technological breakthrough--an "aha." But most often it comes from tough work, including some of the activities and tasks we have highlighted above: undertaking excellent voice-of-customer research to correctly identify needs, problems, benefits sought, and functionality desired; building solid market information into the NPD process and projects; and executing the up-front homework activities superbly. This work does not guarantee product superiority, but it provides a solid foundation.

Making the NPD Process Work

The results outlined in this third-of-the-series article yield new challenges for management. Almost every proficient company has implemented an idea-to-launch new product process; such a process seems almost fundamental to NPD performance. In too many businesses, however, the process is not working well, and that is leading to disappointing performance. As evidence, consider the quality-of-execution results, where many businesses are sub-standard--many key activities are not executed very well! Yet these same activities (Figures 1A and B) are strongly connected to NPD performance.

Also, a lack of voice-of-customer research, solid market information, and sharp, early product definition continue to plague many projects and businesses, in spite of the evidence in Figures 2-7 that these are critical best practices with strong links to performance.

Even more disturbing is the fact that performance metrics, evaluation and feedback are missing for most NPD projects. Note the lack of a post-launch review step for almost 80 percent of businesses, coupled with the evidence that this is a clear best practice. And recall from the first article in this series that a significant minority of businesses don't even keep score--they don't measure new product results at all!

One might speculate about why the new product process is so deficient in practice. Earlier articles in this series have hinted that a lack of resources, doing too many projects, and a failure of senior management to be properly engaged may underlie some of the problems. There are no doubt other reasons as well: management overly-focused on "doing it fast" rather than "doing it right"; a significant under-resourcing of the NPD function; and simply a lack of knowledge of how to do it right in the first place (10,11).

The evidence in support of an effective, world-class NPD idea-to-launch process is overwhelming: many companies are doing it right and they achieve positive NPD results. Our recommendation: make sure that your process is indeed a first-class one, incorporating the many activities and best practices we have outlined in this article. But most important, ensure that the process is really implemented--that everyone in the business buys in, embraces the spirit and detail of the process (including an emphasis on proficiently executing the best practices outlined in Figures 2-7), and really uses the process as an effective guide to getting new products to market.

Figure 1A.--Quality of execution for key front-end NPD activities.

Percent of Businesses That Execute Well for Each Activity or Task

                               Worst         Average     Best
                               Performers    Business    Performers

Idea generation                   11.5%        19.0%       37.9%
Initial idea screening            15.4%        31.1%       53.6%
Prelim market assessment          34.6%        36.3%       55.2%
Prelim technical assessment       23.1%        43.7%       64.3%
Prelim Ops assessment             12.0%        21.3%       29.2%
Market research                    7.7%        18.3%       37.9%
Concept testing                   15.4%        27.0%       32.1%
Value assessment                   4.0%        16.5%       37.9%
Business/financial analysis       23.1%        26.3%       57.1%

Note: All significantly different at 0.01 level or higher--Best vs.
Worst Performers

Note: Table made from bar graph.

Figure 1B.--Quality of execution for key back-end NPD activities.

Percent of Businesses That Execute Well for Each Activity or Task

                                   Worst         Average     Best
                                   Performers    Business    Performers

Design & development of product       24.0%        59.0%       70.4%
In-house product testing              29.2%        55.8%       76.9%
Customer tests of product             24.0%        51.5%       70.4%
Test market/trial sell                 9.5%        26.7%       41.7%
Trial/limited production/ops          20.0%        44.3%       52.0%
Pre-launch business analysis          16.0%        28.4%       51.9%
Production/Ops start-up               35.0%        57.1%       66.7%
Market launch                         24.0%        35.6%       65.5%
Post launch review                     7.7%        22.1%       44.8%

Note: All are significantly different at 0.01 level or higher--Best
vs. Worst Performers

Note: Table made from bar graph.

Figure 2.--Four NPD process best practices decisive to performance.

Percentage of Businesses that Place Emphasis on Each Best Practice

                                   Worst         Average     Best
                                   Performers    Business    Performers

An emphasis on up-front
homework before development
begins                                38.5%        44.8%       62.1%

NPD project performance metrics
(e.g. success, profitability)         15.4%        30.0%       44.8%

Metrics around how well the
NPD Process is working                15.4.%       26.9%       48.3%

Tough, rigorous Go/No Go
decision points                       23.1%        33.3%       51.7%

Significantly different at 0.05 level: Best vs. Worst Performers

Note: Table made from bar graph.

Figure 3.--Spending on the homework, or, pre-development phase.

Percent of Businesses That Spend X% on the
Homework or Pre-Development Activities as
Percent of Total Project Cost

Spend less than 1%               8.4%
Spend 41-50%                     2.1%
Spend 31-40%                     6.3%
Spend 21-30%                     9.5%
Spend 11-20%                    23.2%
Spend 6-10%                     25.3%
Spend 1-5%                      25.3%

Average spending:
12.1% of project goes
to Homework

Performance                  % of Project
                              Spent on
                              Homework
                               Stages

Best Performers                 13.4%
Average Business                12.1%
Worst Performers                10.7%

Note: Table made from pie chart.

Figure 4.--Voice of customer and market input--impact on performance.

Percentage of Businesses That Conduct Each VoC Activity Well

                                   Worst         Average     Best
                                   Performers    Business    Performers

Studies of buyer behavior as
input to Launch Plan                   0.0%        17.3%       41.4%

Product definition is
determined via market research         0.0%        11.4%       34.5%

Interface with users thru-out
development                            7.7%        26.3%       44.8%

Work closely with customers/
users to identify needs/
problems                              15.4%        33.4%       69.0%

Work with lead (innovative)
users to generate ideas               11.5%        33.4%       55.2%

Note: All are significantly different at 0.01 level: Best vs. Worst
Performers

Note: Table made from bar graph.

Figure 5.--Quality of market information--impact on performance.

Percentage of Businesses That Have Good Quality of market
Information on Entering the Development Stage

                                   Worst         Average     Best
                                   Performers    Business    Performers

Customer's needs, problems,
benefits sought                       15.4%        33.4%       58.6%

Competitive situation: prices,
products, strengths                   26.9%        38.1%       72.4%

Customer reaction to proposed
product                               11.5%        23.8%       41.4%

Customer price sensitivity            11.5%        20.0%       37.9%
Expected non-revenue

performance                            7.7%        16.2%       37.9%

Market size & potential               26.9%        37.5%       58.6%

Expected sales revenue from NP        26.9%        36.3%       55.2%

Note: all are significantly different at 0.01 level: Best vs. Worst
Performers

Note: Table made from bar graph.

Figure 6.--Product definition--impact on performance.

Percent of Businesses That Have a Good Product
Definition Before Development Stage Begins

                                    Worst         Average     Best
                                   Performers    Business    Performers

Benefits to be delivered
clearly defined                       15.4%        37.1%       65.5%

Well defined target market            19.2%        40.0%       58.6%

Defined positioning strategy
vs. competitors                       23.1%        36.5%       65.5%

Defined product concept--what
product will be & do                  15.4%        30.5%       51.7%

Stable product definition             15.4%        30.5%       48.3%

Defined requirements, features,
specs                                 46.2%        48.6%       65.5%

Contract between project team &
management                            15.4%        30.8%       44.8%

Note: All are significantly different at 0.01 level: Best vs. Worst
Performers

Note: Table made from bar graph.

Figure 7.--Product advantage--impact on performance.

Percent of Businesses Whose New Products Have Product Advantage
vs. Competitive Products

                                   Worst         Average     Best
                                   Performers    Business    Performers

Main benefits are important
to customer                        23.1%         60.0%       86.2%

Offer customer new & unique
benefits                           7.7%          34.3%       62.1%

Better value for money for
customer                           19.2%         44.1%       65.5%

Superior to competing products
in meeting customer needs          15.4%         38.8%       58.6%

Superior quality vs. competitors   28.0%         40.6%       58.6%

Note: All are significantly different at 0.01 level: Best vs. Worst
Performers

Note: Table made from bar graph.

References and Notes

(1.) See: Griffin, A. Drivers of NPD Success: The 1997 PDMA Report. Chicago: Product Development & Management Association 1997; Menke, M. "Essentials of R&D Strategic Excellence." Research. Technology Management, 40, 5, Sept.-Oct. 1997, pp. 42-47; Cooper, R.G. Winning at New Products: Accelerating the Process from Idea to Launch, 3rd edition. Cambridge, Mass: Perseus Books, 2001.

(2.) Stage-Gate[R] is a registered trademark of Product Development Institute Inc. www.prod-dev.com

(3.) This article is based on an American Productivity & Quality Center study, involving the APQC (Houston, Texas), the ISBM (Institute for the Study of Business Markets, Penn State University), and Product Development Institute Inc. (Ancaster, Ontario, Canada). The APQC report is available as: Cooper, R. G., Edgett, S.J. and Kleinschmidt, E. J. An Investigation into Best Practices in Product Innovation: What Distinguishes the Top Performers? Product Development Institute, April 2003, www.prod-dev.com; also from the APQC: www.apqc.org/pubs/NPD2003

(4.) Cooper. R. G. and Kleinschmidt, E. J. "An investigation into the new product process: Steps, deficiencies and impact." Journal of Product Innovation Management 3, 2, 1986, pp. 71-85; Song X. M. and Parry M. E. "What separates Japanese new product winners from losers." Journal of Product Innovation Management 13, 5, Sept. 1996, pp. 422-439: Thomke S. and Fujimoto T. "The effect of 'front-loading' problem solving on product development performance," Journal of Product Innovation Management 17, 2, March 2000, pp. 128-142.

(5.) Griffin, A. and Hauser, J. R. "The marketing and R&D interface." Handbook: MS/OR in Marketing, eds.: Lilian, G. L. and Eliashberg, J. Amsterdam: Elsevier Science Publishing, 1992; McQuarrie, E. F. "Customer Visits," in The Market Research Toolbox: A Concise Guide for Beginners. Thousand Oaks: Sage Publications, 1996, pp. 51-65; Miller, C. and Swaddling, D. C. "Focusing NPD research on customer-perceived value," in The PDMA Toolbook for New Product Development. ed.: Belliveau, P., Griffin, A. and Somermeyer, S. New York: John Wiley & Sons, 2002, pp. 87-114.

(6.) Von Hippel, E. A., Thomke, S. and Sonnack, M. "Creating breakthroughs at 3M." Harvard Business Review. Sept.-Oct. 1999, pp. 47-57.

(7.) See Cooper, R.G. Winning at New Products: Accelerating the Process from Idea to Launch, 3rd edition. Cambridge, Mass: Perseus Books, 2001 ; Di Benedetto C. A., "Identifying the key success factors in new product launch." Journal of Product Innovation Management 16, 6, Nov. 1999, pp. 530-544; Mishra S., Kim D. and Lee D. H. "Factors affecting new product success: cross country comparisons." Journal of Product Innovation Management 13, 6, Nov. 1996, pp. 530-550; Montoya-Weiss, M. M. and Calantone, R. J. "Determinants of new product performance: a review and meta analysis." Journal of Product Innovation Management 11, 5, Nov. 1994, pp. 397-417; Song X. M. and Parry M. E. "What separates Japanese new product winners from losers." Journal of Product Innovation Management 13, 5, Sept. 1996. pp. 422-439.

(8.) Cooper, R. G. Winning at New Products: Accelerating the Process from Idea to Launch, 3rd edition. Cambridge, Mass: Perseus Books, 2001.

(9.) See review of success/failure studies: Montoya-Weiss, M. M. and Calantone, R. J. "Determinants of new product performance: a review and meta analysis." Journal of Product Innovation Management 11, 5, Nov. 1994, pp. 397-417: and: Cooper, R. G., "New products: what separates the winners from the losers," in PDMA Handbook for New Product Development, ed.: Rosenau, M. D. New York, NY: John Wiley & Sons Inc, 1996.

(10.) See for example: Cooper, R. G., "The invisible success factors in product innovation." Journal of Product Innovation Management 16, 2, 1999, pp. 115-133.

(11.) R. G. Cooper and S. J. Edgett, "Overcoming the Crunch in Resources for New Product Development." Research. Technology Management, 46, 3, May-June 2003. pp. 48-58.

How the Research Was Conducted

The research reported in this series was undertaken by the APQC (American Productivity and Quality Center) with the authors as subject matter experts. The study used the APQC's standard methodology, including both qualitative and quantitative methods.

Qualitative: Site visits were organized with five businesses identified as having best practices in new product development. The APQC research team--consisting of the subject matter experts, a number of sponsor companies and APQC personnel--conducted the meetings. The five companies visited were:

* Air Products and Chemicals Inc.

* Bausch & Lomb

* EXFO Electro-Optical Engineering Inc.

* ExxonMobil Chemical Company

* Kraft Foods Inc.

Quantitative: A detailed quantitative questionnaire was also constructed. A total of 113 measures were used to capture the existence and proficiency of NPD practices and approaches within businesses, as well as questions to gauge businesses' new product performance.

The quantitative sample: 105 business units responded to the detailed quantitative questionnaire:

* Businesses are in a number of different industries, with 51 percent in the manufacturing sector.

* The size of the businesses--average sales: $2.5 billion (median: $400 million): average employees: 4,711 (median: 1,500).

* R&D spending--average: $58.4 million per business or 5.2 percent of sales; of this, the proportion going to NPD is 52.3 percent on average, for a NPD spending rate of 2.89 percent of sales.--R.G.C., S.J.E. and E.J.K.

The Quest for Superior New Product Results: Series Summary

Discovering the secret to better new product performance--greater success rates, faster to market, and higher-value projects--remains an elusive goal for too many businesses. This three-part series has shed light on over 100 practices--ranging from ways to improve the climate for innovation to focusing on key activities in the new product process. Each of the items that we identify as a "best practice" was common to the top performing businesses and most often separated the Best Performers from the rest in a strong way. These best practices boil down to four major themes--themes that underpin superior NPD performance:

1. Strategy.--Have an articulated product innovation and technology strategy for your business. This strategy should be closely linked to your overall business objectives and spell out your NPD goals, delineate your strategic arenas or areas of focus, define strategic buckets and resources, and lay out your new product roadmap or major initiatives.

2. Focus on people.--Organize effective cross-functional project teams, establish the right climate and culture for innovation in your business, and define the appropriate role for an engaged senior management team.

3. Process.--Implement a world-class, systematic, new product process to drive new product projects from idea through to launch, quickly and effectively. Make sure that your process incorporates the best practices outlined in the three articles, and then ensure that it is really implemented and executed!

4. Resources:--Put the necessary resources in place from all functional areas. Then allocate these resources via an effective portfolio management system to the right innovation areas and to the right projects.

Each theme is elaborated on in the three articles. We recommend that you review them, note those areas where your business is weak, and implement those practices that are right for you. By emulating the Best Performers' practices, our hope is that you will approach their performance results.--R.G.C., S.J.E. and E.J.K.

Robert Cooper is president of the Product Development Institute Inc., in Ancaster, Ontario, Canada, and professor of marketing at McMaster University's M. G. de Groote School of Business, Hamilton, Ontario. He is also Crawford Fellow of the Product Development and Management Association, and ISBM Distinguished Research Fellow at Penn State University's Smeal College of Business Administration. The developer of the Stage-Gate [R] new product process, his latest book (co-authored with Scott Edgett and EIko Kleinschmidt) is Portfolio Management for New Products, 2nd edition (Perseus Books, Cambridge, MA, 2001).

robertcooper@cogeco.ca; www.prod-dev.com

Scott Edgett is CEO and co-founder of the Product Development Institute. A specialist in new product development and portfolio management, he has consulted and written extensively in the field with over 50 published articles and four books, including co-authoring Portfolio Management for New Products.

Edgett@prod-dev.com; www.prod-dev.com

Elko Kleinschmidt is professor of marketing and international business at McMaster University's M. G. de Groote School of Business. He is an authority on the process of new product development, portfolio management of new products, and success factors for new product development programs. He has published over 60 publications and co-authored Portfolio Management for New Products.

kleinsc@mcmaster.ca