Strategy, Process Organisation and Timing

1. Strategy, Process Organisation and Timing

2. Key Steps For NPD Success Clear strategic direction • Ensure NPD goals and objectives: • Fit with strategy • Are challenging • Are adequately resourced • Are well prioritised Speed Speed Timely, Effective NPD Appropriate organisation/ philosophy Responsive process • Organisation according to product type and priority • Clear but moderate top level input • Atmosphere of creativity • Adaptable steps • Minimum possible bureaucracy • Clear tasks and responsibilities Speed

3. Clear strategic direction NPD strategy must: • Fit with company strategy • Fit with company skills and capabilities • Fit with company ethos/style

4. Danger of new products NOT fitting strategy/capability/style • NPD is risky enough anyway, why make it riskier? • Management takes its eye off the ball in core business • “Opportunity cost” is high : resources are finite • Existing customers may be alienated

5. Pierre Cardin Arcadia (Burton) Prudential SAS Kingfisher Downmarket jewellery Shopping centres Estate agencies Catering ISP (Liberty Surf) Examples of ill-fit between products and strategy

6. Ill Fit Can Be Justified If you’ve weighed all that up and it still makes sense.... BUT GO FOR IT! (eg. Securicor and Cellnet)

7. How Can You Tell Whether Products Are Appropriate? Approaches to Innovation • Leadership in Innovation • Concept • Product High Low Low High • Barriers to “followership” • Patents • Capital Spend • Advertising spend

8. Generic NPD Strategies • Market Driven Modifier • You’re good at innovation but • it can easily be copied • stream of product modifications • incremental changes • first to market • Moderate Investment • Next Generation Innovator • You’re good at innovation and • others can’t follow easily • new product categories • high internal investment • first to market • High Investment High Leadership in Innovation • Fast Follower • You’re not so good at innovation, • but the types of innovation can • be copied • standby research • flexible staff • fast second market • Moderate Investment • Acquirer • You’re not so good at innovation • andits tough to copy • acquire capabilities • leapfrog existing leader • build on acquired capabilities • High Investment Low Low High Barriers to Followership

9. Key Skills Required • Market Driven Modifier • Vigilance regarding • improvements • Rapid innovation • “Tweaking” • Consumer knowledge • Next Generation Innovator • Technological prowess • “Out of the box” thinking • Rapid innovation • Consumer knowledge High Leadership in Innovation • Fast Follower • Market intelligence • Reverse engineering • Rapid response • Flexible manufacturing • Acquirer • Commercial intelligence • Financial analysis • Efficient implementation • of commercial synergies Low Low High Barriers to Followership

10. Industry Types • Market Driven Modifier • Food companies eg Nestle • Consumer Goods eg P&G • Japanese cars • Next Generation Innovator • Electronics eg Sony • Pharma eg GSK • Software eg Microsoft • Acadaemia eg Cambridge • University High Leadership in Innovation • Fast Follower • Fashion eg M&S, Zara • Electronics eg Matsushita • Fast Food eg Burger King • Acquirer • Electronics eg Marconi • Software eg Microsoft • Hanson Low Low High Barriers to Followership

11. Approaches to Innovation “Newness” of the Product High Yes Leadership in Innovation New to Company Low No Low Yes No High Barriers to “followership” New to Market Matrices Compared Market driven modifier Next generation innovator Me-Too Product New to World Product Improvement Repositioning Fast follower Acquirer

12. Proactive Appropriate when: Patents protect the invention The product offers high volumes and/or margins There’s the possibility of entering new markets Company holds power in the distribution channel The Budget exists for substantive advertising Reactive Appropriate when Patent protection is unlikely Company needs to concentrate on existing products or markets Market too small to recover development costs Distribution chains are in the hands of another competitor Conditions for Proactive vs. Reactive Strategies

13. SWOT Analysis SWOT Opportunities Strengths Weaknesses Threats External Internal

14. NPD Strategy: Conclusions 1. Generally, NPD strategy should fit corporate strategy/skills/style • SWOT analysis is very helpful in illustrating appropriate areas of NPD (at a personal level too) • There are 4 key generic strategies - each is appropriate in different circumstances. It’s worth considering which approach may suit you best 3. Choosing a strategy that allows you to be first into a market-place is expensive but potentially very worthwhile

15. Phase II Business Proposition Development Phase I Concept Generation Phase III Launch Preparation Launch/ Rollout How is it Done? Market facts & ideas Technical facts & ideas Activities • Gather ideas • Conduct demand research • Develop project briefs • >>>>>>>>> • Build total proposition • Determine, test, refine components (packaging, name, etc)->>>>>>> • Organise logistics • Prepare marketing campaign • Brief salesforce • ITERATIVE • Launch marketing campaign • Distribute product • Monitor progress

16. Phase 1: Concept Generalisation Cross functional inputs required: • fusion of ideas from R&D, marketing, logistics • open sharing of ideas • formal and informal interdisciplinary forum

17. Phase 2: Business Proposition Development Change from concept to sound business propositions: • Prototyping • Market research • Test marketing • Pre-production engineering and costing • New product business plan/proposal

18. Phase 3: Launch Preparation Close multifunctional approach required: • Establish marketing mix (4Ps) • Packaging development • Market testing • Product refinement • Sourcing • Production engineering • Begin manufacture

19. Launch • Put marketing mix (4 Ps) into practice • Monitor progress • Log successes and failures • Redeploy team thoughtfully

20. New Product Development Stages Motorola – 4 stages Product Definition Contract Development Development through manufacturing start-up Program wrap-up

21. New Product Development Stages Kodak- 6 stages Customer mission/vision Technical demonstration Technical operation/feasibility Capability demonstration Product/process design Acceptance and production

22. New Product Development Stages Xerox - 7 stages Pre-concept Concept Design Demonstration Production Launch Maintenance

23. New Product Development Stages Generic Get an idea Prove it works Develop and test it Scale it up Launch it Monitor things Keep iterating

24. Stage Ideas Pass ratio Cost/ idea, $k Total cost, $k Idea screening 64 1: 4 1 Concept test 1:2 20 Product Development 1:2 200 Test Marketing 1:2 500 Launch -------------------------------- Successful idea 1 1:2 5,000 Cost of product screening ------- ------- ------- -------

25. Stage Ideas Pass ratio Cost/ idea, $k Total cost, $k Idea screening 64 1: 4 1 64 Concept test 16 1:2 20 320 Product Development 8 1:2 200 1,600 Test Marketing 4 1:2 500 2,000 Launch Successful idea 2 1 1:2 5,000 10,000 13,984 Cost of product screening

26. Approximate Costs of NPD: % Stage Consumer Goods Industrial Chemicals Opportunity Identification 2 2 3 28 Design 16 13 Testing Launch 79 57 100 100 Total 100% = $12.6m $4.7m Source:McKinsey analysis

27. Who Does NPD and What Do They Do? • R&D • Investigate emerging technologies re: new products • Design new products • Senior Management • Evaluate fit with corporate strategy • Hold the purse strings • Manufacturing • Ensure the product can be manufactured at economic cost • Establish production line NPD • Finance • Evaluate financial impact of NPD on cashflow of business • Conduct NPV calculations • Marketing • Discover what the customer wants/needs • Design marketing mix • Legal • Apply for product patent • Check product liability

28. Who Does It ? Textbook View

29. Role of Finance NPD via NPV • Build cashflow models • Calculate the rate of return • Compare to the company’s cost of capital Key considerations: • Risk of project • Reliability of key assumptions (whose agenda?) • Volume assumptions affecting economies of scale • Cannibalisation of existing products

30. Manufacturing: NPD input • Early input to design process (ie “don’t design for 1 unit but for 100,000”) • Extensive use of technology (eg CAD/CAM) • Clear view of ultimate manufacturing location – crucial effect on costs (eg labour vs capital)

31. Manufacturing: Efficiency of Process JIT – Just in Time • Pull inventory through system • Produce on schedule, not +/- • Focus on quality via visibility TQM – Total Quality Management • Emphasis on quality throughout • Culture change from inspection to prevention • Employee awareness and motivation key • All responsible for satisfying customer

32. Manufacturing:effect of external pressure:WWII example Saginaw Steering Gear – to make machine guns: Plan Achieved Nov 1940 Start plant - March 1941 1 Dec 1941 1 - March 1942 280 28,000

33. Process: Conclusion 1. A typical process will have several clear and distinct phases 2. The further along the process an idea moves, the greater the accumulation of cost 3.Most of the organisation is involved to some extent

34. Organisational Options for NPD • As part of R&D • As part of marketing • Within its own department • Throughout the organisation • Via NPD committee • Via new product task-force • Small permanent staff • Matrix organisation • Entrepreneurial division • Alliances Common options Less frequently used options

35. Pros NPD closest to those who understand technical side Projects tend to be more technically successful Cons Little consumer perspective Poor for brand improvements Projects tend to go into cost overruns NPD as part of R&D • Comments • If NPD is within R&D do you organise round • pure research or products ie development? • Rule of thumb: if over ¼ of R&D budget goes • to basic research then separate research from development

36. Pros Emphasis on consumer understanding Good for incremental improvements Cons Poor for truly innovative products Marketing often has short time frame NPD as part of Marketing Comments Incremental improvements to brands fit well within product manager’s responsibility and ensure automatic product champion

37. Pros Establishes NPD as high priority Brings diverse skills together Frees itself from day to day pressures Cons Threatens power base of existing department heads May be overly structured to use true entrepreneurial talent Inappropriate for incremental improvements NPD in Separate Department Comments Needs high profile within the organisation otherwise heads of department who need to supply personnel will be reluctant to do so

38. Description of Rugby vs Baton Approach Hand picked, multidisciplinary team Members work together throughout Phases overlap and merge

39. Rugby Approach vs Baton Approach Baton Phase 1 2 3 4 5 6 Rugby 1 Phase 1 2 3 4 5 6 Rugby 2 Phase 1 2 3 4 5 6

40. Pros and Cons of Rugby vs Baton Approach Direct benefits Direct problems Communication throughout large team Maintaining cohesion Heightening tension Faster development Increased flexibility Indirect benefits Indirect problems Shared responsibility and cooperation Lasting understanding of others’ agendas Diversified skills Wider problem solving capabilities Resentment of other departments (?) Erosion of specialist skills(?)

41. Role of Communication “Communication. There’s more crap talked about communication than any other single topic in industry today. The reason? To most managers communicate means transmit information. Any communication mechanism is, at best, only half effective if it doesn’t receive as well as transmit.” Barry Gibbons Chairman, Burger King 1989-94

42. Value of communication…

43. R&D culture Deep Scientific Perfectionist Understands product Marketing Culture Shallow Airy-fairy Get it out quick Misunderstands product R & D versus Marketing Culture – R & D view(exaggerated stereotype)

44. R&D culture Anoraks Takes forever Poor customer understanding Priority is discovery Marketing Culture Realists Speedy and reactive Deep customer understanding Priority is profit R & D versus Marketing Culture – Marketing view(exaggerated stereotype)

45. R&D culture Creative Can-do Iterative mindset Tolerance of ambiguity Manufacturing Culture Rigid Discipline-oriented Stable Tolerance of repetition Manufacturing and R&D Cultures – (Stereotypes)

46. R&D and Manufacturing Working Together-Example IBM Dot Matrix Printer • Needed cheap effective printer • Small team of R&D and manufacturing • Mandate: work together to simplify product with tight deadline • Result: • 150 parts down to 60 • Developed in half normal time • Very reliable product • Became market leader in 5 months

47. Organisation: Conclusion There is no prima facie optimal organisational structure for NPD. It depends on the type of product and the company’s priorities. For improvements, marketing input is key For greater innovation, R&D is key As department after department is involved, interaction and overlapping stages are crucial

48. Advantages of reducing development time • Keeps you close to customer requirements • Keeps you a step ahead of the competition • Infuses the whole company • Good for profitability

49. Time is money 33% 3.5% Profit lost with 50% overspend on budget Profit lost when product shipped 6 months too late Source:McKinsey analysis

50. Ways of Reducing time to market - examples Use baton approach Improve communication Avoid perfectionist mentality Flexibility to cope with change Use standard components Early customer input Log “ready to go” ideas Fewer approval stages Alliances