New Product Development Expert Cooper Sounds the Alarm

Innovation is in trouble at U.S. companies. Timid new product development (NPD) programs are concentrating more than they used to on safe, marginal product improvements and less on true product breakthroughs. As a result, new products provide a significantly smaller share of corporate revenue and profit than they did a decade ago, reports world-renowned new product marketing expert Robert G. Cooper. Businesses are preoccupied with minor modifications, product tweaks, and minor responses to salespeople's requests, while true product development has taken a back seat, Dr. Cooper writes in the April edition of Visions magazine, published by the Product Development and Management Association (PDMA).1 Dr. Cooper, an ISBM Distinguished Fellow and Professor of Marketing at McMaster University, regularly surveys corporate new product development strategies and tactics. He was the keynote speaker at this Augusts ISBM Annual Members Meeting. PDMA studies find that new products accounted for 28 percent of total corporate sales in 2004, down from 32.6 percent in 1990, Dr. Cooper said. New products share of corporate profits slumped to 28.3 percent last year from 33.2 percent on 1990. Noting that R&D spending has remained stable and that companies have not been doing a worse job designing and marketing the products they develop, Dr. Cooper blames changes in the balance of NPD project types. Compared to 1990, companies today attempt only half as many new to world true innovations, but twice as many minor projects (line extensions, improvements to existing products), as a percentage of their development portfolios, Dr. Cooper explains, citing data (see Exhibit 1) from the APQC (formerly named the American Productivity & Quality Center). What is particularly disturbing is the fact that the the best companies at NPD today resemble the average company of 15 years ago when it comes to their portfolio mix. By contrast, the average company today has seen its portfolio shift markedly in the last 15 years. Now, as then, the best new product companies are more aggressive in striving for innovation.

Exhibit 1

NPD Project Types

Source and detailed bibliography at Robert G. Cooper, Your NPD Portfolio May Be Harmful To Your Business Health, Visions (April 2005).

Dr. Cooper cites four main culprits for less ambitious NPD. Overemphasizing speed, forcing managers to stress easy, low-cost, quick return projects. Reacting to customers' and salespeople's urgent requests saps NPD time and resources. An overall resource crunch leaves companies with more projects than they can handle. (see Exhibit 2) Overemphasizing NPD financial metrics, which tend to discriminate against genuine innovations with long-term returns that are harder to predict.

Exhibit 2

Data source: APQC study, in R.G. Cooper, S.J. Edgett & E.J. Kleinschmidt, Benchmarking best NPD practices II: Strategy, resource allocation and portfolio management, Research-Technology Management, vol. 47, no. 3, May/June 2004, pp 50-59. Also see, R.G. Cooper, Your NPD portfolio may be harmful to your businesss health, PDMA Visions, XXIX, 2, April 2005, 22-26.

Reversing the trends

Advising his readers to rethink what product innovation really means, Dr. Cooper recommends several solutions to the problem. Develop a product innovation and technology strategy that defines new product goals and indicates the resources and technologies needed. Use strategic buckets to organize how much effort will go into each type of new product projectnew products, improvements-modifications-extensions and platform developmentsand stick to the plan to keep the NPD portfolio balanced. Change old metrics. While short term financial results are important, consider introducing other metrics as well to gauge a business's performancefor example, metrics that capture the longer term and the potential for growth of the business. One approach is tracking a business units percentage of sales and profit from new products.

 Balance speed with NPD profitability and impact to achieve the goal of a steady stream of profitable new products. Change project selection criteria depending on the nature of the project, Dr. Cooper advises. Add a simple scoring model (e.g. ease of implementation, availability of production capacity, and customer importance) to financial metrics when selecting low-risk product modifications and extensions. For harder-topredict genuine new products, Use a multi-item scoring model, with criteria such as strategic fit, competitive advantage, leverage, market attractiveness and financial return-versus-risk. As the project progresses increasingly shift to financial metrics and quantitative success criteria for project validation and justification. To assess radical breakthroughs and new product platform innovations, financial criteria are almost useless, especially early in the life of such projects when the key investment decisions must be made. Dr. Cooper recommends scoring model criteria that are more strategic in nature and emphasize strategic importance, strategic leverage, and feasibility. Feed the pipeline, assiduously seeking blockbuster ideas via techniques such as voice of the customer (VOC) research, idea contests, creativity techniques, scenario generation, and strategic planning. Proactively manage the NPD portfolio. Just like your stock market portfolio, the mix and balance of these new product project investments must be carefully scrutinized. A portfolio that is strategically driven, is fed by a proactive idea generation process, relies on the right selection criteria to pick projects, and balances quality-of-execution with speed to market is the solution that many leading firms have elected to improve their NPD performance.

For More Information

Online: Contact www.prod-dev.com to learn about Dr. Coopers Product Development Institute. ReferencesBooks: (Order for next day shipments at: www.prod-dev.com) Product Leadership: Pathways to Profitable Innovation (Perseus Books, Reading, Mass) by RG Cooper hardcover 2005. Aimed at the senior executive. Provides an in-depth look at developing a product innovation and technology strategy, implementing portfolio management, making the idea-to-launch process work, and creating the right climate & culture for innovation. An Investigation into Best Practices in Product Innovation:What Distinguishes the Top Performers, March 2003. Reports the results of the latest and definitive benchmarking study, done thru APQC, Houston. Winning at New Products: Accelerating the Process from Idea to Launch, 3rd edition, 2001, by RG Cooper (Perseus Books, Reading, Mass), paperback, 425

pages. The classic best seller 3rd edition. Provides an overview of the critical success factors in product development, and outlines the Stage-Gate process Portfolio Management for New Products, 2nd edition, 2002 (new!) by Cooper, Edgett & Kleinschmidt, (Perseus Books, Reading, Mass) hardcover. Provides a look at the best portfolio methods, results achieved, and their use in industry. Product Development for the Service Sector, by Cooper & Edgett (Perseus Books, Reading, Mass) 1999. Success factors and Stage-Gate for service industries Additional References: (Also, see selected articles online at no charge at ww.stagegate.com) The PDMA Foundation's 2004 Comparative Performance Assessment Study (CPAS). For mid 1990s data, see: Griffin, A., Drivers of NPD Success: The 1997 PDMA Report. PDMA 1997. Arthur D. Little. How Companies Use Innovation to Improve Profitability and Growth. Innovation Excellence study, 2005. R.G. Cooper, S.J. Edgett & E.J. Kleinschmidt, Benchmarking best NPD practices I: Culture, climate, teams and senior management roles, ResearchTechnology Management, Vol. 47, No. 1, Nov/Dec 2003, pp 31-43. R.G. Cooper, S.J. Edgett & E.J. Kleinschmidt, Benchmarking best NPD practices II: Strategy, resource allocation and portfolio management, ResearchTechnology Management, vol. 47, no. 3, May/June 2004, pp 50-59. R.G. Cooper, S.J. Edgett & E.J. Kleinschmidt, Benchmarking best NPD practices III: The NPD Process & Decisive Idea-to-Launch Practices, ResearchTechnology Management, vol. 47, no. 6, Nov-Dec 2004. R.G. Cooper and S.J. R.G. Cooper, Your NPD portfolio may be harmful to your businesss health, PDMA Visions, XXIX, 2, April 2005, 22-26. PDMA studies: Adams, M. & Boike, D., PDMA foundation CPAS study reveals new trends, Visions, XXVIII: 3, July 2004, 26 Edgett, Overcoming the crunch in resources for new product development, Research-Technology Management, 46, 3, May-June 2003, 48-58. APQC definitive benchmarking report online: Best Practices in Product Development: What Distinguishes Top Performers, available via www.stagegate.com. #

R.G. Cooper, Your NPD portfolio may be harmful to your businesss health, PDMA Visions, XXIX, 2, April 2005, 22-26.