Ashesi University COURSE TITLE : NEW PRODUCT DEVELOPMENT SEMESTER : SECOND, 2015/2016 MODULE 2: What is the New Product Development Process and Strategic Planning? Lecturer: Ebow Spio

Learning Objectives Identify and thoroughly explain the tasks that each phase of the New Products Process entails and who is responsible. Be abreast with the various sources of identifying opportunities for new products. Explain and appreciate the role of New Product Strategy /Product Innovation Charter in the success of New Product Development Know the components of Product Innovation Charter and develop the skill to craft one. Conduct Product Portfolio Analysis and determine the strategic fit of new products

The New Products Process 2-3

The Phases of the New Products Process 2-4

Phase 1: Opportunity Identification/Selection Active and passive generation of new product opportunities as spinouts of the ongoing business operation. New product suggestions, changes in marketing plan, resource changes, and new needs/wants in the marketplace. Research, evaluate, validate, and rank them (as opportunities, not specific product concepts). Give major ones a preliminary strategic statement to guide further work on it. 2-5

Activities that Feed Strategic Planning for New Products Ongoing marketing planning (e.g., need to meet new aggressive competitor) Ongoing corporate planning (e.g., senior management shifts technical resources from basic research to applied product development) Special opportunity analysis (e.g., a firm has been overlooking a skill in manufacturing process engineering) 2-6

Sources of Identified Opportunities An underutilized resource (a manufacturing process, an operation, a strong franchise) A new resource (discovery of a new material with many potential uses) An external mandate (stagnant market combined with competitive threat) An internal mandate (new products used to close long-term sales gap, senior management desires) 2-7

Phase 2: Concept Generation Select a high potential/urgent opportunity, and begin customer involvement. Collect available new product concepts that fit the opportunity and generate new ones as well. 2-8

Phase 3: Concept/Project Evaluation Evaluate new product concepts (as they begin to come in) on technical, marketing, and financial criteria. Rank them and select the best two or three. Request project proposal authorization when you have product definition, team, budget, skeleton of development plan, and final PIC. 2-9

Stages of Concept/Project Evaluation Screening (pretechnical evaluation) Concept testing Full screen Project evaluation (begin preparing product protocol) The first stages of the new products process are sometimes called the fuzzy front end because the product concept is still fuzzy. By the end of the project, most of the fuzz should be removed. 2-10

Phase 4: Development (Technical Tasks) Specify the full development process, and its deliverables. Undertake to design prototypes, test and validate prototypes against protocol, design and validate production process for the best prototype, slowly scale up production as necessary for product and market testing. 2-11

Phase 4: Development (Marketing Tasks) Prepare strategy, tactics, and launch details for marketing plan, prepare proposed business plan and get approval for it, stipulate product augmentation (service, packaging, branding, etc.) and prepare for it. 2-12

Phase 5: Launch Commercialize the plans and prototypes from development phase, begin distribution and sale of the new product (maybe on a limited basis) and manage the launch program to achieve the goals and objectives set in the PIC (as modified in the final business plan). 2-13

The Evaluation Tasks in the New Products Process Opportunity Identification/ Selection Concept Generation Concept/Project Evaluation Development Launch Direction; Where should we look? Initial Review: Is the idea worth screening? Full Screen: Should we try to develop it? Progress Reports: Have we developed it? Market Testing: Should we market it? 2-14

The Evolution from Concept to New Product Corresponding New Products Process Phases: Opp. Identification  Concept Generation  Project Evaluation  Development  Launch 2-15

Managing Breakthrough Innovation Incubation Stage –Involves customer and market interaction as well as technical development. –Tolerate failure but learn from it (Google claims a 60% failure rate on innovative products). –Longer and much more expensive than typical business development, but required for breakthrough opportunities. Discovery-Driven Planning –Forecasts and plans evolve as more information becomes available. 2-16

Opportunity Identification and Selection: Strategic Planning for New Products 3-17

Opportunity Identification: Greenfield Markets Find another location or venue. Once McDonald’s had taken up the best locations for traditional fast-food restaurants, it continued its U.S. expansion by placing stores inside Wal-Marts, in sports arenas, and elsewhere. Starbucks Coffee complemented coffee-shop sales by selling its coffee beans and ice creams in supermarkets. Leverage your firm’s strengths in a new activity center. Nike has recently moved into golf and hockey, and Honeywell is looking into casino opportunities. Identify a fast-growing need, and adapt your products to that need. Hewlett- Packard followed the need for “total information solutions” that led it to develop computing and communications products for the World Cup and other sporting events. Find a “new to you” industry: P&G in pharmaceuticals, GE in broadcasting (NBC), Disney in cruises, Rubbermaid in gardening products – either through alliance, acquisition, or internal development. Source: Allan J. Magrath, “Envisioning Greenfield Markets,” Across the Board, May 1998, pp

Opportunity Identification: Emerging Societal Trends “Just-in-time” life Sensing consumers The transparent self In search of “enoughness” Virtual made real Co-creation Source: A. Hines, J. Calder, and D. Abraham, “Six Catalysts Shaping the Future of Product Development,” Visions, 33(3), October 2009, pp

The “Company Within A Company” This describes a new products team as they do everything a firm does – develop a budget, do financial analyses, assign tasks, and so on. They need strategic direction on where they must, and must not, go. Product team managers ask, “What sandbox should I be playing in?” – before beginning to think of specific products. 3-20

New Product Strategy or Product Innovation Charter Product Innovation Charter: “ set of policies and objectives designed to guide new product development” Crawford (1980) A new products strategy statement formalizing management’s reasons or rationale behind the firm’s search for innovation opportunities, the Product market and the technology to focus upon, and the goals and objectives to be achieved. It includes the activities to achieve the goals and the strengthens to exploit

What is the Product Innovation Charter (PIC)? It is the new product team’s strategy. It is for Products (not processes). It is for Innovation (think of the definition of new product). It is a Charter (a document specifying the conditions under which a firm will operate). Typically, it is a document prepared by senior management designed to provide guidance to the strategic business units (SBUs) on the role of innovation. 3-22

The PIC: Why Does a Firm Need a New Products Strategy? To chart the new product team’s direction –What technologies? What markets? To set the team’s goals and objectives –Why does it exist? To tell the team how it will play the game –What are the rules? Constraints? –Any other key information to consider? 3-23

Purposes of PIC Focus and integrate team effort Permit delegation Establish the size and range of the “sandbox” 3-24

The Contents of a Product Innovation Charter 3-25

PIC Steps: Background, Focus, and Goals Background: “Why did we develop this strategy?” Focus, or Area: technology and market drivers that (1) fit and (2) have good potential. Goals and Objectives: profit, growth, market status 3-26

PIC Steps: Special Guidelines Degree of Innovativeness –First-to-market –Adaptive product –Imitation (emulation) Timing –First –Quick second –Slow –Late Miscellaneous –Avoidance of competition with certain firms –Recognition of weaknesses –Patentability –Product Integrity 3-27

PIC: Corporate Strengths Provide Direction for the Team: Technology and Markets New products in this firm will: Technology Use our fine furniture designers (Herman Miller) Gain value by being bottled in our bottling system (Coca-Cola) Markets Be for babies and only babies (Gerber) Be for all sports, not just shoes (Nike) Other Guidelines Proliferate our product lines (Rubbermaid) Be almost impossible to create (Polaroid) Use only internal R&D (Bausch & Lomb) Have high value to us and to the customer (Kodak) 3-28

PIC: Product Platform Planning A product platform is defined as a set of systems and interfaces that form a common structure. A basis for all individual product projects within a family of products Many firms find that it is not efficient to develop a single product. Platform: product families that share similarities in technology, design, development, or production process. Car industry: $3 billion price tag on a new car platform is spread out over several models. Sony: four platforms for Walkman launched 160 product variations. Boeing: passenger, cargo, short- and long-haul planes made from same platform. P&G: Liquid Ariel for European market, Liquid Tide for North America, and Liquid Cheer for Japanese market. Black & Decker: uses a single electric motor for dozens of consumer power tools. 3-29

An Illustrative PIC for the Apple iPad Focus: Technology strengths include Apple’s operating system, hardware, applications, and services, product design and development skills. Marketing requirements include products on the “cutting edge” that offer seamless integration and high performance, yet are intuitive, simple, and fun to use. Goals: Revolutionary new products should also be platforms for future products, due to the cost of “really new” product development. New products should occupy the leadership position in the market. Special Guidelines: Apple aims to be the best, not necessarily the first, in new product categories. The Result: Apple’s first “tablet computer,” a revolutionary new product seen by many at the time as the “next big thing.” No one tablet computer had established a dominant position yet, so Apple could be the standard bearer with the iPad. The plan for the future was to add capabilities and applications to future iPads. 3-30

Do Many Firms Have a PIC? Most do, according to research, even if they don’t call it by that name. PDMA study: –75% of firms have a formal new product policy of some type (a partial PIC). –29% have a formal, written complete PIC. –80% of firms have formalized at least a few of the phases in the new products process. –86% of the “Best” firms have a PIC and only 69% of the “Rest.” According to an independent study: –The more detailed and specific the PIC, the higher are the firm’s innovation rates. –The more specific the corporate mission and senior management direction is spelled out in the PIC, the better is the performance of the firm’s new products. 3-31

Risks of Poor PIC Development Scope creep: Product definition keeps changing: who is the customer? Is it a standalone product or a platform? Unstable product specifications: Required performance level keeps changing. Both of these risks are elusive targets (“moving goalposts”) that occur because the sandbox was never defined, or vaguely defined. 3-32

Product Portfolio: The New Product’s Strategic Fit Strategic goals (defending current base of products versus extending the base). Project types (fundamental research, process improvements, or maintenance projects). Short-term versus long-term projects. High-risk versus low-risk projects. Market familiarity (existing markets, extensions of current ones, or totally new ones). Technology familiarity (existing platforms, extensions of current ones, or totally new ones). Ease of development. Geographical markets (North America, Europe, Asia). 3-33

Strategic Portfolio Model for One SBU in Exxon Chemical 3-34

A Portfolio Diagram at a Hewlett- Packard Division 3-35

Strategic Decision Group Portfolio Evaluation Model 3-36