Innovation Management 2012 Stefan Wuyts Basics of Innovation Innovation Management 2012 Stefan Wuyts

Agenda Some basic terminology Strategic elements of product innovation The NPD process Radical innovation

Why Study Innovation? Siemens: “Innovation is our vital lifeblood” Dow Chemical Company: “Innovation through R&D is Chemistry’s lifeblood” Nortel Networks: “Technology is the lifeblood of an industry where innovation drives competition and customer value” P&G: “Innovation is our lifeblood”

Comparing the best performing firms with the rest For the top performing firms, about 49% of company sales and profits come from products that were introduced in the last five years. For other firms, this average is about 21%. Lesson: firms that maintain their commitment to new products are rewarded with sales and profits

Failure rate – interfirm Although you may hear much higher percentages, careful studies supported by research evidence suggest that about 40% of new products fail — somewhat higher for consumer products, somewhat lower for business-to-business products.

Failure rate – intrafirm

What is a new product? New to the world New to the firm Product line extensions Revisions Repositionings Cost reductions

Developed by Parke-Davis, approved in 1996 for treatment of cholesterol. Lipitor drug

Strategic Elements of Product Development The New Products Process (chapters 1 and 2) Phased process that takes the new product idea through concept development, evaluation, development, launch, and post-launch. The Product Innovation Charter (Chapter 3) Strategy for new products that ensures new product development in line with firm objectives and marketplace opportunities. Without strategic direction, the firm’s efforts are unfocused. The PIC helps the team identify opportunities and focus efforts. The Product Portfolio (Chapter 3) A way to assess which new products would be the best ones to add to the existing line, given financial and strategic objectives. Avoids spreading scarce financial and human resources too thin.

The P&G Cosmetics Saga Starting point: senior management commitment to new products. P&G’s Cosmetics business unit had no clear product strategy, unfocused product initiatives, too many customer segments being targeted – in short, a lack of focus. P&G Cosmetics used the three strategic elements (PIC, process, portfolio) to made the weak business unit profitable.

P&G Cosmetics and the PIC Situation Assessment: Underserved consumer market that wanted quality facial products such as cleansers, eye products, etc. Supply chain was uncoordinated as production and shipments were not tied to demand; market forecasts were not driving shipping schedules. PIC recommended a strategic focus on products for the face – other opportunities would not be pursued.

P&G Cosmetics and the New Products Process P&G Cosmetics used a phased process. Project teams established early in process. Consumer research done early and used in the process (the voice of the customer). Tough evaluation steps were carefully implemented as new products were compared to best practices and benchmarks.

P&G Cosmetics and the New Product Portfolio P&G Cosmetics systematically added new products such that maximum buzz and excitement was created in the marketplace. If already several eye makeup products on the market, they would not immediately launch another.

The New Products Process Where do new product opportunities come from? Phase 1: Opportunity Identification and Selection How can we organize ideation? FUZZY FRONT END Phase 2: Concept Generation How should we decide which ideas to pursue? Phase 3: Concept/Project Evaluation Phase 4: Development A. Technical tasks B. Marketing tasks Phase 5: Launch

The New Products Process Between the phases of the process are evaluation tasks, where hard Go/No Go decisions are taken. There is pressure to accelerate time to market: crossing the boundaries between phases. Fuzzy gates are commonly used: this is a “conditional Go” so as not to slow down the process in analysis. Still, fuzzy gates must have teeth and shouldn’t be hollow!

The Evaluation Tasks in the New Products Process Opportunity Identification/ Selection Direction; Where should we look? Concept Generation Initial Review: Is the idea worth screening? Concept/Project Evaluation Full Screen: Should we try to develop it? Development Progress Reports: Have we developed it? Launch Market Testing: Should we market it? 2-17

Radical product innovation Garcia and Calantone (2002): discontinuity in both marketing and technology. Gatignon et al. 2002: Radical innovations advance price/ performance frontier by much more than existing progress. Chandy and Tellis (1998): novel technology and addresses customer needs in superior way. Types of Product Innovations Customer Need Fulfillment Low High Newness of Technology Incremental Innovation Market Breakthrough Technological Breakthrough Radical Innovation

Based on a unique active ingredient (atorvastatin calcium); only drug that lowers both LDL cholesterol and triglycerides in patients with elevated cholesterol. The range includes an innovative firming shower wash as a first step to improving the skin's elasticity; the second step is a firming lotion which tightens the skin's structure in just two weeks and the third step is the intensive firming gel cream which reduces the appearance of cellulite in three weeks.

Incubation Stage: Involves customer & technical development Involves failure (but learn from it) Longer, more expensive: required for radical innovation Discovery-Driven Planning: probe and learn Example Levacor implantable heart pumps, problem with young patients (magnetic levitation technology)

Photography Glass plate camera (~1850)

Kodak Camera 1885

Fuji Quicksnap Disposable Camera

Sony Digital Camera 1989