bringing innovation

8/2/2019 Bringing Innovation

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338 JOURNAL OF CONSUMER MARKETING, VOL. 14 NO. 5 1997, pp. 338-361 MCB UNIVERSITY PRESS, 0736-3761

What is the next big business trend? Manufacturing and quality circles?

Total quality management? Reengineering? Mergers and acquisitions?

Downsizing, Right sizing? Cost cutting?

How about none of the above? We have all been there and done that and it

is definitely time to try something new.

What about something as simple as growth? What about innovation as the

next big thing? Corporate leaders across the USA are beginning to realizethat there is no place left to look for that next big thing, and that they must

create it themselves. They are discovering that the only sure-fire way to

ensure long-term stability, satisfy shareholder growth goals, maximize

employee happiness, and stay at the forefront of their industry with a

sustainable, dependable position is to innovate.

The key difference with innovation, relative to past big business trends, is

that innovation cannot be the flavor of the day. Innovation needs to go

beyond being a project and, instead, become part of a companys

mainstream. As we make our way through the innovation age, the time has

come for business leaders to shed their short-term mindsets and expand their

thinking into the future. The development and fostering of an innovationmindset is the only way that the power of innovation (Figure 1) will

continuously bring success to an organization and maximize its risk/return

posture.

Successfully innovative companies have recognized that risks are inherent,

failure is okay, rewards and recognition are critical, and senior management

involvement enhances innovation efforts. They have, in fact, according to

Tom Kuczmarski, in his breakthrough book,Innovation, embraced several

contrarian views and guiding principles that separate the best from the

rest.

Bringing innovation to lifeScott M. Davis and Kristin Moe

Competitive benefits Unique competitive

offerings andadvantage

Preempts competitiveentry

People benefits Expanded employment

opportunities Increased stakeholder,

employee and end-user satisfaction

Energized, creativeand enthusiastic workenvironment

Customerbenefits Helping customers and

end-users better satisfytheir needs and wants

Increased customerloyalty andcommitment

Increased customersatisfaction

Companybenefits Sustainable growth

engine Increased customer

goodwill Enhanced productivity Increased margins Increased revenues Position in new

categories Increased employee

retention Increased positive

press coverage

Figure 1. Power of innovation

Time to t ry somethingnew

An executive summary

for m anagers andexecut ives can be found

at the end of this article


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JOURNAL OF CONSUMER MARKETING, VOL. 14 NO. 5 1997 339

Contrarian views

Contrarian views state that:

(1) Idea generation is the worst way to begin a new product process.

(2) Marketing should never work alone on new product development.

(3) Senior management needs to be the leader of innovation.

(4) Return on innovation investment needs to be measured separately.

(5) New product teams should be compensated differently.

(6) Failure should be celebrated.

Guiding principles

Guiding principles postulate the following:

(1) Failure is an intrinsic part of innovation. Willingness to accept some

failures will inculcate far greater confidence in new product

participants, and, over time, generate higher financial results.

(2) Companies that have a new products strategy in place are more

successful than those that do not. By identifying the financial goals,

strategic roles, and screening criteria that new products should try to

satisfy; innovation will become a permanent part of an organizations

strategy.

(3) Using multi-functional teams with dedicated team members is a critical

requirement for success. This requires people who can focus on,

become immersed in, and are surrounded by innovation. This way, they

have the time, concentration, and motivation to develop an innovation

mindset.

(4) Compensation incentives, which simulate an entrepreneurial

environment, are more apt to motivate participants on new products

teams.

(5) Top management commitment is the cornerstone for successful

innovation. There are three ingredients for top management

commitment:

allocating adequate resources: financial (including R&D and

technology funds), and personnel (assigning some of the best people

to new products);

a perspective and mindset that allows for failures, mistakes, and a

long-term payback; and

an expressively proactive, positive, I-believe-in-you attitude.

(6) Companies that are successful innovators keep track of their results andmeasure their returns on innovation. They stay on top of new product

expenditures. They recalibrate future investments and fine-tune return

expectations annually.

(7) Development of a new products portfolio helps to diversify risks and

provide a balanced investment approach to innovation (Figure 2).

(8) Companies need to begin the new product development process with

consumer or customer problem identification and need intensity

research not idea generation.

(9) Identifying innovation values and new product team norms to guide

behavior and communications among team members is another key

factor. Companies that allow teams to invest adequate time up front to

Keeping t rack of results

Will ingness to acceptsome failures


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340 JOURNAL OF CONSUMER MARKETING, VOL. 14 NO. 5 1997

do this, and are open to the inputs made, help to solidify and empower

new product teams. In addition, understanding team member tangible

and intangible motivators is critical to keeping team members

continuously energized (Figure 3). This coalesces the people power,

which usually lies dormant within a team.

(10) A systematic, well-defined and commonly understood new product

development process is a given not a differentiator for successful

innovation.

To maximize your innovation hit rate, develop your own formula for

success. The best new product companies in the world 3M, Rubbermaid,

S.C. Johnson and Son have adopted processes that have altered their

success potential from luck (i.e., 1 out of 10 successes) to probability (i.e., 7

out of 10 successes). These companies ensure they always have an active,

live pipeline, filled with a balanced portfolio of new products, from low

Costreductions

High

Low

Newness to market

Productrepositionings

Productimprovements

Lineextensions

New to thecompany

New to theworld

HighLow

Newness to company

Increa

singris

k/return

Figure 2. Leveraging a portfolio of new products helps to diversify risk and

maximize returns

Self-accomplishment

Peer recognition

Top management exposure

Career advancement

Compensation

Peer pressure

Part of job description

Mandate or edict

0 1 2 543

4.49

4.06

3.74

3.37

2.97

2.74

2.37

2.06

What motivates a functional team member to work together asa team to develop a new product or service?

Figure 3. Key factors in motivating team members


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risk/low return to high risk/high return products. They treat innovation as a

valuable corporate asset. And they do not take a low-risk approach.

Leveraging a new products process within your company that is iterative and

easy to understand will only help its adoption potential throughout your

entire organization. While there are many processes out there, and we

certainly do not mean to offer ours as the only alternative, the eight stepsoutlined below constitute the steps we have consistently found that

effectively take a company from customer-driven needs and wants

assessment to final commercialization:

(1) Planning and direction setting develop a new products strategy that

includes earnings and revenue growth gaps to be filled by new products,

the roles you want new products to fulfil, and an assessment of past new

products to assess lessons learned. In addition, total team integration and

an agreed-on workplan is critical to ensuring everyone is in agreement

before beginning.

(2) Market problems and needs exploration conduct qualitative research

with consumers to explore and identify their needs, gripes, complaints,and hassles in a given product category. These problem areas provide a

focus for idea generation.

(3) Problem-solving and idea generation generate new solutions and

creative approaches that address consumer problems. An idea

describes the purpose of the new product and outlines the benefits that

the new product will provide to consumers.

(4) Concept development and business analysis develop screened ideas

into three-dimensional descriptions of a product. A concept should

describe the product features and attributes, intended use, and primary

benefits perceived by consumers. It outlines the core technologies that

will be used and states general technical feasibility. It addresses how the

product might be positioned against competition and defines the primary

purchaser. In addition, business analysis will help your team to

formulate a market and competitive assessment that projects the

potential size and attractiveness of the new product concept. Included is

a rough-cut, three-year pro-forma that estimates future financial

performance.

(5) Prototype development complete development of the product,

including product performance and consumer acceptance tests.

(6) Plant scale-up determine roll-out equipment needs and manufacture

the product in quantities large enough to identify bugs and problems;

run additional product-performance and quality tests.

(7) Commercialization introduce and sell the product. Initiate awareness-

building and trial stimulation programs to reach the targeted consumer

base.

(8) Post-launch checkup monitor performance of the new product at six

and 12 months after launch and evaluate potential changes or

improvements.

In our many years of experience, working on scores of new product

development projects, cutting across multiple industries, we have

consistently found that most companies have difficulty with steps 1-4

(Figure 4). In fact, more often than not, companies have a very strong

development and commercialization process, but admit to being weak in

determining what to develop.

Many processes

Weaknesses


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To this end, the rest of this article and corresponding figures highlight the

key elements of those first four steps. Think of this as an overview of the

cookbook your company should consider adopting for developing new

products going forward. Every time you go through this process, the

cookbook should be updated and new recipes should be added.

Step 1: Planning and direction-settingStep 1: stated objectives

The purpose of Step 1 is to improve your new product success rate by

developing a strategy and identifying the best process for new product

development within your organization. This strategy leverages the strengths

and weaknesses of historical new product development efforts. In addition,

step 1 should clearly identify specific new product goals and objectives to be

achieved over a three-to-five-year period.

Step 1 generally requires about four weeks to complete and entails the

following major activities:

Conducting product and company diagnostics to assess past new product

performance and leverage lessons learned.

Developing an initial new product strategy, including a new product

vision, new product roles and goals, screening criteria, and a financial

growth gap.

Step 1: end results

an agreed on new product strategy,

a customized new product process,

a cross-functional project team,

research categories to explore, and a workplan for executing that

exploration.

Step 1 objectives

Develop detailed conceptdescriptions for top-tier

ideas

Review, test and reviseconcepts with customers

Conduct businessanalysis onapproximately 15-20most attractive newproduct concepts

Determine next steps fortaking top 5-6 newproduct concepts forwardinto prototypedevelopment and testing

Conduct seniormanagement workshopon processenhancements, resourcerequirements anddecision-making process

Prepare idea

generationstimulusmaterials byneed/problemarea

Conduct ideagenerationsessions withkey internal andexternalparticipants

Consolidate,evaluate andscreen ideas

Identify andprioritize top-tier20-25 newproduct ideas

Conductseveral waves

of qualitativeinterviews andfocus groupswith customersand decisioninfluencers

Sythesize andanalyze dataand keylearnings

Identify,prioritize andfully-detail keycustomerproblems,needs andopportunityareas

Craft newproducts vision

Determinefinancialgrowth gap

Define newproductstrategic roles

Establishscreeningcriteria andmeasurements

Identifyopportunityareas andresearchcategories

Set teamnorms, goals,timeline,responsibilitiesand outputexpectations

Develop

overallresearch planand approach

4 weeks 8 weeks 4 weeks 8 weeks

Step 1:Planning and

direction-setting

Step 2:Market problems

and needs exploration

Step 4:Concept development and

business analysis

Step 3:Problem solving and

idea generation

Figure 4. Priming the new product development process steps 1-4


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Step 1: hidden objectives

This step will force senior management to get involved in the process, agree

on long-term goals and objectives, and recognize the level of resources

required to achieve their stated goals and objectives.

Steps 1-4 should each begin with a meeting that officially starts the step and

explains its objectives, activities, and outputs. It is this meeting and theactivities surrounding it, more than anything else, that sets the tone for the

project teams interaction. Team members have an opportunity to get to

know one another and share individual goals for the project through

discussion and team-building exercises.

In addition to the kick-off meeting, the first week during step 1 should be

filled with a review of past activities and planning of future ones. Team

members should present a brief review to the team of current activities in their

functional area. This allows each team member to display his/her expertise

and initiates the cross-functional learning that will take place throughout the

project. The team leader should plan and manage the activities during this

week. Specific team tools that need to be developed include an issue tree, adata matrix, interview guides, and write-up and analysis templates.

Additionally, the team will need to schedule interviews with selected

individuals throughout the company that will take place during step 1.

Developing an agreed-on new product strategy

Overview. A new product strategy is an overall description of the role that

new products will play in satisfying the growth goals of a company.

Specifically, it defines: the financial growth gap and goals that new products

are expected to meet; strategic roles that describe the functions that new

products will perform; and screening criteria that serve as filters in

determining which categories and new product concepts are most attractive

to pursue.

Financial growth gap. A financial growth gap is developed by first

understanding the amount of sales revenue senior management expects to

obtain from new products at the end of a specified period (typically three-

five years). Key inputs for determining this gap are interviews with senior

managers, historical new product performance, current company planning

documents and category performance learnings. The purpose of developing

this growth gap is to provide management with a common understanding of

expected financial contribution of new products (Figure 5).

Vision and strategic roles. A new products vision and strategic roles help a

company specifically identify the areas in which new products will compete

and the potential ways they can help support existing business lines and

establish new markets. Key inputs include interviews with management,

company planning documents, and research on consumer and market trends.

The purpose for developing a new product vision is to define the market for

new products, and the purpose for developing strategic roles is to pinpoint

the methods for defending and expanding the companys current business

(Figures 6-7).

In general, there are two types of roles that are most often used. Requisite

roles direct a company to develop new products that defend and bolster its

current line of products. These are generally line extensions, revisions and

new-to-the company products. Expansive roles direct a company to think

outside the box and develop products that will truly expand the business in


Step 1 activities

Satisfying companygrowt h goals


7/24


which it competes. Expansive roles, most often, direct a company to look at

new markets, new benefits, new technologies, etc. Obviously, the returns are

greater when developing expansive products, but so is the level of risk. Our

philosophy continues to be finding the right mix of new products to

maximize the risk/return payback.

Screening criteria. Screening criteria are measures for evaluating the potential

of new product opportunities. Key inputs include management perspectives,

historical screens and risk analysis. The purpose for determining new product

screening criteria upfront is to prioritize ideas generated during the project,

and to provide guidelines for objectivity, discipline, and rigor in selecting the

ideas that will move forward to concept development and business analysis

(Figure 8).

Stated senior management commitment. Arguably, the most critical output of

this activity is garnering top management commitment to proceed with the

new product initiative. This includes a consistent and visible commitment to

invest resources, adherence to a formal process as well as strategic and

$1,250,000

$1,000,000

$805,000

$640,000

$385,000

20

15

10

5

5

Totalrevenue

5-yearcompound

annualgrowth rate(percent)

Management cited goal

Projected growth in the1993 strategic plan

Management cited goal

Latest 5-year compoundannual growth rate ismaintained

Compound annual growthrate for current product lineswith no new productintroductions

$385,000

$805,000

$500,000

Input source

Recommended five-yearfinancial growth gap

Example$420,000 = 5year revenue

gap to be filled bynew products orother sources

1995/1996F 2000/2001

Figure 5. Example: financial growth gap (000)

Sets the overall direction for new productdevelopment. Helps make new products apriority and rallying point within the organization

New product vision

Sets specific financial goals for new products

and determines the growth gap to be filled bynew product revenues

New product financialgoals and growth gap

New productstrategic roles

Tied to strategic roles, determine which projectsreceive priorities and further developmentexpenditures

New productscreening criteria

Determines the specific objectives new productsare to fulfil in support of the business strategy

Requisite roles Defend or bolsterexisting businesses

Expansive roles Propel company intonew categories, marketsor businesses

Figure 6. New product strategy components


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financial screens, continuous direction-setting, and autonomy for new

product managers.

If, at the end of step 1, you have not really seen and heard commitment

consistently voiced and displayed, you have two choices: either force senior

management into a room together to reach consensus or pull the plug on the

entire endeavor. Neither of these are ideal options. However, investing six

months of your time without senior management commitment will be a

wasted investment for both you and your company.

End benefits and outputs. Ideally, a new product strategy should include: a

desired three-to-five-year new product revenue target from new products; a

specific vision and strategic roles that new products will fill for the

organization; an estimate of development expenditures and investment

capital needs for at least the next two to three years; and top managements

expectations for, and commitment to, new products.

Without a new product strategy, it is difficult to know in which direction to

head. One idea or concept may appear attractive to one person and not to

another. With an agreed-on strategy, management can more quickly and

effectively focus on the market categories, ideas, and concepts that match

specific strategic roles. It enables managers to focus idea generation on

agreed-on targets, and it cuts down the screening time and prototype

development costs incurred by false starts. In short, the new product strategy


To be the leading manufacturer and marketer of high-quality interior building products to provide customerswith optimal solutions to their interior needs

Newproductvision

New productstrategic

roles

New productscreens

Requisite roles Defend or bolsterexisting businesses

Expansive roles Propel company intonew categories, marketsor businesses

Target and obtain aleadership position inselect marketsegments

Become the interiorproducts industrytechnicalperformance leader

Continue tooutperform anddifferentiate from thecompetition inproduct aesthetics

Redesign current interiorsystems to increase easeof installation andaccessibility of interiorproducts

Expand the benefitsprovided by interiorsystems by including non-traditional functionalitybenefits

Become a morecomprehensive providerof interior productsincluding installation andmaintenance services

$225 million in 8 years

New product

financialgoals andgrowth gap

> $18 million inannual revenues

35 per cent GPV NPV > 0/7 years at

10 per cent

Requires < $6 millioninvestment

Leverages currentdistribution

ROI > 24 per cent

Figure 7. New products strategy example: commercial products organization


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defines how the growth objectives of the company will be satisfied by

internally developed new products.

Developing a new product process

Overview. Armed with the results of the new products strategy, management

is well equipped with information to reassess the existing new product

process and guide the development of a process that is well tailored to the

companies specific needs. Internal strengths to exploit in generating new

concepts will be identified, the reasons behind past new product

performance are more accurately understood, and the potential internal

impediments can now be addressed. At this point, the key benefits from the

audit are informed decision making and judgment that can be integrated into

the enhanced new products process going forward.

Diagnostic audit. The diagnostic audit is an analytical tool aimed at

improving new product development efforts. Specifically, it is designed to

identify strengths and weaknesses of the new product system and guide

future new product efforts by allowing the new product team to build on

strengths and learn from past projects.

There are three areas of assessment in the diagnostic audit:

(1) Historical new product performance. This includes analysis of revenue

and profit performance, survival and success rates, performance against

objectives and reasons for success or failure (Figure 9).

(2) Strengths and weaknesses assessment. This includes analysis of cost-

related and manufacturing factors, technology-driven factors, demand-

and marketing-related factors, and sales and distribution factors.

Team judgment based on qualitativeresearch

Medium to high fit with brand name

At least one concept in portfolio(a) extends to brand

(b) has time to market < 1 year Portfolio has proper mix of conceptsrequiring low, medium and highdevelopmental/capital costs and peopleresources

Criteria Objective Measure

Address at least one of thebrands new productstrategic roles

Satisfy strategic screensand portfolio assessment

criteria

Strategicalignment

Consumerneed

(a) Positive qualitative consumer researchfindings

(b) Positive quantitative study results

(a) Address a strongconsumer need; benefitrelevant for identifiedtarget groups

(b) Secure high consumerconcept appeal basedupon preliminaryexecution

Technicalbasis

Potential for technological successmedium to high

Development plan/milestone/criteria

established Estimated development time outlined

Identify potentialtechnologies capable ofdelivering the consumer

need

Financialviability

ROI 15.5 per centPV of 4 year CF > 0Year 1 net sales $18 $28MM (line

extension)$28 +MM(NTC or NTW)

Payback Cash flow 3.5 years,NOE 3 years

Assess financial potentialof the concept based onbest available information

Figure 8. New product concept screens


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(3) Development system review. This includes analysis of new product

strategies and growth role, step-by-step new products process, screening

criteria and adaptive new products organization.

To perform a diagnostic audit, conduct the following four steps: first, identify

new products for study; second, gather data from internal reports and external

sources; third, schedule interviews with functional team members and new

product development managers; and fourth, analyze results and develop top-

line system recommendations to integrate into steps 1-4.

The audit will provide information that will guide decision making in

developing new products and the companys overall new product strategy,

and will confirm whether expectations for future new products are realistic.

End benefits and outputs. The audit will reveal and help team members

understand best practices in developing and commercializing new

products. It will seed-out the bad practices that either bottlenecked the

team or led to new product failure.

Forming a cross-functional project team

Overview. If you do not have respect and trust among team members, if you

do not have adequate resources to complete this initiative within the agreed-


90/91 91/92 92/93 93/94 94/95 96/97 97/98

Product A Product B Product C Product D Product E Product F Product G Product H Product I Product J Product K Product L Product M Product N Product O

Company XYZ new product introductions

New product scorecard

New products launched: 15a

Still on the market: 10 (66 percent) Two-plus years old and still on the market: 4 (27 percent) Met original net sales projections: 2 (6 TBD) Cumulative net sales ($000): $300,000 New product net sales as a percent of total category: 15 percent Cumulative gross profits ($000): $180,000 New product gross profit as a percent of total category: 13 per cent Cumulative PC ($000)b: $12,000-($23,000) Cumulative NOE ($000)b: $5,000-($28,000) Average year 2 net sales ($000): $11,000

Average year 3 net sales ($000): $7,000

($000s) Total net sales 300 18,000 70,000 102,000 110,000 Total PC* (1,600) (8,500) (16,000) (1,500) 5,000 Total NOE* (800) (5,000) (12,000) (6,000) (4,000)

Note: aPC = Product contribution; b NOE = Net operating earnings

Figure 9. A new product scorecard


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upon time period, if you do not have cross-functional representation or the

levels of commitment described earlier, you may be doomed to failure. We

have consistently found that poor team dynamics and poor hand-offs,

more often than not, result in failure.

Team formationactions to take. We suggest conducting a number of values-

related exercises and teaming events within this step to maximize team

effectiveness. Some of the more impactful exercises we have used, include:

setting a team vision and a team pledge,

agreeing on team values and norms,

understanding one another through several, available tests and exercises

(i.e., Myers-Briggs),

getting to know one anothers spouses or friends,

agreeing on specific roles and responsibilities for each team member as

well as a totally integrated workplan.End benefits and outputs. While many will balk at the idea of conducting

these exercises, we have consistently found that those teams that take the

time to go through this in step 1, have a higher likelihood of success in steps

2-4. Again, trust and strong communications are the two most important

elements of any good relationship, and we would heavily suggest that this is

a worthwhile investment for your team in the short and long run.

Agreeing on research categories to explore

Overview. In this stage, the team will make important strategic decisions

prior to going out into the field to conduct exploratory research. The team

will also finalize the workplan and determine exact resources needed to

complete the entire project.


Marketresearch

Productdevelopment

Packaging/engineering

Manufacturing Finance Sales

Marketing

Team leader100 per cent dedicatedto new product project

Team members50 per cent dedicated

Team members20-30 percentdedicated

Figure 10. Example team construct


12/24

Research categories . A research category is nothing more than an area to

explore. For instance, our work with a leading manufacturer of air care

products pointed to aromatherapy as a robust and growing category of

opportunities to pursue. This decision in step 1 led our team ultimately to

develop a line of candle products that has resulted in several hundred million

dollars worth of sales. Strategic roles, category trends and secondaryresearch are designed to help the team decide upon no more than 15-20

research categories to pursue.

Workplan. This workplan lays-out the gameplan of major activities and tasks

to complete going forward. It includes geographic and demographic direction.

Ultimately, the team creates a research roadmap for the rest of the project

(Figure 11).

End benefits and outputs. Having reached total agreement on next steps is

one of the most exciting and binding experiences the team will face. Done

well, research categories and a strong workplan result in a contract between

the team and the rest of the organization.

Creating and presenting a report is a necessity after each step of the new product

development process. This report should be presented to senior management, as

well as selected audiences throughout the organization who will be directly

affected by the outcome of this project. The new product development team

should be responsible for creating and presenting this report. This benefits

individual team members by allowing their functional area managers and peers

to understand the work they have done, and it also benefits the new products

process by highlighting the strength of cross-functional teaming.

Step 2: Market problems and needs exploration

Step 2 stated objectives

The purpose of step 2 is to uncover and determine important needs and

wants that are currently not being met, or not being met well in the market.


Area to explore

At t he end of t he step

Develophypotheses

and keyissues

Conduct 10 IDIsto scope issue

areas

Conductworkshop with

internalmanagers to

frame researchfor problem/opportunity

areas

Developmoderatorguide andscreeners

Activatewave Isetup

Preparation

Focus groups

7-8(6-8 consumers

each)

IDIs, dyads andtriads

3 rounds(18 consumers

Total)

Experientialobservations

5-6

Estimated totalconsumers

65-88Surface problemareas/needstates

Wave I

Define problemareas/needstates

Wave II Focus groups

4-5(6-8 consumers

each)



total)

Prioritize problemareas/need states

Wave III Focus groups

1-2(6-8 consumers

each)



total)

42-58

18-28

Figure 11. In-depth qualitative research process


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This step helps the team to focus idea generation and concept development

around the issue areas with the highest potential for marketplace success.

Step 2 is time-intensive, research-driven, and generally requires about eight

weeks to complete. Its major objectives include:

Identification of high need intensity unmet needs, wants and opportunities

based on research with primary decision makers and decision influencers.

An understanding of key trends and drivers impacting the various

categories based on non-consumer research and secondary research.

Step 2 end results

A comprehensive understanding of the marketplace.

Five to seven strategically focussed customer opportunity areas that will

serve as a basis for step 3 idea generation.

Step 2 hidden objectives

This step will teach everyone in the organization that the answer does lie in

the marketplace. It will also equip every team member conducting the

research with, arguably, the greatest depth of knowledge of anyone

participating in the category or industry.

Developing a comprehensive understanding of the marketplace

Overview. The majority of this step involves interviewing, both in a one-on-

one and focus group setting. In addition, where appropriate, the team should

conduct in-home interviews and/or on-site viewings to better understand

specific behaviors driving decisions within the category.

Because the cross-functional project team will conduct all of the research

(rather than an outside moderator), it is imperative that thorough, upfront

interview training occurs before the start of the interviews. Additionally,because of the intensive interviewing, and tight timeframe of the step, one

team member should have ownership over the logistics and interview

scheduling for the team.

Interviewing in step 2 is structured by IQA (iterative qualitative analysis).

IQA is the process whereby the team interviews, analyzes, restructures and

re-focuses, interviews again, analyzes again, revises again, and so on, to

form a funnel that starts broad and narrows down to the highest potential

opportunity areas (Figure 12).

The key benefit of this approach is the division it creates in the research

process for analysis and thought. Conducting research can be time and

energy consuming, and sometimes even the best of us gets lost in the data.

IQA ensures that the team breaks out of research, formally analyzes the

results to date, revises the interviewing approach and goals based on the

findings, and then, and only then, begins to research again.

Conducting qualitative research. Wave 1 is typically broad in scope and

focuses the team on understanding each research category. It reveals the

current process for purchasing the product and the buyers perception of

both the product and the brands in the market/industry.

After the analysis of wave 1 findings, wave 2 refocuses efforts to dig even

deeper and better understand specific problems and frustrations within each

research category. Wave 2 also uncovers new categories that may have been

overlooked in wave 1.


Step 2 activi ties

Benefit s of IQA


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Wave 2 analysis generally allows the team to develop problem statements

that are then presented to interviewees in wave 3 to confirm both the

accuracy of the problem, and its relative intensity compared to other big

issues. Wave 3 research is used if needed, to prioritize opportunities further

and to make sure the team is in full consensus with step 3 idea generation.

Conducting non-consumer research. While the majority of effort in step 2 is

directed at conducting primary research with decision influencers, equaltime is spent on conducting non-consumer research. Through secondary, and

selected primary research (with industry experts, association, and the like), it

is possible to round out the teams market understanding.

Specific types of information that should be addressed in non-consumer

research are: marketplace trends; emerging technologies; competitive profiles;

and industry facts and figures. This information will allow the team to enhance

its understanding of the market, and evaluate the areas for greatest opportunity.

Selecting five to seven strategically focussed customer opportunity areas

Opportunity area prioritization. Once all the data have been collected, we

recommend that the team invest a solid week to analyze and synthesize the

data and reach consensus on a gameplan for step 3. This should involve a

total integration of learnings from primary research with decision makers

and decision influencers as well as secondary research. The team should

select the highest potential opportunity areas for step 3 idea generation based

on market need intensity of the unsolved problems and/or oppportunities

addressed in each category.

Step 2 report development. The new product development team will present

their findings and recommendations to senior management. At this step 2

report, the teams mindset should focus on the impact their work will have

on the direction of the organization relative to new product development

efforts. This report is a milestone for the project, as it marks the completion

of gathering information, and the start of creating new product ideas.


Specific need Specific need Specific need Specific need


Need area1

Need area2

Need area3

Need area1

Need area2

Need area3

Analysis

Research

Broad need area exploration

Research

In-depth need area understanding


Analysis

Figure 12. IQA (Iterative qualitative analysis)


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Step 3 idea generation


The purpose of step 3 is to generate high-potential new product ideas based

on the market needs and wants uncovered in step 2. The emphasis in step 3

should be on generating as many ideas as possible that will potentially solve

problems and satisfy needs identified by consumers during the exploratory

research conducted in step 2. The top 20-25 ideas will move forward to step

4 concept development and business planning.

Step 3 generally requires about four weeks to complete. The major

objectives for this step are:

Develop a comprehensive list of ideas to address needs and

opportunities identified in step 2.

Evaluate each idea against the consumer and strategic and technology

and manufacturing screens identified in step 1.

Choose 20-25 top-tier ideas to take into step 4.

Step 3 end results

Conducting a series of idea-generation sessions.

A list of 20-25 top-tier new product ideas to concept development and

business planning.


This step will force the team to gather ideas and solutions against the top

research categories even ideas that are out of the box or defy the law of

physics. The main purpose of this step is to generate as many ideas as

possible without being limited by the traditional inhibitions that most

companies face (i.e. limited by todays technology, instead of thinking about

the possibilities tomorrow).

Conducting a series of idea generation sessions

Overview. The primary objective of step 3 is to generate new product ideas.

The forum for doing this is a series of idea generation sessions (Figure 13).


Step 3 objectives

Step 3 activi ties

Problem-solving packageand homework exercise

A summary of the problem categories and underlyingrationale sent in advance to familiarize participants priorto the idea generation session

Idea-sorting Ideas are sorted according to agreed-to criteria. Theresulting idea ranking is then used for further ideation

Idea-builder Ideas are passed from participant to participant. Ideafragments are added each time with the end output beinga complete idea

Analogy examples Use of analogies to the problem area (e.g., moisturizingwood and moisturizing skin)

Situation simulation Problem situations are presented to consumers to elicitsolutions

Written stimuli Detailed problem description and relevant consumer quotes

Pictureboards/visual stimuli

Project team members brainstorm different ways to visuallydepict the problem. Boards or media are used to generateideas at the beginning of each ideation session

Figure 13. Techniques for idea generation


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These are not focus groups: At first glance, these sessions appear similar to

traditional focus groups. There are 1-2 moderators, 8-10 participants, and a

recorder taking notes. The purpose of a focus group is to identify consumer

problems. The purpose of idea-generation sessions is to identify solutions for

problems and satisfying identified consumer needs. Similar to step 2

research, all idea-generation sessions are conducted by team members.

These are not random brainstorming sessions: Idea-generation sessions are

not traditional open brainstorming exercises. Rather, idea generation is a

focused process aimed at creatively solving consumer-cited problems.

Step 3 set-up and background. Typically six to eight idea-generation sessions

are conducted during step 3. Of these sessions, six to seven are likely to be

conducted with different functional areas of the company, such as marketing,

R&D, packaging, sales, and customer service. The team should also pursue a

separate session with senior management that will provide an open, non-

threatening forum to foster creativity at the highest level. Conducting a

session with this group also continues the buy-in process that is so critical

to new product development.In addition to internal idea-generation sessions, one to two sessions should

be held with the market (consumers, customers, decision influencers, etc.).

These groups sometimes generate the most out of the box ideas, since they

are not working in the industry, and have no preconceived paradigms.

Believe it or not, these idea-generation sessions will provide several hundred

targeted, new product ideas. Some of these ideas will be complete, while

others may still be in idea fragment form. Concurrent to these sessions, the

team will need to edit/maintain continually the list of ideas to ensure that the

ideas captured are complete, robust new product ideas.

Generally, an idea should contain a benefit, an action, and a form. In addition,

we have also seen ideas contain such items as the surface use, technology use,and a segment of the target market to be addressed (Figure 14).

Idea screening (Figure 15). There are two types of idea screening that

should be conducted in step 3. The first screens an idea must pass are

consumer and strategic screens. These screens assess the degree to which


Idea generation sessions

An idea is a (1) description of the product, (2) a detailing of what the productdoes, and (3) a listing of the benefit(s) provided to consumers

Example Cellular phone

A telephone that is portable to allow consumers to communicate from any

location, providing freedom and security

Product What the product does

Benefit(s) provided

Example Contact lenses

A miniature plastic film that is placed directly onto each eye to eliminate

the need for consumers to wear eyeglasses

Product What the product does

Benefit(s) provided

Figure 14. What should a new product idea look like?


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ideas satisfy or address new product strategic roles and consumer needs and

wants. The team uses these screens to help answer specific questions: Does

the idea address a strategic role? Does the idea satisfy an unmet consumer

need? Does the idea deliver a meaningful consumer benefit? And, does the

idea have broad, moderate or narrow appeal within the market identified?

Consumer and strategic screens should be viewed as an important

mechanism in selecting the best ideas and screening out the less attractive

ones. If an idea does not solve a problem or fill a need, or if it does not

support the teams strategic roles, then it should not move into step 4.

However, the idea should be held in a catalogue of ideas for future

evaluation, as the market may change, and in ten years, it may become the

hottest selling product on the shelf.

The second type of screens are technology and manufacturing screens.

Typically, only the top 75-100 ideas are subjected to this screen, which is

why the consumer and strategic screens are conducted first. Technology and

manufacturing screens assess the degree to which ideas leverage available

technologies and manufacturing/packaging processes. The team uses the

technology screen to help answer specific questions: Does the idea fit within


(4) Needintensity/broad

or narrow(niche) appeal

(5) Fit withconsumerparadigms/

beliefs

(6) Me-tooproduct

(7) Brand fit

(8) Technicalfeasibilityscreening

Highestpotentialideas

Newidea

(3) Deliversmeaningfulconsumer

benefit

Yes

(2) Satisfyexisting or

unmet need

Yes

(1) Fit withstrategic role

Yes

No

Audit trail ofrejected ideas

Less strongneed and

narrow appealPut ideaon hold

Put ideaon hold

Put ideaon hold

No

Yes

Intense needor broadappeal

Yes

No

Figure 15. Idea screening criteria and process

Hottest selling product


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the companys technological capabilities? What are the estimated

development costs for this idea? How difficult is the packaging technology

for this idea? And, what manufacturing capabilities might be required?

Importantly, technology screens, unlike consumer and strategic screens, are

generally not used to filter-out ideas. These screens are used more to sort ideas

into different development and technology categories. They help the projectteam to choose a mix of short-term and long-term ideas into step 4. Ultimately,

the company will need a mix of ideas with short- and long-term technologies to

build a portfolio and pipeline for ongoing new product development (Figure 16).

Narrowing the list of ideas to the top 20-25 ideas

In typical projects, there may be 50-60 ideas that pass all the screens, fit the

strategic roles set up in step 1 and seem like they are winners. Unfortunately,

it would be unrealistic to attempt testing that many ideas as concepts in step

4. Only 25-30 ideas can successfully be tested and assessed in a months

time by any strong research team. The team is responsible for filtering the

50-60 ideas down to only 25-30. All of these ideas have potential and all will

be tested eventually. But, to move on to the next step, narrowing the list is arequirement.

The step 3 report is focused on a description of the idea generation process,

the screening process, and the top 20-25 ideas that will move forward to step

4 concept development and business planning.

Step 4 concept development and business planning


The purpose of step 4 is to identify two or more high potential concepts

ready for further development in step 5 based on iterative consumer input

and business attractiveness.

This step generally requires about eight weeks to complete. Its two major

objectives are:

shaping the highest potential concepts from step 3 via iterative

consumer input,


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Figure 16. Example concept

Step 4 objectives


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conducting business analysis on the top 5-7 concepts to develop a full

understanding of the potential for each of these strong concepts.

Step 4 end results

two (or more) high potential concepts with mock-up

designs/formulations that mesh with the existing category portfolio andare ready for full product development,

five (or more) additional deferred high potential concepts that are

documented for future consideration.


This step forces market feedback to direct a companys commercialization

efforts. Again, the team needs to place strong emphasis on allowing the

marketplace to drive the answer not senior management or other internal

forces.

Developing high potential concepts

Overview. Think of this step as inside-outside-inside. The first part of thisstep entails turning the 25-30 ideas into robust concepts. The second part

involves testing those concepts and prioritizing the top 5-7. The last part

involves conducting business analysis on those 5-7 concepts and narrowing

them down to the top 2-3 that should move forward into development.

Concept development and testing. To determine the highest potential

concepts for business analysis, the team will conduct iterative consumer

research, similar to that conducted in step 2. Prior to this research, however,

the team needs to develop fully each of the 25 ideas into concepts, with

written descriptions and renderings. These concept descriptions will become

the stimuli for the consumer focus groups (Figure 16).

The team will begin iterative qualitiative analysis to reveal the most

attractive concepts. These waves of research again act like a funnel, sifting

out the best concepts for successive waves, and leaving the weaker ones

behind. For example: Wave 1 addresses all 25 concepts, these concepts

undergo team analysis, to narrow down to the top 12-16 concepts for wave

2. Wave 2 analysis determines the top 5-10 concepts, and wave 3 solidifies

with the market the high potential of these concepts. Approximately five to

seven concepts are selected during wave 3 for business analysis.

Conducting business analysis. After step 4, all ideas for future development

consideration must display strong market and business attractiveness, based

on extensive preliminary design, cost and sales assessment. These

assessments include market potential, technical and design scenarios, costand manufacturing potential, and all lead to business case financial scenarios

(Figure 17).

The team is ready to develop a business case for each of the five to seven

concepts. The components of each business case should include (Figure 18):

concept statement and renderings,

market sales scenarios,

R&D (technology) scenarios,

packaging scenarios,

manufacturing scenarios,

business financial analysis scenarios.


Step 4 activi ties

Business casecomponents


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Business case development should begin with three-year sales estimates.

The team may consider the following guidelines for developing sales

potential estimates:

consumer-based trial and repeat estimates leveraging historical launches,

share estimates based on the existing and potential market size for the

consumer benefit offered by the concept,


What range ofsales revenues,

costs, grossmargins and

growth rates mightbe expected from

this concept?

What profitsmight accruefrom bringing

this concept tomarket?

What financialhurdles mightthis concept be

expected toclear?

What are thepotential unit costsfor this concept?

What resourcesmight need to bededicated to bring

this concept tomarket?

What marketingand distribution

costs might haveto be incurred to

launch thisconcept?

What is theestimated marketsize for each ofthese concepts?

What type ofpurchase behaviormight be expectedfor this concept?

What ballparkunit sales volumemight this conceptachieve during its

first 3 years?

What is the estimatedmarket potential for

each of the concepts?

What potentialbusiness

scenarios mightexist for each

concept?

What are the estimatedcosts necessary to

develop and introduceeach concept?

What new product/service concepts should betaken forward to commercialization and launch?

Figure 17. Business analysis helps answer strategic questions

Refinedconcepttext

Refinedconceptdrawings

Umbrellabrandnames

Sub-brandnames

Price

Key consumerlearnings

Potential targetmarkets

Alternativepositionings

Quantitativetest results

Channelconsiderations

Competitiveproducts

EstimatedROI

Presentvalue of cashflow

Salespotential

Deliveredprofit

Productcontribution

Discounted

payback

Consumerbenefitsdesired

Alternativetechnologies

Testingrequirements

Estimateddevelopmenttime

Estimateddevelopmentcost

Alternative

technologies

Riskassessment

Packagingconfigurations

Estimateddesign cost

Estimatedtiming

Estimated unitand refill costs

Capitalrequirements

Estimatedtiming

Manufacturing

Packaging

R&D

Financial

Marketing

Conceptdescription

Figure 18. Elements of business analysis


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22/24

benchmarking against businesses with similar characteristics, including

normal sales growth benchmarking.

Technology, packaging and manufacturing scenarios should be developed to

estimate the cost of materials for developing a product. In most cases, the

team will have several options for each scenario, and should therefore

calculate each one. Scenario development was designed to help the projectteam create a list of possible options including costs for input in the financial

scenario calculations.

Financial scenarios should be developed using all of the above input. The

objective of these financial scenarios is not to determine an exact launch

pro-forma financial plan, but rather to aid in the selection of the most

attractive ideas to move forward into development. It is too early to make a

refined estimate of exact costs or develop the accuracy needed at that level.

Selection of top two to three concepts. This rigorous analysis and the market-

based research will point the team into an obvious direction in which two to

three concepts will be recommended to move forward. However, gameplans

should be constructed for the other concepts as they were also very desirable.

The step 4 report should review the process for concept development. It

should describe and focus on each concept scenario developed in business

analysis. After the step 4 meeting, the project team should be ready to select

concepts to move forward into development (Figure 19).

Once step 4 is completed, the team should celebrate and, hopefully, be

recognized by senior management. Additionally, the same team should be

involved in steps 5-8, while also transitioning back to their areas and core jobs.

Conclusion: a few unspoken benefits of this process

The following unspoken benefits can be identified:

Not a penny has been spent yet on product development all productdevelopment efforts will be well grounded in market research.

The project team, that has gone through this process, will now have a

deeper appreciation and understanding of the criticality of new product

development and the iterative steps it takes to complete a full cycle.

If communications have been completely open, then each functional

area should be fully abreast of what is taking place within the process.

Consequently, any transitions will be made more easily and pride of

ownership will be maintained.

Goodwill and public relations has been enhanced for your company just

by being out in the market and talking to hundreds of customers.

An important message has been sent to the organizations stakeholders

regarding the companys future.

Well, now that you have gone through the process with us, you can begin to

understand the amount of rigor, discipline and hard work it takes to make

innovation happen. Put this on your Monday morning to-do list and take the

time to talk about innovation with your colleagues. This next big thing is

likely to have the biggest impact yet.

Scott M. Davis is a partner and Kristin Moe is a consultant, both at Kuczmarski &

Associates, Inc., Chicago, Illinois, USA.

s


Estimating t he cost ofmaterials


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Executive summary and implications for managers and executives

Seven actions and three cultural factors needed to make your firm more

innovative

Innovation is the next great business challenge. We have fought our way

through TQM, BPR, JIT and other acronymic business ideas. Now, proclaim

Davis and Moe, we need to embrace the challenge of innovation. And this

new realization is not just a trend, it is a fundamental change in our attitude

to management. Business people must shed their short-term mindsets

and expand their thinking into the future.

So what is this innovation stuff, then? Surely we cannot mean simply

developing more new products and more new brands? Businesses are

already doing that, many with great success. Nor can innovation mean yet

another expensive reorganization of the business. After all where you put

people and what you call them does not represent innovation merely a new

shuffle of the pack followed by a new deal.

A friend of mine once opined that most successful entrepreneurs founded

their success on one great idea. And, the less competitors could copy the

idea, the more money the entrepreneur would make. By idea he didnt just

mean a new product, or even a new service, but often a subtle tweak to the

way of working or a new insight into how to sell whatever it was that the

business made or did.

This friend went on to say that most of these entrepreneurs lost their way

when either the great idea is superseded or when the business reached a size

that required a different approach to management from the all-embracing

everything-is-important attitude of the successful entrepreneur.

I do not know whether this opinion contains any truth nor do I suggest an

urgent research programme to find out how to let entrepreneurs have a

second great idea. But I do feel that business success is nearly alwayspredicated on innovation. A firm without innovation becomes doomed to

decline and eventual closure or else absorption into some larger or more

dynamic organization.

Davis and Moe present a polemic about creating a structure and culture of

innovation in a firm. Their focus is on the new product rather than a broader

concept of innovation embracing service delivery, organizational structure

and human resources. The principles, however, apply regardless of how we

define innovation.

To embrace innovation we need to take on board seven key actions and

acknowledge three cultural requirements.

The seven actions:

(1) Have a new product development strategy. Davis and Moe point out that

firms with a new product strategy succeed more than those without.

Even better develop an innovation strategy stretching beyond mere

material creation.

(2) Develop a pay structure that rewards innovation and creativity. Do not

take new product development or innovation and put it in a tidy little box

leaving most staff to plod on doing the same old things day in, day out.

(3) Avoid allocating innovation to a particular function. Innovation is not

marketing or finance or production. The profitable new idea can come

from anywhere in the business. Create cross-functional teams and make

innovation a part of everybodys job.


This summary has been

provided to allowmanagers and execut ives

a rapid appreciation of

the content of thisarticle. Those w ith a

particular interest in t he

topic covered may then

read t he arti clein toto totake advantage of the

more comprehensive

descript ion of theresearch undertaken and

its result s to get the full

benefit of the m aterial

present


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(4) Count the innovation beans. Measure your return on innovation and

measure the benefits that seeking the new brings to productivity and

loyalty in employees. Challenge finance people to finds ways to deliver

rather than slam the brakes on all the time.

(5) Be collegiate rather than authoritarian and hierarchical. Try to bring

everyone into discussions and take the trouble to listen to what staff atany level say.

(6) Recruit innovators. Do not get hung up on qualifications and education.

Look out at the real world and realize that most entrepreneurs and

innovators do not hold higher degrees from business schools. Yet it is

their ideas that change the world.

(7) Let people do their own thinking. Rather than giving them some pat

solution help them solve problems and face challenges themselves. They

will have more fun and you will get more out of them.

Three cultural requirements:

(1) Lead by example. Davis and Moe insist that, without senior

management commitment to and involvement in innovation, there willnot be any. And commitment does not just mean sending out a memo

saying the board is committed. It means rolling up your sleeves and

getting involved in the nitty-gritty of the firms thinking.

(2) Allow people to fail. If you have a culture where people are terrified of

making a mistake or failing at some project then you will have no

meaningful innovation. Davis and Moe describe how our wider culture

affects our attitude to failure. Too often we see failure as a character

flaw or a stigma rather than a reflection of someones efforts to succeed.

In allowing failure, though, you must set in place the support and

methods for people to learn from failure. It may not be wrong to fail but

people need to take time out to think about why they failed. The more

your organization assesses its failures the more it will learn how not to

fail and that means more successful innovation.

(3) Dont get obsessed by secrecy, privacy and protection. Open up

discussions and debates in your business. Do not lock doors and hold

exclusive meetings. Allow staff free access to the experiences and

knowledge that exists in your business. There should be nothing beyond

the privacy of personnel files that employees cant see and understand.

The more they can know, the more they will get involved and the more

chance you have of getting their best efforts and best ideas.

Innovation is not a system it is a way of working

Although Davis and Moe present a structure for innovation in a new product

development context, what underlies their process is a different attitude to

work. Successful innovators are more prevalent where the society in which

they work sees innovation as a core activity. In places like Silicon Valley

innovation is celebrated and people go there because they anticipate support

for ideas and the chance to play a part in leading the future of business and

technology.

If our information age is indeed an innovation age then successful

organizations will create structures and employ staff with new ideas in mind.

For those that dont the future is more frightening and less lucrative. Where

do you want to be?

(A prcis of the article Its not simply change, its evolution. Supplied

by Marketing Consultants for MCB University Press)


bringing innovation

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