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Improving New Product Development Performance and Practices

  • ID: 42714
  • Report
  • February 2003
  • 188 pages
  • American Productivity & Quality Center, APQC
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Product innovation, the development of new and improved products, is crucial to the survival and prosperity of the modern corporation. With an estimated one third of the average organizations’ sales derived from new products, product life cycles are getting shorter as the pace of product innovation accelerates. New products fail at an alarming rate, however. Approximately one in ten product concepts succeeds commerciallyi, and only one in four development projects is a commercial successii. Even by the launch phase, after all the product tests and market testing are done, one-third of product launches still fail commercially. In the technology field, the odds are even worse; only 20 percent of software projects are commercial winnersiii. Organizations scrap almost one-third of new projects for a loss of $80 billion annually iv. The huge amounts at stake coupled with the high odds of failure make product innovation one of the riskiest endeavors of the modern corporation. Many managers, researchers, and pundits have sought answers to the age-old questions: What makes a new product a winner? And why are some organizations so much more successful at product development than the rest?

A number of success factors and drivers of new product performance—including practices, characteristics of projects or project teams, and solutions and methods— have been identified over the years. Many of these practices and characteristics have never been verified as having a real and measured impact, whereas others are based on research that is years old and needs updating. Finally, many prescriptions and recommended practices are based on research done at the project level and not at the business unit level. Therefore, the practice may improve performance of individual projects, but have minimal impact on the organization’s total new product performance.

This study seeks to overcome some of these challenges in understanding what distinguishes the top new product development (NPD) performers. The study seeks to verify (or refute) commonly prescribed solutions and practices, update knowledge, and focus on the business unit level to consider the overall impact of a practice, method, or solution on the organization.

STUDY FOCUS

This study addresses four main groups of questions in new product development.
1. How do organizations fare on a number of practices that have been identified over the years as positive drivers of performance? For example, do organizations have a new product strategy in place, and what is in this strategy? Do organizations conduct customer research, and just what market information do they gather?

2. How are organizations performing in terms of their new product development
efforts? Are they profitable? And what percentage of sales and profits comes from new products?

3. Are some NPD practices connected to better performance? What is their impact? And what are the best-practice organizations doing differently from the rest? For example, do they have a new product strategy in place? And does conducting customer research make a difference?

4. What are some of the details and examples of best practices? How have organizations sought to improve the climate for innovation? And what kinds of portfolio management systems have organizations implemented?

Previous research has identified a number of factors that are proposed to drive new product performance. These factors provide the conceptual framework and basis for the current study (Figure 1, page 8). The main topic areas studied are:
1. existence of a new product strategy for the business;
2. the organization’s new product development process (its idea-to-launch scheme and its elements);
3. best practices embedded within the new product process;
4. the quality of execution of key activities from idea to launch in typical new product development projects;
5. customer research and market inputs to projects;
6. the quality of market information on entering the development stage;
7. spending on preliminary research (before development begins);
8. the existence of product advantage (unique, superior products and strong value propositions);
9. product definition before development begins and its ingredients;
10. portfolio management approaches (project selection and prioritization methods);
11. resource availabilities for NPD by functional area;
12. resources for NPD project teams and degree of focus and dedication to NPD;
13. nature and structure of NPD project teams;
14. the climate and culture for NPD and product innovation;
15. senior management practices, roles, and commitment to NPD;
16. metrics used to gauge NPD performance; and
17. type of projects undertaken (i.e., the portfolio breakdown).

NPD Performance Metrics

The performance of organizations’ total NPD efforts was also measured. Note
that NPD performance is a multidimensional concept, so multiple measures of
performance are used in this study. These performance measures include:
- percentage of new products meeting sales, profit, and market share objectives
(three measures);
- success, failure, and kill rates of development projects (three measures);
- proportion of NPD projects on-budget and on-schedule (two measures);
- percentage of the organization’s sales and profits generated from new products (two measures);
- overall profitability of the organization’s NPD program relative to spending;
- whether or not the organization’s NPD program met or exceeded its sales and
profit objectives (last three years);
- the success and profitability of the organization’s NPD program (last three years) compared to competitors;
- how successful the organization’s NPD program has been (last three years) from a technical standpoint, relative to spending;
- time efficiency (i.e., whether or not NPD projects are developed as quickly and efficiently as they should be);
- whether or not the business has been able to significantly reduce product
development cycle time from development to launch over the last three years; and
- how successful the organization’s NPD program has been in terms of opening
new markets not served before to the business, enabling the business to enter
new product categories, and getting the business into new technologies
(3 measures).

From these multiple performance metrics, various performance dimensions were
created to distinguish the best-practice organizations in NPD. This report details what practices, methods, and approaches separate the best and most profitable organizations from the rest.

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- Sponsor and Partner Organizations

A listing of the sponsor organizations in this study, as well as the best-practice (“partner”) organizations that were benchmarked for their performance and practices in new product development.

- Executive Summary

A bird’s-eye view of the study, presenting the key findings discovered and the methodology used throughout the course of the study. The findings are explored in detail in following sections.

- Findings

An in-depth look at the findings of this study. The findings are supported by quantitative data and qualitative examples of practices employed by the
partner organizations.

- Partner Organization Case Studies

Background information on the partner organizations as well as their innovative new product development practices.

- Index
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