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STARTING THE PROCESS New-product development: Look to customers for ideasThe majority of our benchmarked industrial product companies cited customers, not creativity, as the most commonly used and most important source of ideas. Nurturing an ongoing dialogue between technologists and customers appears to be a popular route to a successful product.Roger MillerT hroughout this decade, one goal of many companies has been income growth. During the early 1990s, the common course of action was to get more out of the existing resource base by using corporate restructuring to improve operational efficiency. The results were impressive, and companies have experienced steady income growth. Investors have rewarded these companies by bidding up their stock prices. Now, however, companies that have effectively eliminated most inefficiencies from operations are seeking new ways to increase income. Many industrial markets are mature and will grow at only the gross domestic product, ±2 points; therefore, market growth alone does not offer much potential. Management must find routes to win market share to achieve meaningful growth. Growth through external means is becoming more difficult, even though 1998 is shaping up to be one of the biggest years ever for mergers and acquisitions. Such growth allows companies to get large quickly. However, it has become difficult to find deals that do not dilute earnings in the short term yet offer extraordinary income growth in the long term. Many companies are looking internally to new-product development (NPD) to achieve at least part of the company's income growth target. Some companies have made significant progress by streamlining the development and commercialization phases of NPD; however, many companies are not satisfied with the results. They see too few successes--or successes too small to be meaningful-- coming out of the improved processes. Consequently, companies are taking a much closer look at the front end of the NPD process, that is, the idea generation and screening phases of the process.
Our industry study This is the second of three CHEMTECH articles in which I discuss the results of the study (the first article is Reference 1). Here, I discuss specific techniques that I discovered--both during the project and in my experience as a consultant--used by successful companies as part of a sound front end for NPD. Note that I differentiate NPD from new-business development. NPD describes the activities leading to incremental or extension products. For this discussion, NPD is limited to existing technology in existing markets.
Customers as idea sources A significant volume of literature supports these findings, and notable experts preach that companies should listen to the customer for new-product ideas. Yet, my own experience advising companies on NPD, coupled with comments from the benchmarked companies and founding subscribers, leads me to suggest a note of caution: "Let's not expect too much from our customers." Customers' ideas generally provide only marginal improvements to product concepts, not the breakthrough growth that comes from applying new technologies to new-product concepts. In Competing for the Future (2), Hamel and Prahalad argue that the needs articulated by customers cannot yield more than incremental growth opportunities. Real growth arises from addressing unarticulated needs in new markets, even though it is a higher risk process. The problems with customer relationships. While preparing for the benchmarking exercise, I visited the nine founding subscribers. Several lamented that although they had excellent relationships with their customers, the customers did not provide the kind or quality of information that leads to breakthrough new products. The project's participants identified the following fundamental problems.
Complementary approaches. In spite of the cited problems, customers remain the best and most widely used source of new-product ideas. The keys to using customers as an idea source are to understand what the customers are saying and then agree on the product specification(s) and price. One benchmarked company uses quality function deployment (QFD) to help translate customer needs and desires into new products (3) (see sidebar, QFD overview).
Another complementary approach is to know your customer's business: its driving force, emerging technologies, and the possible threats and opportunities it faces. By understanding their customers' businesses, several of the benchmarked companies have led their customers to new products in the marketplace that meet real needs. Maintaining multifunctional relationships with key customers is a sure-fire way to capture more customer ideas. The companies that encourage a continuous exchange between customers and their technologists reported a better flow of new-product ideas than those in which sales and marketing alone worked with the customers. Although the sales and marketing representatives are important players in the NPD process at successful companies, they cannot supplant the dialogue between customers and technologists, particularly for developing detailed specifications. One successful company requires that each technologist serve in a marketing position for at least three years as part of the career path in technology leadership. In another, a senior technologist visits every key customer monthly. The companies that have nurtured a dialogue between technologists and customers are emphatic about its importance in the front-end process. Other idea sources. Even though customers are the most widely used source of new ideas, they are not the only one. Almost every company in our study uses brainstorming as an idea-generating exercise. NPD practitioners reported using brainstorming in many forms, including facilitated sessions, unfacilitated sessions, and expert panels. Interestingly, although nearly every benchmarked company reported the use of this method, none raved about the results. Several additional methods were noted (see sidebar, Popular approaches to idea generation).
Routes to less-defined "concepts" Several companies have taken this notion a step farther and start the NPD process with a "statement of an unmet need" rather than a product idea. These companies identify an unmet need in the market that is relevant to the company's technology competencies. The initial investigation then focuses on that need: determining what the market really needs, quantifying the need, and deciding how the company's competencies can satisfy it. Only after these issues are understood do the participants attempt to define the new product. The companies that use this approach claim that it forces them to go beyond delivering the same old product with a new twist. In another novel approach, opportunity and problem analysis are used to focus on real problems. The company identifies a problem within its customer base that is likely to have a product solution (recognizing, of course, that not all problems have product solutions). The next steps are to analyze the problem and quantify what a solution would mean to the potential customer base. A multifunctional team, convened specifically for the assignment, completes the analysis. Through brainstorming, focus groups, and ideation sessions that include individuals from outside the team, the group collects and develops many potential new-product ideas. The final step is to select the ideas that are most likely to solve the problem. During the analysis phase, the team assumes technical success, and therefore, it does no experimental or technical work. The focus is on
The role of creativity In a recent well-written book, Robinson and Stern argue that acts of corporate creativity are not planned for and appear where they are the least expected: "For corporate creativity, the real power is in the unexpected" (4). Most of the benchmarked companies would agree that creativity comes from unexpected sources; however, they might also argue that new-product creativity is expected on a regular and recurring basis. Companies that enjoy a robust idea generation process rely on the creativity of the many sources of new-product ideas. Yet, none of the benchmarked companies talked about creativity as a vital component of the NPD process. Most see NPD as a methodical process akin to project management. Collectively, they might describe the process this way: "Establish mechanisms for collecting and nurturing ideas. Screen the new-product ideas using an established method. If an idea meets the requirements, develop the new product through to commercialization." Larger doses of creativity may be warranted in developing new industrial products, but the practitioners are not focused on creativity as the foundation of a successful process. Only one company described a program specifically designed to stimulate creativity. This program allows anyone with an idea to apply for a research grant. The award, which usually is between $30,000 and $50,000, allows a researcher to explore an interesting area of science or application technology. The goal of the program is not so much to develop new products or businesses but to stimulate creativity; in fact, the program seldom results in a new-product idea that is relevant to the company's business strategy. However, the company believes that the program stimulates the creative talents of its researchers and continues to fund it.
Collecting and nurturing ideas It is the responsibility of the innovation manager to ensure that the gatekeepers--all senior-level executives from the business--receive the information they need to assess a project. This approach enables the company to evaluate all new opportunities with the same measure of supporting information. It also allows the gatekeepers to focus on the decision-making process and coaching. Most companies maintain some kind of idea bank. Whenever most employees are connected to a corporate intranet, access to an idea bank is greatly simplified. Idea banks archive ideas and record the disposition of each new idea, showing everyone in the organization what happens to an idea after submission. Companies that maintain idea banks systematically search them for repeated and related ideas, believing that any idea that continues to surface over time by different originators demands attention. Considerable variation exists in how much information companies expect to accompany a new-product idea. Some companies require only the raw idea: A new business development team will gather all the relevant supporting information. However, most companies want all the information the originator has collected to accompany the idea, or they require a standard set of information to start the preliminary investigation (e.g., projected market size and growth, technical approach, and sales price).
Organizing data-gathering teams Companies that are competent in project management have a high quality of execution of the entire NPD process. I have found that most project leaders are technologists because the technical risk is typically high for new products in the industrial arena. Also, the technical community has largely usurped the leadership role from the business community in managing the front-end processes (1). Whatever the background of the leader, the first two members of a team are always a technologist and a marketer because they represent the two functional areas of greatest risk for the success for most new products. Other members of the development team, including market researchers, financial analysts, and manufacturing representatives, are added to reflect the specific risks of a given project. Usually, as a project passes each decision point, or gate, more people are added. Team members typically continue with a successful project all the way to commercialization, but the practice is hardly universal. One company with a robust NPD process assigns one team to gather data through to the initial screening. Then, a new and permanent team is assigned to build the business case and move the project to commercialization, and the initial team is assigned to gather data for the next project in line. The initial team is very efficient at gathering information at the earliest stage of a project to support the initial screening. The company has found that this method promotes a completely independent review by the second project team at changeover. Interestingly, no company guaranteed a role for the idea originator on the project team. Two companies said that they would entertain a request by the originator to join the project team if a match existed in the skills needed for the project. In addition, none of the benchmarked companies specifically rewarded employees for contributing successful new-product ideas.
Screening approaches
Evaluating risk factors. Successful companies focus on risk reduction in the front-end processes, and reducing risk comes from building knowledge. The goal of the initial investigation is to build knowledge and to identify all of the elements of risk and weigh their relative importance. Knowledge building is key in separating the winners from the losers at the earliest stages. For the initial screening, many processes require only qualitative data; the emphasis is placed on identifying important risk factors that could doom a project to failure. The risk factors become the basis of the assumptions that the development team tests and validates throughout later phases. To ensure that all the elements of risk are identified, at most of the early gates, the gatekeepers assess--directly or indirectly--several issues (see sidebar, Questions from the gatekeepers).
Other front-end weaknesses. When asked about problems or weaknesses in their front-end processes, most interviewees said that they did not have enough information about the market (see sidebar, Common problems at the front end).
Each benchmarked company had its own criteria for accepting or rejecting a project. One clear indication of potential for NPD success was the screening criteria's relationship to strategic intent. Companies that have clearly defined the strategic intent of their NPD process are in much better positions to screen new-product programs. Criteria sets. The most successful companies insist that projects have to be highly attractive, based on well-conceived criteria, and consistently applied. They have created the screening criteria from the strategic intent of the NPD process. For example, if a company's product strategy is to support short-term earnings growth, then the criteria involving time to first sales and gross margin will be weighted more heavily than those for technology leadership. If the intent of the NPD program is to maintain or achieve market leadership, issues of market size, growth, and access take priority. Successful companies create criteria that clearly differentiate between projects of greater and lesser potential to contribute to the goals of the business. Then, they measure all new-product ideas against the same established criteria. The criteria are unique to each business and are derived from the strategy of the business. For many companies, the criteria for the first screen (immediately following preliminary investigation) and the second screen (before full-scale development) are only slightly different. In fact, many companies are moving toward a single set of criteria for all decision points of the process. Under this approach, all of the decision criteria are introduced at the beginning of the process, and the development team is forced early to focus on factors that present high risk. Both the emphasis and quality of the information change as a project moves from idea to development. The screening criteria remain the same, but the process recognizes that not all criteria present the same level of risk. Some projects are high in technical risk, whereas others may be high in market risk or financial risk. Experienced gatekeepers play a key role by instructing the development team on the deliverables at each gate. Those deliverables must emphasize risk reduction and force the team to build knowledge about criteria that relate to the greatest risk. Therefore, as the team builds knowledge to address each screening criterion, reasonable assumptions are acceptable for criteria assessed as presenting low risk in the early stages of the process. The team members and the gatekeepers review these assumptions at each decision point. At the appropriate time before full commercialization, all assumptions must be validated. Although most companies use a systematic method for the first and second screen, two of the benchmarked companies use a very streamlined approach to the first screen. In both cases, a key technologist (probably the director of R&D), who maintains a comprehensive understanding of the marketplace and the business's product strategy, makes the initial screening decision of each new-product idea. Technologists are limited to acting on modest product extensions, and projects are limited to those that can be completed with the resources controlled by the technologist. Also, projects that require capital investment are never channeled to these streamlined processes. The beauty of such a process is speed. One director of technology for a coatings company said that the company had developed and shipped the first lot of a new product in as few as seven days! Scoring models. At least two of the benchmarked companies were developing scoring models that would result in a numeric score for each project. Such models typically allow for scoring each criterion over a range (e.g., 0-10). Some models allow each criterion to be weighted with a multiplier that reflects the criterion's relative importance. Then, the ratings are added to yield an overall score for each project. This method is attractive because it helps to highlight the criteria associated with the greatest risk (low scores) and because the weighting can reflect the relative importance of each criterion.  Scoring models are excellent tools to rank projects. Companies that have more ideas than resources use the scoring model as a selection tool. I have seen companies with well-developed scoring models reject all projects below a certain cutoff score despite the volume of ideas. The most highly developed scoring model I have studied (not a part of this project) also was used as part of the portfolio analysis process. It allowed the company to compare new products with others in the development pipeline and even with mature products.
Our suspicions confirmed Creativity is not considered a major element of industrial NPD. Most of the benchmarked companies use creativity methods, but they did not report that these methods were highly effective in generating new-product ideas. This area clearly needs additional study to decide whether the use of creativity methods could have a significant effect on idea generation and which methods work best. One key element of front-end processes is a proactive process to collect and prepare new-product ideas for screening. In several companies, the concept of using an innovation manager is continuing to evolve. The innovation manager can play a powerful role in the front-end process by collecting and "teeing-up" ideas for screening and keeping gatekeepers focused on their role as decision makers and coaches. Companies that have developed a strategic intent for the NPD process use that intent to build more successful screening criteria. Companies that use a single set of screening criteria at all decision points keep the development team and the gatekeepers focused on reducing risk. They recognize all issues important to successful commercialization from the beginning of the process. The issues that present the greatest risk are the focus of the knowledge-building phase while the company satisfies the low-risk issues with assumptions that will be validated later. Scoring models have also proven helpful during early-stage screening and prioritization of projects.
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