new product management

Chapter 3

Opportunity Identification and Selection:

Strategic Planning for New Products

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The Strategic Elements
Chapters 1 and 2 introduced the New Products Process.
This chapter presents both the Product Innovation Charter (PIC) and the New Product Portfolio.
The PIC is a strategic plan for new products.
The portfolio ensures that products that meet financial and strategic criteria are pursued.

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

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Figure 3-3
The Flow that Produces PICs — Special Emphasis on Role of Corporate and Platforms

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

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Corporate Strengths Provide Direction for the Team
Figure 3.1
New products in this firm will:
Use our fine furniture designers (Herman Miller)
Gain value by being bottled in our bottling system (Coca-Cola)
Utilize innovative design (Braun)
Be for babies and only babies (Gerber)
Be for all sports, not just shoes (Nike)
Be for all people in computers (IBM)
Be almost impossible to create (Polaroid)
Use only internal R&D (Bausch & Lomb)
Meet the needs of Ford engineers (Budd)
Offer genuine value (Lexus)

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

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Opportunity Identification:

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

Source: Allan J. Magrath, “Envisioning Greenfield Markets,” Across the Board, May 1998, pp. 26-30.

Figure 3.2

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Opportunity Identification: Emerging Societal Trends
“Just-in-time” life
Sensing consumers
The transparent self
In search of “enoughness”
Virtual made real
Co-creation

Source: A. Hines, J. Calder, and D. Abraham, “Six Catalysts Shaping the Future of Product Development,” Visions, 33(3), October 2009, pp. 20-23.
Figure 3.3

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

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

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The Contents of a Product Innovation Charter
Figure 3.5

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Focus

At least one clear technology dimension and one clear market dimension. They match and have good potential.

Guidelines

Any “rules of the road,” requirements imposed by the situation or by upper management. Innovativeness, order of market entry, time/quality/cost, miscellaneous.

Goals-Objectives

What the project will accomplish, either short-term as objectives or longer-term as goals. Evaluation measurements.

Background

Key ideas from the situation analysis; special forces such as managerial dicta; reasons for preparing a new PIC at this time.

An Illustrative PIC for the Apple iPad
Focus: Technology strengths include Apple’s operating system, hardware, applications, and services, product design and development skills. Marketing requirements include products on the “cutting edge” that offer seamless integration and high performance, yet are intuitive, simple, and fun to use.
Goals: Revolutionary new products should also be platforms for future products, due to the cost of “really new” product development. New products should occupy the leadership position in the market.
Special Guidelines: Apple aims to be the best, not necessarily the first, in new product categories.
The Result: Apple’s first “tablet computer,” a revolutionary new product seen by many at the time as the “next big thing.” No one tablet computer had established a dominant position yet, so Apple could be the standard bearer with the iPad. The plan for the future was to add capabilities and applications to future iPads.
Figure 3.6

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

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Risks of Poor PIC Development
Scope creep: Product definition keeps changing: who is the customer? Is it a standalone product or a platform?
Unstable product specifications: Required performance level keeps changing.

Both of these risks are elusive targets (“moving goalposts”) that occur because the sandbox was never defined, or vaguely defined.

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

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

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

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Objectives of Product Portfolio Development
Strategic alignment: mix of products reflects the PIC; new products are “on strategy.”
Assessing portfolio value: commercial value of products in pipeline is maximized.
Project balance: select products that balance the existing product line.
Number of projects: in line with resource requirements; avoid underfunding.

Strategic Portfolio Model for One SBU in Exxon Chemical
Figure 3.9

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Low Market Newness

High Market Newness

Low Product Newness

Improvements to Existing Products

(35%)

Additions to Existing Product Lines

(20%)

Medium Product Newness

Cost Reductions

(20%)

New Product Lines

(15%)

High Product Newness

Repositioning

(6%)

New-to-the-World Products

(4%)

Source: Adapted from Robert G. Cooper, Scott J. Edgett, and Elko J. Kleinschmidt. Portfolio Management for New Products, McMaster University, Hamilton, Ontario, Canada, 1997, p. 63.

A Portfolio Diagram at a Hewlett-Packard Division
Figure 3.10

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Strategic Decision Group Portfolio Evaluation Model
Figure 3.11
Expected Commercial Value
Low
High
Probability of Technical Success
High
Low
Pearls
Bread and Butter
Oysters
White Elephants

Source: Robert G. Cooper, Winning at New Products: Accelerating the Process from Idea to Launch, second edition. Reading, MA: Addison-Wesley, 1993, p. 185.

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Portfolio of Product Types
Source: Adapted from Scott Edgett, “Portfolio Management for Product Innovation,” in K. B. Kahn, S. E. Kay, R. J. Slotegraaf, and S. Uban (Eds.), The PDMA Handbook of New Product Development (Hoboken, NJ: John Wiley), 2013, Ch. 9, p. 162.
Figure 3.12

  DISRUPTIVE
INNOVATION
(New-to-world or new-to-firm) TECHNOLOGY
UPGRADE
(Next-generation) PRODUCT LINE EXTENSION
(Additions to product line) INCREMENTAL INNOVATION (Improvements to existing products)

Number of Projects 10% 12% 32% 46%

Resource Allocation 18% 22% 25% 35%

Incremental
Sales 22% 40% 15% 23%

Background

Key ideas from the situation analysis; special forces such as managerial dicta; reasons for

preparing a new PIC at this time.

Guidelines

Any “rules of the road,” requirements imposed by the situation or by upper management.

Innovativeness

, order of market entry, time/quality/cost, miscellaneous.

Goals-Objectives

What the project will accomplish, either short-term as objectives or longer-term as goals.

Evaluation measurements.

Focus

At least one clear technology dimension and one clear market dimension. They match and

have good potential.

Low Market Newness

High Market Newness

Low Product Newness

Improvements to Existing Products

(35%)

Additions to Existing Product Lines

(20%)

Medium Product Newness

Cost Reductions

(20%)

New Product Lines

(15%)

High Product Newness

Repositioning

(6%)

New-to-the-World Products

(4%)

Source: Adapted from Robert G. Cooper, Scott J.

Edgett, and

Elko J.

Kleinschmidt.

Portfolio Management

for New Products

,

McMaster University, Hamilton, Ontario, Canada, 1997, p. 63.