4.4 The Innovation Process

To the casual observer, innovation seems to appear out of nowhere. In reality, that seldom happens. Innovation comes from a creative, but disciplined design process. For over 10 years, strategy+business has asked the question, “What leads to R&D success?” To get an answer, strategy+business conducts an annual survey of the 1,000 largest corporate R&D spenders to uncover the secrets of “high-leverage innovators.”1 Here are some of the key findings:

1. Spending. How much money you spend on R&D does NOT determine success. How you spend it does. The remaining points focus on how; that is, they share best practices!

2. Strategy. Based on its innovation strategy, your company might be a Need Seeker, Market Reader, or Technology Driver.

• Need Seekers go straight to customers to generate new ideas.

• Market Readers are fast followers—they monitor the market and incrementally improve the cool ideas.

• Technology Drivers rely on their technological expertise to drive both incremental and breakthrough innovations.

High-leverage innovators align innovation strategy to business strategy.

3. Deep Customer Insight. You have to know what your customers want—even if they can’t articulate their needs. Big data and digital reality are beginning to give decision makers key insight into why customers behave the way they do. Deep customer insight helps you make the key trade-offs inherent in creating new products.

4. End-to-End Process. Innovation is cross-functional. It requires top leadership involvement and company-wide support. Better visibility and control is needed to understand what is going on throughout the NPD process, especially in early stages of project selection and evaluation.

What does the research really mean? High-leverage innovators invest in and carefully manage an end-to-end, collaborative innovation infrastructure (see Figure 4.4). Let’s take a look.

Deep Customer Insight

Never forget, when it comes to innovation success, deep insight into customers’ needs is more important than size of R&D budget, quality of engineers, technology deployed, or market research intensity. DeWalt’s president, John Schiech, for example, described DeWalt’s secret: “It’s engineers and marketing product managers spending hours and hours on job sites talking to the guys who are trying to make their living with these tools.”2

You must, however, do more than keep the customer in focus during idea generation. You need to pay close attention to customers in every phase of the innovation process, from idea generation to development to launch. For example, Fred Palensky, 3M’s chief technology officer, explains: “Our goal is to include the voice of the customer at the basic research level and throughout the product development cycle, to enable our technical people to actually see how their technologies work in various market conditions.”3 Table 4.1 briefly summarizes tools you can employ to get into the lives of your customers and understand their needs.

End-to-End Product Development Process

Bringing new products to market is expensive—and risky! Coming up with product ideas may be the easy part. Turning those ideas into a profitable product takes time, effort, and money. Figure 4.5 shows the process that most companies use to take the guesswork (and costs) out of product development. The process consists of five phases—each designed to help you refine product concepts and assess their true customer appeal. The sooner you can determine a product isn’t viable, the earlier you can “kill” it, allowing you to focus scarce resources on the most attractive concepts. The product development process acts a lot like a funnel: You pour a lot of ideas in, but only the best come out. Let’s briefly review the five phases of the NPD process.

The Five Phases of the NPD Process

Phase 1: Screening/Scoping

During screening/scoping, you ask two simple questions. First, does the product really fit your product strategy? Second, will the product meet the competitive test? That is, will it offer customers something that existing (or expected) products don’t?

Phase 2: Business Case Analysis

During business case analysis (BCA), you assess the product’s market potential. You ask, “Do expected sales, growth, and profit justify the investment?” Performing a BCA is often tedious. But you need to weed out as many money-losing ideas as possible at this stage. Your costs go up dramatically in Phase 3: Development.

Phase 3: Development

During development, you move from digital modeling to physical prototypes; that is, working models of your product. As your product comes to life, you get a better sense of how it will really work in the hands of your customers. You will also be able to better assess what it will really cost to produce and deliver to market.

Phase 4: Test and Validate

During testing, you make final product tweaks and introduce the product to your customer—often in a test market. This is your final opportunity to make a go/no-go decision before making the major investments required to launch the product.

Phase 5: Launch

During launch, you develop and execute marketing, production, and distribution plans. The goal: Generate and fill demand. You finally get to find out what kind of ROI all of your hard work will deliver!

Stage Gates

Great companies generate a lot of new product ideas, most of which will never make it to market. The reality is that fewer than 20% of product ideas make it past Phase 1: Product Screening. Worse, as long as a concept is being evaluated, it is eating up scarce resources.

To preserve resources and strengthen your overall development efforts, you need to identify the weak concepts and remove them from the development pipeline as soon as possible. To do this, you need to put “stage gates” in place—and then use them! Many companies lack the discipline to do this.

Figure 4.6 depicts the NPD process with gates. Each stage gate is more than a product review; it is a decision point. Your goal: Discuss the brutal facts and make the tough go/kill decisions on each product concept. A stage gate scorecard like that shown in Table 4.2 can help you evaluate individual concepts and prioritize them within your portfolio.

Sequential versus Concurrent Design Processes

Bringing new products to market is a cross-functional capability. Almost everyone within the firm touches and influences the process—and the resulting product. Two design approaches are frequently used: Sequential Design and Concurrent Design.

Sequential Design

In the old days (1990s), most companies managed NPD in a sequential manner (see Figure 4.7). Let’s talk through the process. Imagine you work in marketing. After you ideate and conceptualize a potential new product, you throw the concept over the proverbial wall to R&D. As R&D reviews your concept, managers grumble that you haven’t thought things through the way you should have. They might even throw it back, asking you to clarify a key point or modify the concept before they are willing to develop detailed product designs.

Once R&D completes its work, you guessed it, they toss the designs over the wall to operations, saying, “Here you go, make this.” Operations managers look at the designs, sigh deeply, and say, “Those guys are clueless. They’ve never made anything in their lives. This can’t be done.” After some back and forth between operations and R&D (and maybe marketing again), the product finally gets made.

Unfortunately, every time a product is tossed from one function to the next, costs go up, and product launch is delayed. Sequential development makes bringing great new products to market faster than rivals and at the low costs customers demand difficult—if not impossible. In the 1990s, U.S. carmakers used this sequential approach. The result: GM needed 36 months (or more) to bring a new model to market. Toyota and Honda, by contrast, employed a concurrent approach, shaving 12–18 months off the NPD development process.

Let’s emphasize one point about a sequential, functionally oriented process. Different functional perspectives can be a blessing or a curse. In a sequential setting, they are typically a curse. Steve Jobs described the curse as follows: “What happened was, the designers came up with this really great idea. Then they take it to the engineers, and the engineers go, ‘Nah, we can’t do that. That’s impossible.’ And so it gets a lot worse. Then they take it to the manufacturing people, and they go, ‘We can’t build that!’ And it gets a lot worse.”4

Concurrent Design

If sequential product design is out of date and out of touch, how do high-leverage innovators manage NPD? They employ concurrent engineering, an approach consistent with Lean Six Sigma thinking. As you might guess, they borrowed concurrent design from Honda and Toyota, two Lean Six Sigma champions. Simply put, high-leverage innovators build cross-functional teams and make important decisions collaboratively (see Figure 4.8).

When managers from marketing, R&D, and manufacturing are all sitting around the same CAD (computer-aided design) workstation, they no longer need to throw a new product concept back and forth over functional walls. Teaming leverages different functional perspectives. Managers feel free to challenge one another’s thinking. Product and process maps include real performance data creating visibility and enabling fact-based discussions. Confronting the brutal facts up front makes the stage-gate process more effective, saving time later in the process. The bottom line: Working as a team and sticking to the facts eliminates surprises, keeps the design process on track, reduces costs, and speeds new products to market.

Team Composition

A critical question to ask is, “Who should be on the team?” The cast of characters discussed above—marketing, R&D/engineering, and operations—are the core members of the NPD team (see Table 4.3). Who else should be on the team? Consider the following:

• Finance. Financial analysts are also common. Their job is to evaluate the ROI implications of design decisions.

• Purchasing. Purchasing managers also play a key role on an NPD team now that many companies invite suppliers to participate in early stages of NPD. This practice is called early supplier involvement (ESI). Why invite suppliers? Suppliers bring key materials and technical expertise to concept evaluation. If you were to walk into the engineering design center at John Deere, you would find that seven of ten engineers actually work for suppliers. Colocation at Deere’s design center keeps all engineering talent on the same page, ensures the best ideas make it into each new product, and improves relationships.

• Logistics. At many companies, logistics is the newest function to be invited to the NPD process. Logisticians help determine how changes in design will impact packaging and shipping costs.

As you can see, each member of an NPD team brings complementary expertise to the NPD process. Imagine how bringing credible managers with diverse perspectives into the NPD process from the very beginning can generate more interesting ideas, challenge complacency, and reduce sloppy thinking. Although concurrent design can be chaotic, the outcome—high-quality products brought to market quickly—is typically worth the effort.