Jim Brown | President | Tech-Clarity © Tech-Clarity 2017 1 7 Ways to Outperform Your Competitors in New Product Development Investigating How to Win at NPDI 2 © Tech-Clarity 2017 Seven Things Top Product Developers do Differently • Focus on market speed • Compete on innovation at multiple levels • Plan for success with better portfolio processes and requirements • Go beyond product excellence to market excellence • Adhere to their product development process • Adopt a more integrated, holistic view of NPDI • Enable innovators with more collaborative, agile systems Beating the competition at new product development and introduction (NPDI) is critical to a company’s success and profitability. It’s also a major challenge loaded with obstacles, targets, and tradeoffs. Common best practices, like gated processes and cross-departmental teams, are designed to help. But are those too commonplace to provide a competitive advantage? What really drives better market performance? Tech-Clarity surveyed over 150 companies to find out. We analyzed responding companies’ processes, organization, and enabling technology to see what sets those with higher revenue growth, margin expansion, and portfolio innovation – the Top Performers – apart from the rest. We identified seven things that those companies do differently than their lower-performing competitors – the Others. Have they found a better way to develop products and beat the competition? Let’s take a look! NPDI is a Critical Business Challenge 3 © Tech-Clarity 2017 Before diving into performance and best practices, it’s important to acknowledge that developing successful products is a major challenge. The majority of new products fail to meet expectations. Why? Because there are significant, real-world challenges that stand in the way of success. Maybe the most frustrating reasons projects fail are beyond the control of the NPDI team. The most commonly reported challenge in product development is that companies simply have too many projects running concurrently. The root cause is often poor resource planning or the inability (or unwillingness) to kill failing projects. The second most frequently reported issue is poorly documented requirements. These strategic issues that must be addressed prior to project launch or product development teams are set up for failure. There are other challenges as well, including both product- and project-focused issues. One-third of companies report product complexity as a significant challenge. As Tech-Clarity’s The Five Dimensions of Product Complexity explains, “Products have grown in complexity, with no end in sight.” Other challenges stem from difficulty working collaboratively across the business, leading to challenges in cross-departmental processes like change management. The bottom line is that product development failures are much more than an engineering or product development team problem! New Product Development Challenges Too many projects in pipeline Poorly documented requirements Product complexity Poor change management Working across teams Lack of budget Lack of qualified resources Misaligned requirements Supply chain complexity Compliance / regulations New manufacturing methods 40% 34% 33% 30% 27% 26% 23% 22% 22% 22% 22% NPDI Challenges Lead to Missed Targets 4 © Tech-Clarity 2017 NPDI challenges lead to significant consequences. The most frequently mentioned impact (by far) is missing deadlines, followed by missed budgets. In fact, survey respondents indicate that they miss project budgets 38% of the time, on average, and miss project launch dates 45% of the time. These are project-oriented issues, seemingly indicating that NPDI projects are out of control. But before blaming program management processes or people, it’s important to recognize that missing project targets may be an indicator of broader problems. Companies report fewer problems hitting product- oriented goals like performance and quality. Product development issues, however, often show up at the end of development when products are in validation and testing. When products aren’t designed right up front, they frequently require redesign and rework. Then, deadlines and budgets get pushed when things go wrong. Taking extra time to fix earlier problems is likely a large contributor to delayed time to market and budget overruns. Ability to Hit Product Development Targets Missed Targets Drag Down Performance 5 that missing product windows reduces product profitability. Specifically, they indicate that missing time to market goals reduces profitability by 21%, on average. Based on prior surveys, we feel this is a very conservative estimate. Regardless, developing profitable products requires hitting a combination of targets, or suffering from a combination of issues that impact the top and bottom lines (word cloud). Missing product targets leads to significant business impacts. Maybe this is why companies are willing to sacrifice speed to meet product performance and quality goals, which they achieve close to 75% of the time. Survey participants share that missing product requirements reduces profits by 31%, on average. That’s a big impact on profits! But missing launch dates to meet quality goals leads to its own consequences. 86% of companies say Impact of Missing Product Development Targets Time to Market is a Moving Target 6 © Tech-Clarity 2017 Specifically, about two-thirds of companies say that time to market demands have gotten shorter over the last 3 years! One-third of respondents say product development windows have become "significantly shorter." This places even greater pressure on NPDI teams that are already struggling with time to market. The status quo, as difficult as it is, is getting more challenging! Companies miss their project targets far too often. Only slightly more than one-half of products are launched on time. This may be to compensate for other issues, but regardless of the cause it impacts profitability. In some industries, the difference can be an “all or nothing” proposition. Cushioning or hedging product problems with time is a luxury most companies can’t afford today, and will be less able to accept in the future. Even while companies miss their current goals, time to market objectives continue to shrink! “Sometimes, windows of opportunity open up for a new application. Failing to deliver a candidate for evaluation within this timeframe leaves the door open for competitors. If they are successful, even if you eventually come up with a suitable candidate, you would likely be relegated to being a secondary supplier, if at all, or end up cutting into your margin in order to buy your way into the market.” Significantly Shorter 34% Somewhat Shorter 32% About the Same 25% Somewhat Longer 9% Change in Time to Market (last 3 years) Survey Respondent: Material Supplier Identifying the Top Performers 7 © Tech-Clarity 2017 Then, analysts compared performance to commonly accepted best practices to determine if they are valuable, and if they are enough to differentiate. Some of the better known practices were relatively common in both Top Performers and Others. For example, Top Performers and Others utilize gated product development processes and organize in cross-functional teams with about the same frequency. These practices are likely valuable, but they aren’t what sets Top Performers apart. Beyond these, researchers identified seven traits that are common among Top Performers that weren’t found as frequently in Others. These NPDI approaches may contribute to their NPDI success and can serve as improvement opportunities for Others. So how can companies compete in an era of complex products, complex markets, and continuously shrinking product development windows? Researchers used a technique known as “Performance Banding” to understand what approaches lead to better performance. Researchers identified Top Performers by the results of their NPDI success using business metrics over the last three years as compared to their competitors, including revenue growth, margin expansion, and percent of sales from new products. 1) Compete on Time to Market 8 © Tech-Clarity 2017 As the metrics suggest, companies often sacrifice time to market in order to hit other goals. Top Performers, however, place high emphasis on product, quality, reliability, and time to market. They aren’t ignoring other goals, but they have processes that let them get products right the first time while compressing timelines with more integrated and holistic NPDI processes. Top Performers recognize Time to Market as a critical driver of profitability. As reported earlier, missing product development windows erodes profitability. As study participants share, “If the product is late enough, then what was innovative and competitive becomes a me-too product and can only be sold at a lower margin.” In some industries, that can be even more significant, “With a seasonal product, you can lose a year of profit.” View on What Drives Profitability and Market Success 2) Compete on Innovation at Multiple Levels 9 © Tech-Clarity 2017 Top Performers view innovation as a critical driver of profitability. Like Others, Top Performers recognize the impact that product quality and reliability have on profitability. But they recognize the importance of innovation beyond product performance, quality, and reliability. Top Performers are about 2.5 times as likely as Others to identify product innovation as a significant profit driver. They’re also more likely to believe innovation across the product portfolio, portfolio “freshness,” drives profitability. This underscores the importance of developing an innovative collection of products as opposed to a single winning product. Product innova-on Por.olio innova-on 73% 41% 30% 26% Top Performers Others View on What Drives Profitability and Market Success 3) Set the Team Up for Success 10 © Tech-Clarity 2017 documented, visible to all, and put under version control (unless using a more agile process, where requirements are purposefully allowed to evolve). Top Performers take the time to plan for success. The first way they do this is by focusing on the right products. Top Performers are much more likely to have mature product portfolio management processes to help them choose the optimal products to develop. Better portfolio management also helps companies make sure they don’t overload their product development pipelines. Top Performers are also more than twice as likely to have well-documented requirements. Clear, visible requirements incorporating the voice of the customer (VOC) help product development teams target the right features and ensure that products meet market needs. They also help manage changing expectations as the project progresses. Requirements should be well Mature portfolio process Well documented requirements 67% 52% 13% 22% Top Performers Others NPDI Processes by Performance Class 4) Target “Market Excellence” to Complement “Product Excellence” 11 © Tech-Clarity 2017 Top Performers, on the other hand, show greater recognition of the role that product presentation, marketing, and environmental impact have on profitability. This doesn’t mean that they aren’t focused on developing high-performing products, but that they recognize a great product isn’t not enough. Top Performers emphasize the whole product offering, recognizing that it takes more to drive product profitability than a high-performing product. Survey respondents overall report a very product-centric view of what makes products successful, placing significantly less emphasis on market-facing issues. Packaging / presentation Green / sustainability Marketing / branding 36% 36% 27% 3% 4% 14% Top Performers Others View on What Drives Profitability and Market Success 5) Adhere to a Product Development Process 12 © Tech-Clarity 2017 Top Performers are more than twice as likely to consistently follow a structured NPDI process. The key word here is “follow.” Lots of companies have documented processes and report they use a gated development methodology. But documents in a binder on a shelf (or the digital equivalent) are far too commonplace. In addition to indicating that they follow their process, Top Performers are twice as likely to have digitally managed NPDI workflows. Digitizing processes helps encourage and enforce process adherence across the business. Companies frequently report that implementing a digital process helped them discover that they were following a variety of processes and helped force them to really figure out their process, leading to better process maturity. Consistently follow process Digital tasks / workflows Documented, repeatable process Phases / gates 62% 81% 43% 43% 26% 38% 39% 44% Top Performers Others Differentiating Processes and Technology 6) Take a Holistic View of NPDI 13 © Tech-Clarity 2017 Top Performers are over three times as likely to integrate NPD (R&D and Engineering) and NPI (Product Marketing) processes. Top Performers are also more likely to have integrated systems and data. They are twice as likely to integrate information from concept through delivery, including non-technical data. Top Performers are also about 50% more likely to have integrated project and product data. This means they are more likely to have data like BOMs and engineering change orders alongside projects, tasks, and workflows. It’s not enough to have cross-departmental teams, companies need to share data and common processes via common solutions. Top Performers take a much more integrated approach to NPDI. Product development can be a very fragmented process despite the fact that it requires timely input from many departments to get products right. NPD processes integrated with NPI Data integrated across Lifecycle Systems used across departments Integrated project / product data 62% 48% 38% 43% 17% 24% 21% 29% Top Performers Others Differentiating Processes and Technology 7) Enable Your Innovators 14 © Tech-Clarity 2017 These systems can encourage and capture contributions from a broad array of people. Top Performers are also more likely to use cloud systems to support NPDI, perhaps because they are easier to deploy and support across decentralized teams or because these systems tend to have a lighter footprint. Top Performers support NPDI with more lightweight, collaborative, socially-oriented systems. They rely less on spreadsheets than Others, likely because of collaboration challenges caused by tools like spreadsheets and email. At the same time, they’re more likely to use collaborative tools like web-based file sharing. Other than those two differences, the systems Top Performers use are not that different from Others. But, the way companies use them is! As mentioned earlier, Top Performers use systems in a more integrated way. They also have automated tasks and workflows that help support processes, particularly across distributed teams. Top Performers leverage their systems to enable collaboration and integration across departments. Beyond that, researchers found that Top Performers use systems that are easier to deploy and use across teams. For example, they’re four times as likely to use systems with social computing capabilities. Social computing capabilities Cloud Systems for NPDI Systems used across departments 52% 81% 38% 11% 48% 21% Top Performers Others Differentiating Technology Characteristics Conclusion 15 © Tech-Clarity 2017 Top Performers share some industry best practices with Others, but also adopt some differentiated processes. The seven approaches identified in this report include a more holistic approach to products and more integrated NPDI processes and systems. They also include a more systematic, collaborative approach to new product development and introduction enabled by integrated, social, collaborative systems. NPDI is a challenging endeavor that most companies struggle to manage. They commonly miss their product development targets, frequently trading time to market to hit more product-focused targets. The net result is that companies miss the targets that matter most to their companies – revenue growth and profit margins. Some companies do better than others, however, and these Top Performers can serve as an example for others. Benefits of Systems for New Product Development About the Author 16 © Tech-Clarity 2017 Jim Brown is the President of Tech-Clarity, an independent research and consulting firm that specializes in analyzing the business value of software technology and services. Jim has over 20 years of experience in software for the manufacturing industries. He has a broad background including roles in industry, management consulting, the software industry, and research. Jim’s experience spans enterprise applications including PLM, ERP, quality management, service lifecycle management, manufacturing, supply chain management, and more. Jim is passionate about improving product innovation, product development, and engineering performance through the use of software technology. Jim is an experienced researcher, author, and public speaker and enjoys the opportunity to speak at conferences or anywhere he can engage with people with a passion to improve business performance through software technology. www.tech-clarity.com clarityonplm.com @jim_techclarity TechClarity.inc 7 Ways to Outperform Your Competitors in New Product Development This eBook is sponsored by Autodesk www.autodeskfusionlifecycle.com
7 Ways to Outperform Your Competitors in New Product Development
Beating the competition at new product development and introduction (NPDI) is critical to a company’s success and profitability. It’s also a major challenge loaded with obstacles, targets, and tradeoffs. Common best practices, like gated processes and cross-departmental teams, are designed to help. But are those too commonplace to provide a competitive advantage? What really drives better market performance?
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