Three Steps to Successful New Product and Service Development
Do you want to increase the success rate of new product and service development? Most executives do because a stream of successful new products and services is among the top financial drivers for most companies. Happily, there is a wealth of research that offers a very clear idea of how to improve your success rate.
With so much interest in innovation and branded product management methods, it’s time to step back and zero in on the primary drivers of success so that you can lead your organizations to better decisions. In this article I break down the topic to help you apply common sense, experience, and most importantly data from hundreds of projects and companies to help you sort out fad, fact and fiction. You will need to get three things right: the product or service, the team and committing your executives to a successful operating environment.
You Can Improve Your New Product Success Rate
Not sure yet that you should be focused on your success rate? That’s OK, you may find the idea appealing but think that there isn’t much headroom to get better — that all these years building products has enabled us to wring out the best practices and use them consistently. It turns out that this has not happened.
Success rates in product generation are surprisingly low. In a later post I’ll go into this in more depth, but for now, I’ll just share a few of the more optimistic numbers. Robert Cooper’s research (2011) and Cooper and Edgett (2012)indicate that products that launch have a success rate of around 60% and 50% respectively. This squares well with a review of research on innovation success rates (Castellion and Markham, 2013) that put the post-launch success rate at about 60% as well. Other studies break out success rates by industry, but these are among some of the higher averages.
To be fair, not all concepts should make it to launch. For now, let’s just say that 60% is optimistic given that some pre-launch failures constitute waste. Further, more aggressive innovation projects that create value that is new to the world or at least the company have much lower success rates. Estimates are as low as 5% (Keeley et al, 2013). Pick your favorite metric and you will be left with the conclusion that there is huge opportunity to do better at generating successful products.
Another reason for overconfidence in product generation occurs in mid-size companies. Let’s say your company started off with a single product that was a hit and has been able to build itself into a mid-size company with a stream of minor enhancements and marketing. There are two reasons that optimism may not be warranted.
First, there is no law of small numbers… you have been up to the plate once and hit a double. While wealth has been generated, the results from a single swing at the ball doesn’t give you a batting average… you may well find that success eludes you in future programs. What is pernicious about this scenario is that your initial success may get in the way of learning, leading to a desire to repeat things as you did them before even when your success may have been despite the approach you took.
Second, you are now in a different scenario for new product development. You have assets to mind including a brand and a customer base. The consequences of failure are higher. This is arguably the most important time to step back and make sure that you are using the best tools available to optimize your success rate.
How to Improve Your New Product Development Success Rate
OK, so you’re still reading, which I will take to mean you are interested in improving your success rate. Great! I’ve summarized below three steps for optimizing your chances of success. You may notice that I do not refer to specific product or technology generation methods. It’s not that you don’t need a good method… you do. It’s just that the steps to success are independent of any specific method.
Build the Right Product
Getting the value proposition right and then delivering it in a compelling product or service is the lynch pin of successful new product development. In turn, the primary driver to this step is gaining and applying a deep understanding of your market and your customers.
One of the single most consistent and durable research findings is that to build the right product and message it effectively, you need to understand your market and your users (Bacon, et al 1994) and just as important apply that knowledge to your project (Ottum and Moore 1997, 2003). Failure on this dimension can show up anywhere in the product generation cycle from concept and prototype testing to the messaging and response to released products.
Researchers have also confirmed the value of a core tenet of customer-centered design — continuous customer involvement from ideation through launch drives success (Cooper, 2017; McKinsey and Company, 2010). McKinsey and Company summarized situation well: “More than 80 percent of the top performers said they periodically tested and validated customer preferences during the development process, compared with just 43 percent of bottom performers. They were also twice as likely as the laggards to research what, exactly, customers wanted.”
The logic of de-risking projects through customer feedback is likely to apply to other project risks as well. Risks may include technical feasibility, channel fit and so on. Although I am not aware of any definitive data on the subject, where there is doubt, quick validation and refinement of a product and business system makes sense. This approach has gained popularity in recent years to generally positive reports, and has been successful for my teams. For example, your new product may require a new distribution channel that requires the cooperation of new distribution partners. Quickly confirming cooperation or modifying the business system to gain it is a good bet.
Get the Team Right
Cross-functional product teams with open communication, committed time, and a defined yet flexible product generation process consistently distinguish top performers from the rest (Nakata and Im, 2010; Edgett, et al (2011); Cooper and Edgett 2012). OK, that is a lot to pack in to getting the team right, but the findings are clear that both the “who” and the “how” of the team are important. Regarding the how, success favors those who have a well-defined process… not just a picture on a slide. It needs to be used, improved, and be flexible– one that can scale to different size and types of projects.
The value of engaging a cross-functional team is brought home by a related finding, that projects that innovate across multiple dimensions of a business system are more likely to succeed than one-trick ponies (Keeley et al, 2013). This is interesting because the execution difficulty is considerably higher with multidimensional innovation. Cross-functional teams are especially important in understanding how to innovate across multiple dimensions of your business system and how to be successful in implementing those innovations. Products that are new to a business or new to the world are most likely to require the most multi-dimensional innovation. While this clearly raises the difficulty level of producing the products, it is associated with higher performing businesses Edgett, et al (2011).
Commit Your Executives
Executive support improves your new product success rates. However, there is more to it than just being supportive. Providing the monetary and staffing support and a degree of participation is essential. Kachouie and Sedighadeli (2015) summarized the bigger picture well: “This research confirms that top management with an entrepreneurial orientation, including autonomy, innovativeness, risk-taking, pro-activeness, competitive aggressiveness, international orientation, tendency to learn and need for achievement in different organization levels have a determinant role in the success of NPD.” This same finding is what Cooper 2015 refers to as “…fostering an innovative climate and culture” and “… is among the most important best practices uncovered in our many investigations”.
Finally, executives are responsible for ensuring that the objectives for the development effort align with an overall strategy and that the goals of the specific program are clearly articulated in the context of that strategy. Interestingly, there is some support for the notion that the business and technical goals can evolve during development as the team learns and adapts, but need to be crystallized before launch Baker, et al 1986.
In Summary: The Three Steps to Success
So now you have the primary drivers to succeed at new product development. Not just my opinion or anecdotes from popular consultants, but the findings from hundreds of projects. Stick with these themes as your guide and don’t get caught up in the product management fad of the week. Instead, focus on these three areas:
- Set your team up to gain deep insights about your market and customers. Insist that they test and iterate their concepts, designs, and business models throughout the process with your customers and partners. Use team members who are pros at this whether they are internal or external.
- Ensure that you have a cross-functional team with open communication whose first “identity” is to the project team. Worry less about the specifics of the process they use than that it is flexible, documented, and open to modification and gets used.
- Provide executive support to ensure that the team has the required resources and that they have an environment that encourages the entrepreneurial and innovative behaviors you are asking for.
Those three steps will enable your organization to have higher success rates than your competitors.
Blue Rocket is a digital product development company based in San Francisco. Through strategy, design, and engineering, we help great companies build powerful digital experiences — the right way. Email us at firstname.lastname@example.org.