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BENCHMARKING BEST NPD PRACTICES–I
Culture, climate, teams, and senior management’s
role are the focus of this first in a 3-part series.
Robert G. Cooper, Scott J. Edgett and Elko J. Kleinschmidt
OVERVIEW: This first of three articles reports the
results of the most recent American Productivity and
Quality Center study on performance and best practices
in new product development. Performance results
achieved on a number of NPD metrics are reported
first, followed by a set of Best Performing businesses,
what these businesses have in common and—most
important—what differentiates them from the rest. This
first article focuses on the “people side” of NPD—on
how project teams are organized and on other winning
characteristics of teams. The climate and culture for
innovation within the business proves to be one of the
Robert Cooper is president of the Product Development
Institu te Inc., in Ancaster, Ontario, Canada, and
professor of marketing at McMaster University’s M. G.
de Groote School of Business, Hamilton, Ontario. He is
also Crawford Fellow of the Product Development and
Management Association, and ISBM Distinguished
Research Fellow at Penn State University ’s Smeal
College of Business Administration. The developer of the
Stage-Gate™ new product process, his latest book (coauthored with Scott Edgett and Elko Kleinschmidt) is
Portfolio Management for New Products, 2nd edition
(Perseus Books, Cambridge, MA, 2001).
[email protected]; www.prod-dev.com
Scott Edgett is CEO and co-founder of the Product
Development Institute. A specialist in new product development and portfolio management, he has consulted and
written extensively in the field with over 50 published
articles and four books, including co-authoring Portfolio
Management for New Products.
[email protected]; www.prod-dev.com
Elko Kleinschmidt is professor of marketing and international business at McMaster University’s M. G. de
Groote School of Business. He is an authority on the
process of new product development, portfolio management of new products, and success factors for new
product development programs. He has published over
60 publications and co-authored Portfolio Management
for New Products. [email protected]
strongest drivers of NPD performance, and the specifics
of what the Best Performers have done to achieve this
positive climate are outlined. Finally the role of senior
management in setting the stage for the business’s NPD
effort is examined.
New products fail at an alarming rate. Approximately
one in ten product concepts succeeds commercially (1)
while only one in four development projects is a commercial success (2). The huge amounts at stake coupled
with the high odds of failure make new product development (NPD) one of the riskiest endeavors of the modern
corporation. Thus many managers, researchers and
pundits have long sought answers to the question: why
are some businesses so much more successful at product
development than the rest?
The current investigation closes gaps in our understanding of what distinguishes the top NPD performers. The
study is comprehensive in that it considers 113 prescribed practices and focuses on the link between
practices employed and performance results achieved at
the business unit level. By gauging the impact of a
practice or solution on the business, the study seeks to
verify (and quantify the impact of) commonly prescribed
solutions and practices (3).
What Was Benchmarked
Seventeen best-practice topic areas were studied,
ranging from new product strategy through to climate
and culture and the idea-to-launch process. This first of a
three-part series reports on the NPD performance results
achieved by the sample of businesses, and then on the
people side of NPD: on the climate and culture for innovation, the role of senior management, and how project
teams are organized.
New product performance was measured in a number of
ways in the study, and which metrics are most popular
was also probed. Use these performance data (and their
distributions) to benchmark your business’s NPD performance versus the average and top performers. We also
identify a subset of Best Performing businesses, and
focus on their practices; these are clearly the “benchmark
businesses” that one should strive to emulate. In this and
subsequent articles, we probe what drives performance
and what distinguishes the Best Performers from the rest.
Performance Results
How well the sample of businesses performs in NPD is
the first question in any benchmarking study. How the
businesses fare on each of the performance metrics is
highlighted in this section, along with the distribution of
results: the top and bottom 20 percent of businesses on
each metric.
Percentage of revenues and profits from new products
The most popular performance metric at the business
unit level was found to be percentage of sales revenue
derived from new products. Figure 1 reveals how businesses perform on this popular metric, and also the
How the Research Was Conducted
The research reported in this series was undertaken by the
APQC (American Productivity and Quality Center) with
the authors as subject matter experts. The study used the
APQC’s standard methodology, including both qualitative and quantitative methods.
Qualitative: Site visits were organized with five businesses identified as having best practices in new product
development. The APQC research team—consisting of
the subject matter experts, a number of sponsor companies
and APQC personnel—conducted the meetings. The five
companies visited were:
· Air Products and Chemicals Inc.
· Bausch & Lomb
· EXFO Electro-Optical Engineering Inc.
· ExxonMobil Chemical Company
· Kraft Foods Inc.
Quantitative: A detailed quantitative questionnaire was
also constructed. A total of 113 measures were used to
capture the existence and proficiency of NPD practices
and approaches within businesses, as well as questions to
gauge businesses’ new product performance.
The quantitative sample: 105 business units responded to
the detailed quantitative questionnaire:
· Businesses are in a number of different industries, with
51 percent in the manufacturing sector.
· The size of the businesses—average sales: $2.5 billion
(median: $400 million); average employees: 4,711
(median: 1,500).
· R&D spending—average: $58.4 million per business
or 5.2 percent of sales; of this, the proportion going to
NPD is 52.3 percent on average, for a NPD spending rate
of 2.89 percent of sales.—R.G.C., S.J.E., and E.J.K.
results for the top and bottom 20 percent of businesses
(percentage of sales and profits derived from new
products, launched in the last three years). Overall, the
average percentages are impressive for three-year new
products: about 28 percent of sales. But most impressive
are the results of the top 20 percent on these two metrics:
38 percent of sales and 42.4 percent of profits coming
from new products. Note that profit performance appears
somewhat higher than sales performance for these top
20 percent businesses!
Success, fail and kill rates
Another key metric is the NPD success rate: what proportion of projects entering the Development stage
become commercial successes, i.e., meet or exceed
financial standards? Or become commercial failures?
Or are killed along the way? The values are shown in
Figure 2.
The success rate is a respectable 60 percent, on average.
But note the huge difference between the top 20 percent
of businesses and the bottom 20 percent on this Success
Rate metric: the top 20 percent have over twice the
success rate of the bottom 20 percent. And the bottom
20 percent have more than three times the failure rate of
the top 20 percent. These are huge differences and beg
the question: what separates the best from the worst and
why do the top businesses do so exceptionally well?
Time to market
“Time to market” is a popular performance metric, given
the heavy emphasis placed on cycle time reduction in
NPD. The average product development (time from idea
generation through to launch) is 18.4 months. The
breakdown by business is shown in Figure 3. Here, note
that:
· 28.4 percent of businesses take longer than two years,
on average.
· 23.6 percent take one year or less to get new products
from idea to market.
On time and on budget
Yet another pair of performance metrics is the proportion
of projects hitting their launch dates on time and on
budget (See Figure 4). The fact that, on average, almost
half the projects miss their scheduled launch date and
that 42.9 percent are over budget raises serious concerns
about scheduling, resource management, project management, and commitments to time-lines. Admittedly,
there is a small group of businesses doing much better
than these average businesses: 79.4 percent of projects
on schedule and 79.0 percent on budget. But the other
extreme is the bottom 20 percent, whose performance is
four times lower than the top 20 percent. The significant
©2000-2012 Product Development Institute Inc.
Product Development Institute Inc. and Stage-Gate International are registered trademarks.
Figure 1.—Percentage of the business’s
revenues and profits coming from new products
launched in last three years.
Figure 3.—Average times to market (idea to
launch) by percentage of businesses. Mean time
is 18.4 months.
Figure 2.—Percentage of business’s new
product successes, failures or killed.
Figure 4.—Percentage of business’s NP
projects on time, on budget.
differences between the top and bottom 20 percent
indicate that many firms have yet to achieve acceptable
on-time and on-budget results, but that a handful of firms
proves that this goal can be achieved.
formance of the bottom 20 percent, suggesting that many
businesses have a long way to go to improve.
But how late is late? The “slip rate” measures how late a
project is as a percentage of its total scheduled time to
market. On average, when a project is late to market, it
misses its time schedule (the “slip rate”) by 35.4 percent,
as indicated in Figure 4. That’s the data for the average
business. The worst performers (bottom 20 percent on
this metric) see their “late projects” miss the time
schedule by 44.3 percent, and the best drive their slip
rates down to 17.2 percent.
There are many ways to measure a business’s NPD performance besides those cited in Figures 1–5. These
include a number of qualitative metrics and comparative
measures, which are best captured on 0–10 scales. Figure
6 shows the results for those businesses with very
positive results (scoring 8, 9 or 10 out of 10) and those
with poor results (scoring 0, 1, 2 or 3 out of 10) on each
performance metric. The results:
NPD projects meeting objectives
Figure 5 shows the proportion of projects meeting profit,
sales and market-share objectives. The fact that the mean
values are just better than 50 percent for all three metrics
means that more than 40 percent of projects fail to meet
objectives. This result should be unacceptable for most
senior managements. The top 20 percent of businesses
on these metrics are achieving nearly three times the per-
Performance metrics on multiple scaled metrics
1. First, many businesses (35.3 percent) actually do
measure their overall NPD performance. A surprising
27.5 percent do not keep score, however.
2. The ability to get products to market quickly and efficiently is rated worst of all ten performance metrics.
Only 10.6 percent of businesses fare well here.
3. Businesses see their total NPD efforts moderately
profitable relative to how much they spend on them.
Only 26.7 percent see their NPD effort as very profitable.
Figure 5.—Percentage of business’s NP projects meeting objectives.
Figure 6.—Percentage of businesses that are rated “good” vs. “poor” on each
performance metric.
4. The ability to meet profit objectives is more weakly
rated. Only 21.3 percent of businesses’ total NPD efforts
meet their profit objectives.
5. Businesses rate the profitability of their NPD efforts moderate versus competitors. Only 25.3 percent
see their NPD effort as very profitable versus their
competitors.
6. Businesses are quite positive about the technical
success of their NPD—this is the strongest performance
metric. A total of 38.5 percent of businesses believe their
NPD efforts to be highly technically successful.
7. Cycle time reduction is the goal in many business’s
NPD efforts. And so, the ability to reduce cycle time over
the last three years is a key metric. Businesses rate poorly
here, with only 23.5 percent of businesses claiming good
results.
Four additional scaled metrics center on the longer-term
ability of the business’s NPD effort to open new opportunities to the business:
8. Businesses do not believe that their NPD opens up
markets they have not served before; only 22.3 percent
of businesses are very positive here.
9. Businesses indicate that their NPD efforts are relatively weak when it comes to enabling them to enter new
product categories, areas or product types; only
28.8 percent are very positive.
10. Businesses see their NPD as somewhat enabling
them to integrate (or build in) new technology or scientific knowledge into their business; 30.4 percent are very
positive.
11. Businesses see their NPD efforts as relatively weak in
terms of getting them into new technologies for their
business; only 26.9 percent of businesses are very
positive.
Figure 6 shows that a significant percentage of businesses fare poorly on almost all metrics—an average of
24 percent of businesses “do poorly” across the 11 scaled
metrics. And with one exception (technical success), less
than one-third of businesses perform well on any of these
performance metrics. The worst performance is on the
speed and efficiency metrics (the ability to get products
to market quickly and efficiently), and the ability to
reduce cycle time.
Opening up new markets is a weak performance area.
The two strongest performance metrics both deal with
technical performance: the technical success rating of the
NPD program, and the ability of the program to integrate
new scientific knowledge into the business.
Metrics Used
What types of performance metrics does management
employ in their own businesses in NPD? We investigated
the specific metrics used, not so much as a best practice
(there are no ratings or scores reported here), but more to
seek insights into which metrics are the most popular.
Two types of metrics are investigated:
· Metrics used to gauge how well the business’s total
new product effort performs; for example, the percentage
of the business’s sales generated by new products.
· Metrics used to gauge the success of an individual new
product project; for example, was project X a success or
a failure?
Thus, one set of metrics is at the business unit level, and
results are in Figure 7; the second set of metrics is at the
project level (Figure 8). The results are self-evident:
Total NPD performance metrics
Most businesses use multiple metrics to gauge how well
their total NPD effort is performing (2.85 different
program metrics per business, on average). In all cases, a
time frame had been defined: new products launched
over the last two, three or five years. Often, the definition
of “what is a new product” proved difficult or problem-
More than
40 percent of
projects fail to
meet objectives.
atic, but in better-practice firms, this has been precisely
defined to enable the use of these metrics in Figure 7.
But words of warning: Although percentage of sales and
profits are popular metrics, they are not necessarily the
right or universal metrics to gauge NPD performance.
Nor will a single metric necessarily capture all facets of
new product performance. As one astute CTO in our
study observed:
Percentage of sales is a “good news, bad news” metric. One of our
business units has a very high percentageof sales from new products.
But this is due to a combination of negative factors: high and costly
products obsolesce in their market; new products that did not
perform—either technically or financially—and needed to be fixed
and replaced; and over-reaction to every single customer request.
Thus, although the most popular, percentage of sales
may not be the best performance metric, nor necessarily
related to best practices. For example, this metric will
logically lead to a number of short-term, fast projects
(and few longer-term ones): projects that generate sales
but not necessarily profits; new products that could cannibalize profitable existing products and create a lot of
unnecessary churn in the product line; and so on.
Individual NP project performance metrics
Again, most companies use multiple project performance metrics (4.97 different metrics per business, on
average). The most popular metrics are shown in Figure
8 in order of popularity.
Identifying the Best Performers
Which businesses are the best performers? Which are the
worst? These are important questions, and lie at the basis
of a valid benchmarking study. One can zero in on best
practices by comparing the practices used in Best versus
Worst Performers.
In order to identify Best and Worst Performers, we
grouped the many metrics in Figures 1–6 into four main
clusters or dimensions (4). Two of these dimensions
proved particularly robust:
· Overall NPD Success and Profitability: the overall
profitability of the NPD effort, whether it meets its
Figure 7.—Percentage of businesses using each metric to gauge the performance of the
business’s total NPD program or efforts.
Figure 8.—Percentage of businesses using each metric to gauge the success/
performance of a NPD project/product.
business objectives, success versus competitors, and
whether it is time-efficient.
· Opening Windows of Opportunity: whether the NPD
effort opens up new markets, technologies and product
categories to the business.
These two were used to pinpoint the “Best Performers,”
businesses that scored high on both dimensions. Those
businesses that scored low on both were denoted as
“Worst Performers.”
How well or poorly do the Best and Worst Performers do
in terms of the many performance metrics measured?
The results are overwhelming: clearly a powerful set of
Best Performers have been identified that can readily be
compared to a weak set of poor Performers. These Best
Performers thus become our “benchmark businesses” for
identifying best practices, as they clearly excel on every
metric.
Separating Best from Worst
W e n ow f o c us on j us t s om e of t h e c om m o n
denominators—practices and approaches—that discriminate the Best from the Worst, namely the “people
side” of NPD. The three key areas investigated include:
· The culture and climate within the business in support
of product innovation.
· The role of senior management—behaviors, engagement and commitment.
· The nature of project teams and how they are
organized.
Climate and culture for innovation and NPD
Having an innovative climate is seen as one of the more
important drivers of successful product development.
But what are the elements of a positive climate, how
many businesses really embrace them, and what impact
on performance do they really have? A number of characteristics of a positive climate were investigated, and
Figures 9 and 10 reveal that there are some major differences in the climate for innovation between Best and
Worst Performers. The 12 elements considered are split
into two main factors or themes (5): the first is the
general climate (Figure 9), and the second centers on
specific actions and programs to promote a positive
climate (Figure 10). In descending order of impact they
are (6):
1. A supportive climate for entrepreneurship and product
innovation—A supportive climate is a major difference
betw een the Best an d W o rst P erformers, w ith
62.1 percent of Best Performers scoring very strongly
here, and only 7.7 percent of Worst Performers having a
supportive climate. Indeed, in 34.6 percent of Worst Performers, the climate was rated as very unsupportive (a
score of 0–3). On average, businesses perform moderately weakly here: only 37.1 percent of businesses are
very strong.
One major pump manufacturer (considered a best-inclass firm) openly promotes NPD at every opportunity.
NPD is evident everywhere: in the company’s annual
report, which devotes more pages to product innovation
than to finances; its show-case of new products that
occupies its entire headquarters front lobby; and its
campaign of posters seen throughout company premises
emphasizing innovation. And it works; the company
boasts a highly motivated staff—both junior and senior
people—who are strongly committed to product innovation.
2. Rewards for champions—The majority of Best Performers (58.6 percent) recognize and/or reward their
NPD project leaders and entrepreneurs (new product
champions or product innovators). But this again is a
weak area on average, with only 28.8 percent of businesses providing such rewards, on average, and Worst
Performers not doing this at all.
Air Products, for example, recognizes that innovation is
critical, so much so that the CTO has made it his number
one priority. Innovation awards, as well as a Chairman’s
award, are offered each year for ideas that have been
commercialized. Rewards can approach $100,000—a
serious statement about the importance the organization
accords its product innovators.
Other leading companies also place emphasis on recognizing the people who lead projects and are champions
for innovation. At Kraft, for example, successfully
leading a NPD team is considered a necessary step in
one’s upward career path.
3. Rewards for project teams—This is also a weak area
on average: in only 30.1 percent of businesses, when a
NPD project team does a good job on its project (e.g.,
gets to market on time, meets sales revenue targets, has a
winner), is it rewarded and/or recognized. Best Performers are much stronger here: 55.2 percent reward their
teams. Note that 34.6 percent of Worst Performers
provide no reward whatsoever to project teams.
4. Understanding of the business’s NPD process—This
is a major weakness overall, with only 27.9 percent of
businesses reporting that their employees understand and
support their NPD process. Best Performers fare better,
with 41.4 percent claiming understanding; Worst Performers’ employees do not understand or support the
business’s NPD process—sometimes the result of lack of
training, lack of leadership, or simply a negative or
skeptical attitude within the business.
5. Open communication—Best Performing businesses
(72.4 percent) provide for open communication among
employees across functions, departments and locations.
This helps to stimulate creativity and permits more
effective cross-functional communication on project
teams. Worst Performers are much weaker here, with
only 34.6 percent providing open communication.
6. Risk averseness—Best Performers appear far less riskaverse; they are not afraid to invest in more venturesome
projects, with almost one-third opting for riskier projects
(although risk averseness is a weakness overall: on
average, only 20.4 percent of businesses take on riskier
projects). Almost no Worst Performers undertake such
projects. In fact, 61.5 percent of Worst Performers
indicated that they take on only exceptionally-low-risk
NPD initiatives!
7. No punishment for failure—Removal of fear of failure
is particularly evident in Best Performers and indeed in
most businesses studied, in order to encourage more
innovative and risk-taking behavior (although this
should not be confused with lack of accountability).
55.2 percent of Best Performers do not punish people for
failure in NPD; by contrast, 34.6 percent of Worst Performers display an exceptionally high fear of failure.
The second culture and climate factor contains more
action-oriented items and specific programs designed to
promote a positive climate (Figure 10). In descending
order of impact they are:
1. Resources available for creative work—A significant
number of Best Performers (32.1 percent) provide
support and resources for creative employees to pursue
their own projects—seed money, equipment, etc. But
Worst Performers don’t at all. This is a weak area overall,
with only 11.8 percent of businesses providing such
resources.
2. Skunkworks and unofficial projects encouraged—
21.4 percent of Best Performers encourage unofficial or
underground skunkworks projects. By contrast, only
3.8 percent of Worst Performers do. Indeed, skunkworks are either very much discouraged or not allowed
by 79.6 percent of Worst Performers.
3. Time off or scouting time—Many Best Performing
businesses provide creative employees with resources
and time off to work on their own projects. However, no
Worst Performers do. Overall, this scouting time
Figure 9.—Percentage of businesses that have each element of a positive climate for
innovation.
Figure 10.—Percentage of businesses with specific actions and programs to promote
positive climate for innovation.
provision is a very weak area, with only 13.7 percent of
businesses providing it.
3M, for example, is renowned for permitting some of
its people to have scouting time (15 percent free time to
investigate on their own). Kraft Foods has a similar policy, where early front-end teams have unscheduled time (up to 15 percent) for creative thinking and
experiments.
4. New Product ideas rewarded—The Best Performers
often provide rewards or recognition to employees who
submit NP ideas (44.8 percent). Not one Worst
Performer in the study provides idea rewards, while on
average only 23.1 percent of businesses provide such
rewards—again a fairly weak area.
At Kraft Foods, the Meals division’s general manager
awards employees with light bulbs for developing ideas
and with awards for “Innovator of the Month” and
“Innovator of the Year.” Recognition at Kraft is typically
not monetary but frequently involves peer praise or pride
of ownership, which is viewed as more effective. The
company works hard at ensuring that people know that
NP ideas are important and valued.
Bausch & Lomb gives limited monetary rewards for new
ideas. An employee can get anywhere from $5 to $5,000,
depending on how far the idea progresses through the
NPD process.
5. A New Product idea suggestion scheme in place—This
is a common practice amo ng Best Perfo rming
businesses—a scheme to actively solicit new product
ideas from employees—with 34.5 percent of Best Performers having a strong, visible idea scheme. Only
7.7 percent of Worst Performers do, and again this is a
weak area across all businesses.
Conclusions
It is sometimes difficult to put one’s arms around what
is meant by “climate and culture,” or worse yet, what to
do about it. One thing is clear from this study: one cannot ignore climate and culture if exceptional new
NPD results are the goal. Indeed, some elements of
climate and culture proved to be the strongest discriminators between Best and Worst Performers of all the
practices investigated.
The climate and culture for NPD is surprisingly and dangerously weak in many of the businesses studied,
however. Particular weaknesses include anything to do
with off-line or creative but unofficial work: free time or
scouting time, resources to support creative projects, and
skunkworks or underground projects. Yet a significant
proportion of Top Performing businesses embrace this
type of activity and support it. Another very weak area is
idea submission from employees: no idea scheme in
place, and no rewards or recognition for ideas. And
Supportive climate
for innovation is a
major difference
between Best and
Worst performers.
finally, the third major area of weakness is the unwillingness to invest in more venturesome projects—a general
risk averseness.
If the goal is to improve the climate and culture for NPD
in your business, then look at the list of items above and
the illustrations of best practice. Some actionable items
include:
· Provide scouting time and make resources available to
creative, passionate employees to pursue their dream
projects; allow skunkworks or unofficial projects.
· Reward and/or recognize idea generators and also
project team members for their efforts; make it a rule: no
punishment for hard work that resulted in a failed
project!
· Take on the odd venturesome project—and make sure
everyone is aware that you allow and encourage these.
· Put a New Project idea submission scheme in place.
· Make sure that employees really understand the NPD
process; provide training and leadership/coaching here.
· Encourage open communication between functions,
locations and countries (no silos allowed!).
· Most important: support and encourage NPD and
product innovation openly and passionately.
Senior Management Practices, Roles and Commitment
to NPD
Senior management must lead the way in NPD,
providing the leadership and committing the resources
(7). Note that all but one of the critical best-practices and
roles of senior management listed in Figure 11 significantly discriminate between the Best and Worst Performers:
1. Senior management providing stro ng support,
empowerment and authority to the people working on
new product projects—This is a key driver of performance, but also an area of some weakness. In only
40 percent of businesses overall, and in 65.5 percent of
Best Performers, top management provides strong
support and empowerment to people working on project
teams. By contrast, strong senior management support for NPD teams is evident in only 7.7 percent of
Worst Performers, and 42.3 percent provide no support
whatsoever.
ment commitment exists in only 26.9 percent of Worst
Performers.
2. NP metrics (e.g., percentage of sales or profits) are an
explicit part of senior management’s personal and
annual objectives—This area was rated weakly in Figure
11, with only 34.3 percent of businesses using this
practice—the weakest of all senior management
practices. But it is the number two discriminator between
Best and Worst Performers among all practices listed in
Figure 11, with 50 percent of Best Performers and only
14.3 percent of Worst Performers having such metrics.
7. Senior management not micro-managing NP
projects—Rather, they tend to leave the day-to-day
activities and decisions in a new-product project to its
leader and team. Most businesses score strongly here; in
65.7 percent of businesses overall and in 89.7 percent of
Best Performers, senior people do not micro-manage
projects.
3. Senior management understanding of the business’s
NPD process—Management must understand their business’s NPD process and be particularly aware of their
own role and responsibilities in it. Although this is the
case for only 40.2 percent of the businesses, it is a major
discriminator between Best and Worst Performing businesses, with 72.4 percent of Best Performers scoring
very high here. Indeed, in 48 percent of Worst Performers, senior management does not understand the NPD
process at all!
8. Senior management involved in the Go/No–Go and
spending decisions for new products—They have a
central role in the project review process, with top management in 60 percent of busin esses overall and
79.3 percent of Best Performers very involved in these
Go/No–Go decisions. This practice does not significantly discriminate between Best and Worst Performers.
However, because involvement in Go/No–Go decisions
is such a prevalent practice among Best Performers, we
include it as a best practice.
Conclusions
4. Senior management engaged in the design of the business’s new product process—Again this is a weak area,
occurring in only 33.7 percent of businesses, but it is the
number four discriminator between Best and Worst Performers in Figure 11. Note that in 62.1 percent of Best
Performers, senior management was very engaged in the
design of their new product process. As one senior
person put it:
Although the role and commitment of senior management to NPD on average is adequate, there are major
weaknesses: the fact that top management does not
include NP metrics in their personal annual objectives in
many businesses and that they do not help to shape the
business’s new product process. Additionally, the fact
that a significant minority of businesses are weak across
the eight senior management areas investigated is cause
for concern.
Our leadership team [of the business] helped to design our new
product process. Our Senior VP of Marketing actually chaired the
Task Force, and got the rest of us [the executives] involved in
designing gate criteria, agreeing on a set of “rules of engagement”
around our behaviors, and even how we were going to run gate
meetings. So it became very much “our process” too—we bought in.
The role of senior management in leading the NPD effort
of the business cannot be understated. It proved to discriminate between Best and Worst Performers in a major
way. While all eight practices listed above are
important—either they discriminate between our Best
and Worst businesses or they are widely practiced in the
Best Performers—several stand out and should be part of
your senior management practices, notably:
Making sure that senior management provides the
necessary support, empowerment and authority to
project team leaders and members. This transfer of
power or authority usually takes place at the gates or
Go/No–Go meetings, where senior management meets
the project team, reviews its project, and if Go, approves
the resources. Along with resource approval should go
some degree of power transfer as well.
n
5. Keeping score—Measuring new product results each
year (e.g., percentage of sales or profits achieved, percent
success versus failures, on-time performance, etc.) is a
moderately weak area, with 45.2 percent of the businesses keeping score in NPD. However, it is also a significant discrimin ator betw een Best and Worst
Performers and must be considered a best practice. What
gets measured gets done!
6. Senior management strongly committed to new
products and product development—This is the secondstrongest-rated area overall of all items in Figure 11,
and tied for the second-most-prevalent among the Best
Performers. Top management commitment exists in
50.5 percent of the businesses, and 79.3 percent of
Best Performers. By contrast, strong senior manage-
Ensuring that NPD results become an explicit part of
senior management’s annual objectives.
n
Engaging senior management in the design (and/or
periodic overhauling) of your business’s NPD process,
and making sure that they understand it. Some bestpractice businesses provide extensive gatekeeper and
senior management training on their NPD process.
n
Figure 11.—Percentage of businesses where senior management demonstrates
commitment to NPD.
How NPD project teams are organized
How the project team is organized and functions has
been found to strongly influence project outcomes in past
studies (8). In this section, we consider a number of characteristics of “good project teams” and observe how the
sample of businesses fares. Three main factors describing project teams were uncovered:
· The way teams are organized.
· The cross-functional nature of teams.
· Team accountability.
Figure 12 shows ways in which teams are organized. In
descending order of importance:
1. The project team remaining on the project from
beginning to end and not just on the project for a short
while or a single phase—48.6 percent of businesses
embrace this team approach, and it is particularly evident
among Best Performers (72.4 percent). This practice also
enhances project team accountability.
2. A clearly assigned team of players for each significant
NPD project—people who are part of the project and do
work for it—What is surprising is that this practice is not
evident in almost all businesses today. But it is not; only
61.5 percent of businesses have clearly assigned teams
for NPD, with Best Performing businesses outdoing the
Worst 79.3 percent to 38.5 percent.
3. A clearly identified team leader in charge and responsible for driving the project—Again, this is a fairly
common best practice, with 63.8 percent of all busi-
nesses and 79.5 percent of Best Performers defining
team leaders for projects clearly. Worst Performers are
decidedly weaker here, with only about one-third
embracing this practice.
4. The project leader is responsible for the project from
idea through to launch, carrying it through the entire
process rather than only one or a few stages—In
58.1 percent of all businesses and 69 percent of Best Performers, the leader stays as project leader for the entire
project. In this way, accountability is enhanced, key
knowledge is retained, and project momentum is maintained. Only 34.6 percent of Worst Performers maintain
the same project leader.
The other factors that characterize NPD project teams,
including the cross-functional nature of teams and team
accountability, are shown in Figure 13. In descending
order of impact, they are:
1. Project teams accountable for their project’s end
result (for example, ensuring that projects meet profit/
revenue and time targets)—Team accountability is a
pivotal best practice, and indeed strongly separates Best
from Worst Performers by a factor of eight to one!
Indeed, only 7.7 percent of Worst Performers hold their
teams accountable for results, while 50.0 percent confess
to absolutely no accountability at all. By contrast, twothirds of Best Performers hold NPD teams accountable.
Overall, this is a weak area, with only one-third of businesses embracing this best practice!
2. Decisions outside the team handled efficiently—Some
businesses have designed procedures to facilitate these
outside-the-team decisions, such as building the capital
appropriations request right into the gate meeting (rather
than as a separate committee meeting); allowing “selfmanaged gates”; or requiring all key decision-makers to
attend the gate meeting (so that the project leader does
not have to run around “seeking signatures” one by one).
Overall, this is a weak area on average, with only
27.6 percent of businesses handling such outside-theteam decisions well; by contrast, 44.8 percent of Best
Performers do.
3. Sharing information among the project team members
via a central information system—A centralized communication system permits sharing of project information and allows several team members to work
concurrently on the same document, even across
functions, locations and countries. This is a particularly
strong facet of Best Performers, with almost two-thirds
having a central shared-information system; Worst Performers are much weaker here, with only 19.2 percent
having such a system.
4. Cross-functional cooperation on the team (e.g., not
too much time and effort wasted on politics, conflicts,
interdepartmental prejudices, etc.)—Surprisingly, this is
a moderately weak part of most businesses’ new product
efforts, with only 43.7 percent of businesses reporting
good cross-functional cooperation within NPD project
teams. Best Performers fare much better (66.5 percent
with excellent cooperation); Worst Performers are much
weaker here (24.0 percent with good cooperation).
5. Cross-functional project teams, with team members
from Technical, Sales, Marketing, Operations, etc.—
The great majority of businesses report that they rely on
cross-functional teams for NPD projects (72.1 percent).
Best Performers do somewhat more so (79.3 percent),
and Worst Performers less so (53.8 percent). The use of
cross-functional teams is now such a pervasive approach
in NPD that it does not strongly discriminate between
Best and Worst Performers. It is so common among Best
Performers, however, that we include this as a best
practice.
Figure 12.—How NPD project teams are
organized.
Conclusions
NPD project teams are in fairly good shape structurally,
and the concept of cross-functional project teams is
embraced by the majority of businesses. But there are
still some areas needing attention, most noticeably the
fact that project teams are still not held accountable for
end results of projects (on-schedule performance or profitability and revenue). The second weakness—lack of
control over decisions outside the team—may be a team
weakness or simply a part of the hierarchy and bureaucracy of the company.
If you wish to improve the NPD performance and the
effectiveness of your project teams, consider building in
some of the best practices listed above and found to
separate Best from Worst Performers:
· Make project teams accountable for the end–or
performance–result of the project. Build in a post-launch
review.
· Establish ways to make it easier for the team to handle
outside–the–team decisions—some examples were
given above.
· Establish a convenient information or IT system so the
team members can communicate effectively. Note that
software now exists for managing and automating the
entire new product process (9).
· Provide team training—how to be a team member—so
as to minimize conflicts, politics, etc.
· Make sure that the project team members and the team
leader are on the project from beginning to end. More
players can be added as the project nears commercialization, but the key knowledge holders should remain on
board and be fully accountable.
· For every significant project, there should be a clearly
assigned project team, with members drawn from the
various required functional areas, and with a clearly
defined project leader. The project leader can be from
any functional area.
Figure 13.—Characteristics of cross-functional
teams.
Make project teams
accountable for
end results of
their projects.
Coming Next
Part II in this three-part series will focus on strategic
issues—on the product innovation strategy, resource
allocation, and portfolio management—best practices
and their impact on performance. C
¶
Acknowledgment
The authors thank both the staff at the APQC (American
Productivity & Quality Center) in Houston, for their
great support and efforts during the study and ISBM
(Institute for the Study of Business Markets) at Penn
State University, who helped to initiate the study, and
proved to be a valuable resource throughout.
References
1. Page, A. L. “PDMA new product development survey: performance and best practices.” Paper presented at PDMA Conference,
Chicago, Nov. 1991; see also: Griffin, A. Drivers of NPD Success:
The 1997 PDMA Report. (Chicago, Product Development& Management Association), 1997.
2. Cooper,R. G. Winningat New Products:Acceleratingthe Process from
Idea to Launch, 3rd edition. Cambridge, Mass: Perseus Books, 2001.
3. This article is based on an American Productivity & Quality
Center study, involving the APQC, the Institute for the Study of
Business Markets (Penn State University), and Product Development
Institute Inc. (Ancaster, Ontario, Canada). For more information, see
Cooper, R. G., Edgett, S. J., and Kleinschmidt, E. J. Best Practices in
Product Development: What Distinguishes Top Performers, at
www.prod-dev.com or Improving New Product Development Performance and Practices at www.apqc.org.
4. Four dimensions validated using factor analysis, SPSS Varimax
rotation; Cronbach alphas in excess of 0.85.
5. Factors or themes validated, same method as Ref. 4.
6. Relative impacts on performance, and rank ordering, based on
simple Pearson product-moment correlations of each characteristic
with two performance metrics, Profitability and Opens Windows.
7. See Cooper, R. G. and Kleinschmidt, E. J. “Benchmarking the
firm’s critical success factors in new product development.” Journal
of Product Innovation Management 12, 5, Nov. 1995, pp. 374–391.
8. See Ref. 1; also Griffin, A. and Hauser, J. “Integrating R&D and
Marketing: a review and analysis of the literature.” Journal of
Product Innovation Management, 13, 1996, pp. 191–215 and E.
Olson, O. Walker, R. Ruekert and J. Bonner. “Patterns of cooperation
during new product development among marketing, operations and
R&D: implications for project performance.” Journal of Product
Innovation Management, 18, 4, 2001, pp. 258–271.
9. IT automated support example: “Accolade” on www.proddev.com
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