Assuming Doesnt Feed the Bulldog!

InventVermont Meeting June 9, 2005 Montpelier, VT

New Product Categories

New Product Line 20%

30% 25% 20% 15% 10% 5% 0% High Medium Low

Repositioning 7% New-to-world 10% Existing Line Addition 26% Existing Prod Improvements 26%

Newness to Company
InventVermont - June 9, 2005

Ne wn

Low

es st o

Cost Reductions 11%

Medium

ar ke

High

New Product Mix

All Industry
7% 11% 10%

Industrial Product Firms

(moderate-to-high technology)
2%1% 20% 20%

20%

26%

20%
New to World

26%

New Line Additions Improvements Cost Reductions Repositionings

38%

InventVermont - June 9, 2005

Product Development Challenges

Technology making more possible Life cycles cut by 400% Customer expectations increasing Global competition strengthening Building company worth

InventVermont - June 9, 2005

Majority of Ideas Fail

7 Product Ideas
4 Developed
1.5 Launched
1 Succeeds

14% Success Rate

InventVermont - June 9, 2005

Significant Resources Wasted

25%

New Product Expenditures

20% 15% 10% 5% 0% -5% -10% -15% -20% -25%

Exploration & Screening
4% 11%

Development Testing Business Analysis

2% 3% 18.5% 18.5% 11% 6%

Commercialization

18%

7%

Successful (54%)

Unsuccessful (46%)

InventVermont - June 9, 2005

Key Activity Frequency

Only 1.9% of projects featured all 13 activities
Initial Screening Prelim Market Assessment Prelim Technical Assessment Detailed Market Study Business/Financial Analysis Product Development In-House Product Tests Customer Tests of Products Test Market/Trial Sell Trial/Pilot Production Pre-Launch Business Analysis Production Start-Up Market Launch

92% 77% 85% 25% 63% 89% 89% 66% 23% 49% 35% 56% 68%

0%

10% 20%

30%

40%

50% 60%

70%

80% 90% 100%

Percentage of Projects Where Activity is Undertaken

InventVermont - June 9, 2005

Key Activity Dollars

Initial Screening Prelim Market Assessment Prelim Technical Assessment Detailed Market Study Business/Financial Analysis Product Development In-House Product Tests Customer Tests of Products Test Market/Trial Sell Trial/Pilot Production Pre-Launch Business Analysis Production Start-Up Market Launch

1% 1% 3% 1% 1% 29% 7% 3% 1% 6% 1% 20% 27%

0%

5%

10%

15%

20%

25%

30%

35%

Percent of Total Cost of Project

InventVermont - June 9, 2005

Key Activity Time

Initial Screening Prelim Market Assessment Prelim Technical Assessment Detailed Market Study Business/Financial Analysis Product Development In-House Product Tests Customer Tests of Products Test Market/Trial Sell Trial/Pilot Production Pre-Launch Business Analysis Production Start-Up Market Launch

32 26 61 16 14 419 98 36 9 79 5 49 62

50

100

150

200

250

300

350

400

450

Average Person-Days of Work per Task

InventVermont - June 9, 2005

Top Reasons for Failures

Inadequate Market Analysis Product Problems or Defects Lack of Effective Marketing Effort Higher Costs than Anticipated Competitive Strength or Reaction Poor Timing of Introduction Technical or Production Problems All Other Causes

24% 16% 14% 10% 9% 8% 6% 13% 5% 10% 15% 20% 25% 30%

0%

Percentage of Companies Citing

InventVermont - June 9, 2005

Best Companies Do Better

22% of companies surveyed 3.5 ideas to achieve winner (v. 8.4 ideas) 49% of sales (v. 25%) 49% of profits (versus 22%) 97% return on investment (median 33%) 47% market share (median >35%)

InventVermont - June 9, 2005

Managing Risk-Reward

Risk/Uncertainty

Risk/Uncertainty

Expenditures

InventVermont - June 9, 2005

Expenditures

Stage-Gate System
Initial Screen Second Screen Decision on Business Case Postdevelopment Review Precommercialization Business Analysis Postimplementation Review Idea Gate 1 Stage 1 Gate 2 Stage 2 Gate 3 Stage 3 Gate 4 Stage 4 Gate 5 Stage 5 PIR

Preliminary Investigation

Detailed Investigation (Build Business Case)

Development

Testing & Validation

Full Production & Market Launch

Robert Cooper Winning at New Products Incremental (staged) commitment process Successfully implemented in many companies Scales from small to large organizations
InventVermont - June 9, 2005

Stage Framework
Stage 1 Market Product Business
Preliminary Market Assessment Technical Feasibility

Stage 2
Market Requirement Document Product Requirement Document Revenue & Financial Plans

Stage 3
Formalized Marketing Plan

Stage 4
Initiate Marketing Plan

Stage 5
Fully Execute Marketing Plan

Prototype Development

ProductionReady Product

Production & Launch

Strategic Alignment

Refine Financials

Refine Financials

Manage Product (P&L)

InventVermont - June 9, 2005

Keys to Effective Gates

Seasoned gatekeepers Cross-functional representation Control over required resources Constructively critical discussions Portfolio and other tools

InventVermont - June 9, 2005

High-Level Criteria
Company strategic fit, core competencies Market segments, customers, competitors Product unique advantages, feasibility Business capital requirements, financials

InventVermont - June 9, 2005

Company Criteria
Strategically aligns with defined objectives Leverages:
Organizational capabilities, structure Technical know-how Operational (supply channel) infrastructure

Limited-to-no new competencies

InventVermont - June 9, 2005

Market Criteria
Sizable, growing target market(s) Confirmed market requirements First-to-market advantage Defendable competitive position Clear channels to customers

InventVermont - June 9, 2005

Porters Industry Structure

Potential Entrants
Barriers

Suppliers

Manufacturing

Direct Competition
Differentiators

Channels

Markets

Substitutes

InventVermont - June 9, 2005

Sales Channels
Introduction
Limit channels (direct sales only) until product acceptance

Growth
Scale channels with customer acceptance, increased demand

Mature
Increased competition drives channel incentives and turnover

Decline
Consolidation of vendors and channels begins; execute exit strategy

Evaluate licensing to further expansion and/or exit business

InventVermont - June 9, 2005

Marketing Communications
Objectives Customer
Rapidly build awareness Drive request for information TBD

Messages
Must-have features Lowest overall cost solution TBD

Programs
Direct mail Tradeshows Advertising TBD

Budget $$$$

Direct Influencers Indirect Influencers Sales Channels

$$ $ $

TBD

TBD

TBD

TBD

TBD

TBD

InventVermont - June 9, 2005

Product & Technical Criteria

Unique product capabilities Technical feasibility Clear and compelling value Sustainable leadership position

InventVermont - June 9, 2005

Business & Financial Criteria

Revenue & profit contributions Operating expenses & capital requirements Financial metrics:
Net present value Internal rate of return Payback period

Sensitivity analysis
InventVermont - June 9, 2005

Built-In Success Factors

Emphasizes homework Multidisciplinary and cross-functional Parallel processing No single department ownership Strong market orientation Weed out weak early Pre-development product definition
InventVermont - June 9, 2005

The Experience Effect

120

Relative Development Cost

100 80 60 40 20 0 1 2 4 8 16 32 64 128

Number of New Product Introductions

Every 2X introductions leads to 29% cost reduction

InventVermont - June 9, 2005

Thank You!