An executive summary for managers and executives can be found at the end of this article

Bringing innovation to life

Scott M. Davis and Kristin Moe

What is the next big business trend? Manufacturing and quality circles? Total quality management? Reengineering? Mergers and acquisitions? Downsizing, Right sizing? Cost cutting? Time to try something new How about none of the above? We have all been there and done that and it is definitely time to try something new. What about something as simple as growth? What about innovation as the next big thing? Corporate leaders across the USA are beginning to realize that there is no place left to look for that next big thing, and that they must create it themselves. They are discovering that the only sure-fire way to ensure long-term stability, satisfy shareholder growth goals, maximize employee happiness, and stay at the forefront of their industry with a sustainable, dependable position is to innovate. The key difference with innovation, relative to past big business trends, is that innovation cannot be the flavor of the day. Innovation needs to go beyond being a project and, instead, become part of a companys mainstream. As we make our way through the innovation age, the time has come for business leaders to shed their short-term mindsets and expand their thinking into the future. The development and fostering of an innovation mindset is the only way that the power of innovation (Figure 1) will continuously bring success to an organization and maximize its risk/return posture. Successfully innovative companies have recognized that risks are inherent, failure is okay, rewards and recognition are critical, and senior management involvement enhances innovation efforts. They have, in fact, according to Tom Kuczmarski, in his breakthrough book, Innovation, embraced several contrarian views and guiding principles that separate the best from the rest.

Company benefits Sustainable growth engine Customer Increased customer benefits goodwill Helping customers and end-users better satisfy Enhanced productivity People benefits Increased margins their needs and wants Expanded employment Increased revenues Increased customer opportunities Position in new loyalty and Competitive benefits Increased stakeholder, categories commitment Unique competitive employee and end Increased employee Increased customer offerings and user satisfaction retention satisfaction advantage Energized, creative Increased positive Preempts competitive and enthusiastic work press coverage entry environment

Figure 1. Power of innovation

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Contrarian views Contrarian views state that: (1) Idea generation is the worst way to begin a new product process. (2) Marketing should never work alone on new product development. (3) Senior management needs to be the leader of innovation. (4) Return on innovation investment needs to be measured separately. (5) New product teams should be compensated differently. (6) Failure should be celebrated. Guiding principles Guiding principles postulate the following: (1) Failure is an intrinsic part of innovation. Willingness to accept some failures will inculcate far greater confidence in new product participants, and, over time, generate higher financial results. (2) Companies that have a new products strategy in place are more successful than those that do not. By identifying the financial goals, strategic roles, and screening criteria that new products should try to satisfy; innovation will become a permanent part of an organizations strategy. (3) Using multi-functional teams with dedicated team members is a critical requirement for success. This requires people who can focus on, become immersed in, and are surrounded by innovation. This way, they have the time, concentration, and motivation to develop an innovation mindset. (4) Compensation incentives, which simulate an entrepreneurial environment, are more apt to motivate participants on new products teams. (5) Top management commitment is the cornerstone for successful innovation. There are three ingredients for top management commitment: allocating adequate resources: financial (including R&D and technology funds), and personnel (assigning some of the best people to new products); a perspective and mindset that allows for failures, mistakes, and a long-term payback; and an expressively proactive, positive, I-believe-in-you attitude.

Willingness to accept some failures

Keeping track of results

(6) Companies that are successful innovators keep track of their results and measure their returns on innovation. They stay on top of new product expenditures. They recalibrate future investments and fine-tune return expectations annually. (7) Development of a new products portfolio helps to diversify risks and provide a balanced investment approach to innovation (Figure 2). (8) Companies need to begin the new product development process with consumer or customer problem identification and need intensity research not idea generation. (9) Identifying innovation values and new product team norms to guide behavior and communications among team members is another key factor. Companies that allow teams to invest adequate time up front to

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Newness to market High New to the world New to the company Line extensions

Inc

rea

g sin

/r isk

etu

rn

Product improvements

Product repositionings Cost reductions Low Low Newness to company High

Figure 2. Leveraging a portfolio of new products helps to diversify risk and maximize returns

do this, and are open to the inputs made, help to solidify and empower new product teams. In addition, understanding team member tangible and intangible motivators is critical to keeping team members continuously energized (Figure 3). This coalesces the people power, which usually lies dormant within a team. (10) A systematic, well-defined and commonly understood new product development process is a given not a differentiator for successful innovation. To maximize your innovation hit rate, develop your own formula for success. The best new product companies in the world 3M, Rubbermaid, S.C. Johnson and Son have adopted processes that have altered their success potential from luck (i.e., 1 out of 10 successes) to probability (i.e., 7 out of 10 successes). These companies ensure they always have an active, live pipeline, filled with a balanced portfolio of new products, from low
What motivates a functional team member to work together as a team to develop a new product or service? Self-accomplishment Peer recognition Top management exposure Career advancement Compensation Peer pressure Part of job description Mandate or edict 0 1
2.97 2.74 2.37 2.06 3.74 3.37 4.49 4.06

Figure 3. Key factors in motivating team members

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risk/low return to high risk/high return products. They treat innovation as a valuable corporate asset. And they do not take a low-risk approach. Many processes Leveraging a new products process within your company that is iterative and easy to understand will only help its adoption potential throughout your entire organization. While there are many processes out there, and we certainly do not mean to offer ours as the only alternative, the eight steps outlined below constitute the steps we have consistently found that effectively take a company from customer-driven needs and wants assessment to final commercialization: (1) Planning and direction setting develop a new products strategy that includes earnings and revenue growth gaps to be filled by new products, the roles you want new products to fulfil, and an assessment of past new products to assess lessons learned. In addition, total team integration and an agreed-on workplan is critical to ensuring everyone is in agreement before beginning. (2) Market problems and needs exploration conduct qualitative research with consumers to explore and identify their needs, gripes, complaints, and hassles in a given product category. These problem areas provide a focus for idea generation. (3) Problem-solving and idea generation generate new solutions and creative approaches that address consumer problems. An idea describes the purpose of the new product and outlines the benefits that the new product will provide to consumers. (4) Concept development and business analysis develop screened ideas into three-dimensional descriptions of a product. A concept should describe the product features and attributes, intended use, and primary benefits perceived by consumers. It outlines the core technologies that will be used and states general technical feasibility. It addresses how the product might be positioned against competition and defines the primary purchaser. In addition, business analysis will help your team to formulate a market and competitive assessment that projects the potential size and attractiveness of the new product concept. Included is a rough-cut, three-year pro-forma that estimates future financial performance. (5) Prototype development complete development of the product, including product performance and consumer acceptance tests. (6) Plant scale-up determine roll-out equipment needs and manufacture the product in quantities large enough to identify bugs and problems; run additional product-performance and quality tests. (7) Commercialization introduce and sell the product. Initiate awarenessbuilding and trial stimulation programs to reach the targeted consumer base. (8) Post-launch checkup monitor performance of the new product at six and 12 months after launch and evaluate potential changes or improvements. Weaknesses In our many years of experience, working on scores of new product development projects, cutting across multiple industries, we have consistently found that most companies have difficulty with steps 1-4 (Figure 4). In fact, more often than not, companies have a very strong development and commercialization process, but admit to being weak in determining what to develop.
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Step 1: Planning and direction-setting

Craft new products vision Determine financial growth gap Define new product strategic roles Establish screening criteria and measurements Identify opportunity areas and research categories Set team norms, goals, timeline, responsibilities and output expectations Develop overall research plan and approach

Step 2: Market problems and needs exploration

Step 3: Problem solving and idea generation

Step 4: Concept development and business analysis

Conduct several waves of qualitative interviews and focus groups with customers and decision influencers Sythesize and analyze data and key learnings Identify, prioritize and fully-detail key customer problems, needs and opportunity areas

Prepare idea generation stimulus materials by need/problem area Conduct idea generation sessions with key internal and external participants Consolidate, evaluate and screen ideas Identify and prioritize top-tier 20-25 new product ideas

Develop detailed concept descriptions for top-tier ideas Review, test and revise concepts with customers Conduct business analysis on approximately 15-20 most attractive new product concepts Determine next steps for taking top 5-6 new product concepts forward into prototype development and testing Conduct senior management workshop on process enhancements, resource requirements and decision-making process

4 weeks

8 weeks

4 weeks

8 weeks

Figure 4. Priming the new product development process steps 1-4

To this end, the rest of this article and corresponding figures highlight the key elements of those first four steps. Think of this as an overview of the cookbook your company should consider adopting for developing new products going forward. Every time you go through this process, the cookbook should be updated and new recipes should be added. Step 1: Planning and direction-setting Step 1: stated objectives The purpose of Step 1 is to improve your new product success rate by developing a strategy and identifying the best process for new product development within your organization. This strategy leverages the strengths and weaknesses of historical new product development efforts. In addition, step 1 should clearly identify specific new product goals and objectives to be achieved over a three-to-five-year period. Step 1 generally requires about four weeks to complete and entails the following major activities: Conducting product and company diagnostics to assess past new product performance and leverage lessons learned. Developing an initial new product strategy, including a new product vision, new product roles and goals, screening criteria, and a financial growth gap.

Step 1 objectives

Step 1: end results an agreed on new product strategy, a customized new product process, a cross-functional project team, research categories to explore, and a workplan for executing that exploration.
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Step 1: hidden objectives This step will force senior management to get involved in the process, agree on long-term goals and objectives, and recognize the level of resources required to achieve their stated goals and objectives. Step 1 activities Steps 1-4 should each begin with a meeting that officially starts the step and explains its objectives, activities, and outputs. It is this meeting and the activities surrounding it, more than anything else, that sets the tone for the project teams interaction. Team members have an opportunity to get to know one another and share individual goals for the project through discussion and team-building exercises. In addition to the kick-off meeting, the first week during step 1 should be filled with a review of past activities and planning of future ones. Team members should present a brief review to the team of current activities in their functional area. This allows each team member to display his/her expertise and initiates the cross-functional learning that will take place throughout the project. The team leader should plan and manage the activities during this week. Specific team tools that need to be developed include an issue tree, a data matrix, interview guides, and write-up and analysis templates. Additionally, the team will need to schedule interviews with selected individuals throughout the company that will take place during step 1. Developing an agreed-on new product strategy Overview. A new product strategy is an overall description of the role that new products will play in satisfying the growth goals of a company. Specifically, it defines: the financial growth gap and goals that new products are expected to meet; strategic roles that describe the functions that new products will perform; and screening criteria that serve as filters in determining which categories and new product concepts are most attractive to pursue. Financial growth gap. A financial growth gap is developed by first understanding the amount of sales revenue senior management expects to obtain from new products at the end of a specified period (typically threefive years). Key inputs for determining this gap are interviews with senior managers, historical new product performance, current company planning documents and category performance learnings. The purpose of developing this growth gap is to provide management with a common understanding of expected financial contribution of new products (Figure 5). Vision and strategic roles. A new products vision and strategic roles help a company specifically identify the areas in which new products will compete and the potential ways they can help support existing business lines and establish new markets. Key inputs include interviews with management, company planning documents, and research on consumer and market trends. The purpose for developing a new product vision is to define the market for new products, and the purpose for developing strategic roles is to pinpoint the methods for defending and expanding the companys current business (Figures 6-7). In general, there are two types of roles that are most often used. Requisite roles direct a company to develop new products that defend and bolster its current line of products. These are generally line extensions, revisions and new-to-the company products. Expansive roles direct a company to think outside the box and develop products that will truly expand the business in
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Satisfying company growth goals

Total revenue

5-year compound annual growth rate (percent) Input source Recommended five-year financial growth gap

$1,250,000 $1,000,000

20

Management cited goal

15

Projected growth in the 1993 strategic plan Management cited goal

$805,000

$805,000 $640,000

10

$500,000

Latest 5-year compound annual growth rate is maintained Compound annual growth rate for current product lines with no new product introductions $385,000

Example $420,000 = 5 year revenue gap to be filled by new products or other sources

$385,000

1995/1996F

2000/2001

Figure 5. Example: financial growth gap (000)

which it competes. Expansive roles, most often, direct a company to look at new markets, new benefits, new technologies, etc. Obviously, the returns are greater when developing expansive products, but so is the level of risk. Our philosophy continues to be finding the right mix of new products to maximize the risk/return payback. Screening criteria. Screening criteria are measures for evaluating the potential of new product opportunities. Key inputs include management perspectives, historical screens and risk analysis. The purpose for determining new product screening criteria upfront is to prioritize ideas generated during the project, and to provide guidelines for objectivity, discipline, and rigor in selecting the ideas that will move forward to concept development and business analysis (Figure 8). Stated senior management commitment. Arguably, the most critical output of this activity is garnering top management commitment to proceed with the new product initiative. This includes a consistent and visible commitment to invest resources, adherence to a formal process as well as strategic and
Sets the overall direction for new product development. Helps make new products a priority and rallying point within the organization Sets specific financial goals for new products and determines the growth gap to be filled by new product revenues Determines the specific objectives new products are to fulfil in support of the business strategy Requisite roles Defend or bolster existing businesses Expansive roles Propel company into new categories, markets or businesses

New product vision

New product financial goals and growth gap

New product strategic roles

New product screening criteria

Tied to strategic roles, determine which projects receive priorities and further development expenditures

Figure 6. New product strategy components

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New product vision

To be the leading manufacturer and marketer of highquality interior building products to provide customers with optimal solutions to their interior needs

New product financial goals and growth gap

$225 million in 8 years Requisite roles Defend or bolster existing businesses Target and obtain a leadership position in select market segments Become the interior products industry technical performance leader Continue to outperform and differentiate from the competition in product aesthetics Expansive roles Propel company into new categories, markets or businesses Redesign current interior systems to increase ease of installation and accessibility of interior products Expand the benefits provided by interior systems by including nontraditional functionality benefits Become a more comprehensive provider of interior products including installation and maintenance services Requires < $6 million investment Leverages current distribution ROI > 24 per cent

New product strategic roles

New product screens

> $18 million in annual revenues 35 per cent GPV NPV > 0/7 years at 10 per cent

Figure 7. New products strategy example: commercial products organization

financial screens, continuous direction-setting, and autonomy for new product managers. If, at the end of step 1, you have not really seen and heard commitment consistently voiced and displayed, you have two choices: either force senior management into a room together to reach consensus or pull the plug on the entire endeavor. Neither of these are ideal options. However, investing six months of your time without senior management commitment will be a wasted investment for both you and your company. End benefits and outputs. Ideally, a new product strategy should include: a desired three-to-five-year new product revenue target from new products; a specific vision and strategic roles that new products will fill for the organization; an estimate of development expenditures and investment capital needs for at least the next two to three years; and top managements expectations for, and commitment to, new products. Without a new product strategy, it is difficult to know in which direction to head. One idea or concept may appear attractive to one person and not to another. With an agreed-on strategy, management can more quickly and effectively focus on the market categories, ideas, and concepts that match specific strategic roles. It enables managers to focus idea generation on agreed-on targets, and it cuts down the screening time and prototype development costs incurred by false starts. In short, the new product strategy
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Criteria Strategic alignment

Objective Address at least one of the brands new product strategic roles Satisfy strategic screens and portfolio assessment criteria

Measure Team judgment based on qualitative research Medium to high fit with brand name At least one concept in portfolio (a) extends to brand (b) has time to market < 1 year Portfolio has proper mix of concepts requiring low, medium and high developmental/capital costs and people resources (a) Positive qualitative consumer research findings

Consumer need

(a) Address a strong consumer need; benefit relevant for identified target groups (b) Secure high consumer concept appeal based upon preliminary execution

(b) Positive quantitative study results

Technical basis

Identify potential technologies capable of delivering the consumer need Assess financial potential of the concept based on best available information

Potential for technological success medium to high Development plan/milestone/criteria established Estimated development time outlined ROI 15.5 per cent PV of 4 year CF > 0 Year 1 net sales $18 $28MM (line extension) $28 +MM (NTC or NTW) Payback Cash flow 3.5 years, NOE 3 years

Financial viability

Figure 8. New product concept screens

defines how the growth objectives of the company will be satisfied by internally developed new products. Developing a new product process Overview. Armed with the results of the new products strategy, management is well equipped with information to reassess the existing new product process and guide the development of a process that is well tailored to the companies specific needs. Internal strengths to exploit in generating new concepts will be identified, the reasons behind past new product performance are more accurately understood, and the potential internal impediments can now be addressed. At this point, the key benefits from the audit are informed decision making and judgment that can be integrated into the enhanced new products process going forward. Diagnostic audit. The diagnostic audit is an analytical tool aimed at improving new product development efforts. Specifically, it is designed to identify strengths and weaknesses of the new product system and guide future new product efforts by allowing the new product team to build on strengths and learn from past projects. There are three areas of assessment in the diagnostic audit: (1) Historical new product performance. This includes analysis of revenue and profit performance, survival and success rates, performance against objectives and reasons for success or failure (Figure 9). (2) Strengths and weaknesses assessment. This includes analysis of costrelated and manufacturing factors, technology-driven factors, demandand marketing-related factors, and sales and distribution factors.
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Company XYZ new product introductions 90/91 Product A Product B Product C Product D Product E Product F Product G Product H Product I Product J Product K Product L Product M Product N Product O
($000s) Total net sales Total PC* Total NOE* 300 (1,600) (800) 18,000 (8,500) (5,000) 70,000 102,000 (16,000) (1,500) (12,000) (6,000) 110,000 5,000 (4,000)

91/92

92/93

93/94

94/95

96/97

97/98

New product scorecard New products launched: Still on the market: Two-plus years old and still on the market: Met original net sales projections: Cumulative net sales ($000): New product net sales as a percent of total category: Cumulative gross profits ($000): New product gross profit as a percent of total category: Cumulative PC ($000)b: Cumulative NOE ($000)b: Average year 2 net sales ($000): Average year 3 net sales ($000): 15a 10 (66 percent) 4 (27 percent) 2 (6 TBD) $300,000 15 percent $180,000 13 per cent $12,000-($23,000) $5,000-($28,000) $11,000 $7,000

Note: aPC = Product contribution; b NOE = Net operating earnings

Figure 9. A new product scorecard

(3) Development system review. This includes analysis of new product strategies and growth role, step-by-step new products process, screening criteria and adaptive new products organization. To perform a diagnostic audit, conduct the following four steps: first, identify new products for study; second, gather data from internal reports and external sources; third, schedule interviews with functional team members and new product development managers; and fourth, analyze results and develop topline system recommendations to integrate into steps 1-4. The audit will provide information that will guide decision making in developing new products and the companys overall new product strategy, and will confirm whether expectations for future new products are realistic. End benefits and outputs. The audit will reveal and help team members understand best practices in developing and commercializing new products. It will seed-out the bad practices that either bottlenecked the team or led to new product failure. Forming a cross-functional project team Overview. If you do not have respect and trust among team members, if you do not have adequate resources to complete this initiative within the agreedJOURNAL OF CONSUMER MARKETING, VOL. 14 NO. 5 1997 347

Team leader 100 per cent dedicated to new product project

Marketing

Team members 50 per cent dedicated

Market research Product development Packaging/ engineering

Team members 20-30 percent dedicated

Manufacturing

Finance

Sales

Figure 10. Example team construct

upon time period, if you do not have cross-functional representation or the levels of commitment described earlier, you may be doomed to failure. We have consistently found that poor team dynamics and poor hand-offs, more often than not, result in failure. Team formationactions to take. We suggest conducting a number of valuesrelated exercises and teaming events within this step to maximize team effectiveness. Some of the more impactful exercises we have used, include: setting a team vision and a team pledge, agreeing on team values and norms, understanding one another through several, available tests and exercises (i.e., Myers-Briggs), getting to know one anothers spouses or friends, agreeing on specific roles and responsibilities for each team member as well as a totally integrated workplan.

End benefits and outputs. While many will balk at the idea of conducting these exercises, we have consistently found that those teams that take the time to go through this in step 1, have a higher likelihood of success in steps 2-4. Again, trust and strong communications are the two most important elements of any good relationship, and we would heavily suggest that this is a worthwhile investment for your team in the short and long run. Agreeing on research categories to explore Overview. In this stage, the team will make important strategic decisions prior to going out into the field to conduct exploratory research. The team will also finalize the workplan and determine exact resources needed to complete the entire project.
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Area to explore

Research categories. A research category is nothing more than an area to explore. For instance, our work with a leading manufacturer of air care products pointed to aromatherapy as a robust and growing category of opportunities to pursue. This decision in step 1 led our team ultimately to develop a line of candle products that has resulted in several hundred million dollars worth of sales. Strategic roles, category trends and secondary research are designed to help the team decide upon no more than 15-20 research categories to pursue. Workplan. This workplan lays-out the gameplan of major activities and tasks to complete going forward. It includes geographic and demographic direction. Ultimately, the team creates a research roadmap for the rest of the project (Figure 11). End benefits and outputs. Having reached total agreement on next steps is one of the most exciting and binding experiences the team will face. Done well, research categories and a strong workplan result in a contract between the team and the rest of the organization.

At the end of the step

Creating and presenting a report is a necessity after each step of the new product development process. This report should be presented to senior management, as well as selected audiences throughout the organization who will be directly affected by the outcome of this project. The new product development team should be responsible for creating and presenting this report. This benefits individual team members by allowing their functional area managers and peers to understand the work they have done, and it also benefits the new products process by highlighting the strength of cross-functional teaming. Step 2: Market problems and needs exploration Step 2 stated objectives The purpose of step 2 is to uncover and determine important needs and wants that are currently not being met, or not being met well in the market.

Preparation

Develop hypotheses and key issues

Conduct 10 IDIs to scope issue areas

Conduct workshop with internal managers to frame research for problem/ opportunity areas
IDIs, dyads and triads 3 rounds (18 consumers Total)

Develop moderator guide and screeners

Activate wave I setup

Wave I Surface problem areas/need states Wave II Define problem areas/need states Wave III Prioritize problem areas/need states

Focus groups 7-8 (6-8 consumers each)

Experiential observations 5-6

Estimated total consumers 65-88

Focus groups 4-5 (6-8 consumers each) Focus groups 1-2 (6-8 consumers each)

IDIs, dyads and triads 3 rounds (18 consumers total) IDIs, dyads and triads 2 rounds (12 consumers total)

42-58

18-28

Figure 11. In-depth qualitative research process

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This step helps the team to focus idea generation and concept development around the issue areas with the highest potential for marketplace success. Step 2 is time-intensive, research-driven, and generally requires about eight weeks to complete. Its major objectives include: Identification of high need intensity unmet needs, wants and opportunities based on research with primary decision makers and decision influencers. An understanding of key trends and drivers impacting the various categories based on non-consumer research and secondary research.

Step 2 end results A comprehensive understanding of the marketplace. Five to seven strategically focussed customer opportunity areas that will serve as a basis for step 3 idea generation.

Step 2 hidden objectives This step will teach everyone in the organization that the answer does lie in the marketplace. It will also equip every team member conducting the research with, arguably, the greatest depth of knowledge of anyone participating in the category or industry. Developing a comprehensive understanding of the marketplace Overview. The majority of this step involves interviewing, both in a one-onone and focus group setting. In addition, where appropriate, the team should conduct in-home interviews and/or on-site viewings to better understand specific behaviors driving decisions within the category. Because the cross-functional project team will conduct all of the research (rather than an outside moderator), it is imperative that thorough, upfront interview training occurs before the start of the interviews. Additionally, because of the intensive interviewing, and tight timeframe of the step, one team member should have ownership over the logistics and interview scheduling for the team. Interviewing in step 2 is structured by IQA (iterative qualitative analysis). IQA is the process whereby the team interviews, analyzes, restructures and re-focuses, interviews again, analyzes again, revises again, and so on, to form a funnel that starts broad and narrows down to the highest potential opportunity areas (Figure 12). Benefits of IQA The key benefit of this approach is the division it creates in the research process for analysis and thought. Conducting research can be time and energy consuming, and sometimes even the best of us gets lost in the data. IQA ensures that the team breaks out of research, formally analyzes the results to date, revises the interviewing approach and goals based on the findings, and then, and only then, begins to research again. Conducting qualitative research. Wave 1 is typically broad in scope and focuses the team on understanding each research category. It reveals the current process for purchasing the product and the buyers perception of both the product and the brands in the market/industry. After the analysis of wave 1 findings, wave 2 refocuses efforts to dig even deeper and better understand specific problems and frustrations within each research category. Wave 2 also uncovers new categories that may have been overlooked in wave 1.
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Step 2 activities

Research Broad need area exploration

Need area 1 Need area 2 Need area 3

Analysis

Research In-depth need area understanding

Need area 1 Specific need Specific need Specific need Specific need Need area 2 Specific need Specific need Specific need Specific need Need area 3 Specific need Specific need Specific need Specific need

Analysis

Figure 12. IQA (Iterative qualitative analysis)

Wave 2 analysis generally allows the team to develop problem statements that are then presented to interviewees in wave 3 to confirm both the accuracy of the problem, and its relative intensity compared to other big issues. Wave 3 research is used if needed, to prioritize opportunities further and to make sure the team is in full consensus with step 3 idea generation. Conducting non-consumer research. While the majority of effort in step 2 is directed at conducting primary research with decision influencers, equal time is spent on conducting non-consumer research. Through secondary, and selected primary research (with industry experts, association, and the like), it is possible to round out the teams market understanding. Specific types of information that should be addressed in non-consumer research are: marketplace trends; emerging technologies; competitive profiles; and industry facts and figures. This information will allow the team to enhance its understanding of the market, and evaluate the areas for greatest opportunity. Selecting five to seven strategically focussed customer opportunity areas Opportunity area prioritization. Once all the data have been collected, we recommend that the team invest a solid week to analyze and synthesize the data and reach consensus on a gameplan for step 3. This should involve a total integration of learnings from primary research with decision makers and decision influencers as well as secondary research. The team should select the highest potential opportunity areas for step 3 idea generation based on market need intensity of the unsolved problems and/or oppportunities addressed in each category. Step 2 report development. The new product development team will present their findings and recommendations to senior management. At this step 2 report, the teams mindset should focus on the impact their work will have on the direction of the organization relative to new product development efforts. This report is a milestone for the project, as it marks the completion of gathering information, and the start of creating new product ideas.
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Step 3 objectives

Step 3 idea generation Step 3 stated objectives The purpose of step 3 is to generate high-potential new product ideas based on the market needs and wants uncovered in step 2. The emphasis in step 3 should be on generating as many ideas as possible that will potentially solve problems and satisfy needs identified by consumers during the exploratory research conducted in step 2. The top 20-25 ideas will move forward to step 4 concept development and business planning. Step 3 generally requires about four weeks to complete. The major objectives for this step are: Develop a comprehensive list of ideas to address needs and opportunities identified in step 2. Evaluate each idea against the consumer and strategic and technology and manufacturing screens identified in step 1. Choose 20-25 top-tier ideas to take into step 4.

Step 3 end results Conducting a series of idea-generation sessions. A list of 20-25 top-tier new product ideas to concept development and business planning.

Step 3 hidden objectives This step will force the team to gather ideas and solutions against the top research categories even ideas that are out of the box or defy the law of physics. The main purpose of this step is to generate as many ideas as possible without being limited by the traditional inhibitions that most companies face (i.e. limited by todays technology, instead of thinking about the possibilities tomorrow). Conducting a series of idea generation sessions Overview. The primary objective of step 3 is to generate new product ideas. The forum for doing this is a series of idea generation sessions (Figure 13).

Step 3 activities

Problem-solving package and homework exercise Pictureboards/ visual stimuli Written stimuli Situation simulation Analogy examples

A summary of the problem categories and underlying rationale sent in advance to familiarize participants prior to the idea generation session Project team members brainstorm different ways to visually depict the problem. Boards or media are used to generate ideas at the beginning of each ideation session Detailed problem description and relevant consumer quotes Problem situations are presented to consumers to elicit solutions Use of analogies to the problem area (e.g., moisturizing wood and moisturizing skin) Ideas are passed from participant to participant. Idea fragments are added each time with the end output being a complete idea Ideas are sorted according to agreed-to criteria. The resulting idea ranking is then used for further ideation

Idea-builder

Idea-sorting

Figure 13. Techniques for idea generation

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These are not focus groups: At first glance, these sessions appear similar to traditional focus groups. There are 1-2 moderators, 8-10 participants, and a recorder taking notes. The purpose of a focus group is to identify consumer problems. The purpose of idea-generation sessions is to identify solutions for problems and satisfying identified consumer needs. Similar to step 2 research, all idea-generation sessions are conducted by team members. These are not random brainstorming sessions: Idea-generation sessions are not traditional open brainstorming exercises. Rather, idea generation is a focused process aimed at creatively solving consumer-cited problems. Idea generation sessions Step 3 set-up and background. Typically six to eight idea-generation sessions are conducted during step 3. Of these sessions, six to seven are likely to be conducted with different functional areas of the company, such as marketing, R&D, packaging, sales, and customer service. The team should also pursue a separate session with senior management that will provide an open, nonthreatening forum to foster creativity at the highest level. Conducting a session with this group also continues the buy-in process that is so critical to new product development. In addition to internal idea-generation sessions, one to two sessions should be held with the market (consumers, customers, decision influencers, etc.). These groups sometimes generate the most out of the box ideas, since they are not working in the industry, and have no preconceived paradigms. Believe it or not, these idea-generation sessions will provide several hundred targeted, new product ideas. Some of these ideas will be complete, while others may still be in idea fragment form. Concurrent to these sessions, the team will need to edit/maintain continually the list of ideas to ensure that the ideas captured are complete, robust new product ideas. Generally, an idea should contain a benefit, an action, and a form. In addition, we have also seen ideas contain such items as the surface use, technology use, and a segment of the target market to be addressed (Figure 14). Idea screening (Figure 15). There are two types of idea screening that should be conducted in step 3. The first screens an idea must pass are consumer and strategic screens. These screens assess the degree to which

An idea is a (1) description of the product, (2) a detailing of what the product does, and (3) a listing of the benefit(s) provided to consumers

Example Cellular phone A telephone that is portable to allow consumers to communicate from any
Product What the product does Benefit(s) provided

location, providing freedom and security

Example Contact lenses A miniature plastic film that is placed directly onto each eye to eliminate
Product Benefit(s) provided What the product does

the need for consumers to wear eyeglasses

Figure 14. What should a new product idea look like?

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Yes (3) Delivers meaningful consumer benefit Yes (2) Satisfy existing or unmet need

(4) Need intensity/broad or narrow (niche) appeal

Intense need or broad appeal

Less strong need and narrow appeal Put idea on hold

(5) Fit with consumer paradigms/ beliefs Yes

No

Put idea on hold

(6) Me-too product Yes No New idea (1) Fit with strategic role

Yes

Put idea on hold

(7) Brand fit

No (8) Technical feasibility screening

Audit trail of rejected ideas

Highest potential ideas

Figure 15. Idea screening criteria and process

ideas satisfy or address new product strategic roles and consumer needs and wants. The team uses these screens to help answer specific questions: Does the idea address a strategic role? Does the idea satisfy an unmet consumer need? Does the idea deliver a meaningful consumer benefit? And, does the idea have broad, moderate or narrow appeal within the market identified? Consumer and strategic screens should be viewed as an important mechanism in selecting the best ideas and screening out the less attractive ones. If an idea does not solve a problem or fill a need, or if it does not support the teams strategic roles, then it should not move into step 4. However, the idea should be held in a catalogue of ideas for future evaluation, as the market may change, and in ten years, it may become the hottest selling product on the shelf. Hottest selling product The second type of screens are technology and manufacturing screens. Typically, only the top 75-100 ideas are subjected to this screen, which is why the consumer and strategic screens are conducted first. Technology and manufacturing screens assess the degree to which ideas leverage available technologies and manufacturing/packaging processes. The team uses the technology screen to help answer specific questions: Does the idea fit within
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the companys technological capabilities? What are the estimated development costs for this idea? How difficult is the packaging technology for this idea? And, what manufacturing capabilities might be required? Importantly, technology screens, unlike consumer and strategic screens, are generally not used to filter-out ideas. These screens are used more to sort ideas into different development and technology categories. They help the project team to choose a mix of short-term and long-term ideas into step 4. Ultimately, the company will need a mix of ideas with short- and long-term technologies to build a portfolio and pipeline for ongoing new product development (Figure 16). Narrowing the list of ideas to the top 20-25 ideas In typical projects, there may be 50-60 ideas that pass all the screens, fit the strategic roles set up in step 1 and seem like they are winners. Unfortunately, it would be unrealistic to attempt testing that many ideas as concepts in step 4. Only 25-30 ideas can successfully be tested and assessed in a months time by any strong research team. The team is responsible for filtering the 50-60 ideas down to only 25-30. All of these ideas have potential and all will be tested eventually. But, to move on to the next step, narrowing the list is a requirement. The step 3 report is focused on a description of the idea generation process, the screening process, and the top 20-25 ideas that will move forward to step 4 concept development and business planning. Step 4 concept development and business planning Step 4 stated objectives The purpose of step 4 is to identify two or more high potential concepts ready for further development in step 5 based on iterative consumer input and business attractiveness. This step generally requires about eight weeks to complete. Its two major objectives are: shaping the highest potential concepts from step 3 via iterative consumer input,
Introducing the car seat desk Introducing the car seat desk
Organize files and business supplies in your car Organize files and business supplies in your car Working out of your car can be difficult as a result Working out of your car can be difficult as a result of poor organization and storage and the lack of poor organization and storage and the lack of of stable writing surface a stable writing surface Now theres a better answer you can Now there is a better answer you can simulate working in the office conveniently simulate working in the office conveniently from your car with the new care seat desk. from your car with the new car seat desk. The The product provides an efficient and product provides an efficient and organized organized method of storing your files and method of storing your files and supplies supplies you to get back to business. allowing allowing you to get back to business. In addition, the car seat desk is In addition, the car seat desk is equipped with a removable desktop equipped with a removable for a stable writing writing desktop for a stablesurface surface. Organize files and business supplies Organize files and in your car with supplies in businessthe new car seat desk your car with the new car seat desk The car sear desk The car sear desk The car sear desk locks into place in into locks into place in locks carsplace in your your cars your cars seat passenger passenger seat passenger seat Provides an organized and efficient Provides an organized and efficient Provides an organized and efficient way of storing files and supplies way of storing files and supplies way of storing files and supplies

Step 4 objectives

Figure 16. Example concept

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conducting business analysis on the top 5-7 concepts to develop a full understanding of the potential for each of these strong concepts.

Step 4 end results two (or more) high potential concepts with mock-up designs/formulations that mesh with the existing category portfolio and are ready for full product development, five (or more) additional deferred high potential concepts that are documented for future consideration.

Step 4 hidden objectives This step forces market feedback to direct a companys commercialization efforts. Again, the team needs to place strong emphasis on allowing the marketplace to drive the answer not senior management or other internal forces. Developing high potential concepts Overview. Think of this step as inside-outside-inside. The first part of this step entails turning the 25-30 ideas into robust concepts. The second part involves testing those concepts and prioritizing the top 5-7. The last part involves conducting business analysis on those 5-7 concepts and narrowing them down to the top 2-3 that should move forward into development. Concept development and testing. To determine the highest potential concepts for business analysis, the team will conduct iterative consumer research, similar to that conducted in step 2. Prior to this research, however, the team needs to develop fully each of the 25 ideas into concepts, with written descriptions and renderings. These concept descriptions will become the stimuli for the consumer focus groups (Figure 16). The team will begin iterative qualitiative analysis to reveal the most attractive concepts. These waves of research again act like a funnel, sifting out the best concepts for successive waves, and leaving the weaker ones behind. For example: Wave 1 addresses all 25 concepts, these concepts undergo team analysis, to narrow down to the top 12-16 concepts for wave 2. Wave 2 analysis determines the top 5-10 concepts, and wave 3 solidifies with the market the high potential of these concepts. Approximately five to seven concepts are selected during wave 3 for business analysis. Conducting business analysis. After step 4, all ideas for future development consideration must display strong market and business attractiveness, based on extensive preliminary design, cost and sales assessment. These assessments include market potential, technical and design scenarios, cost and manufacturing potential, and all lead to business case financial scenarios (Figure 17). Business case components The team is ready to develop a business case for each of the five to seven concepts. The components of each business case should include (Figure 18):
356

Step 4 activities

concept statement and renderings, market sales scenarios, R&D (technology) scenarios, packaging scenarios, manufacturing scenarios, business financial analysis scenarios.
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What new product/service concepts should be taken forward to commercialization and launch?

What is the estimated market potential for each of the concepts?

What are the estimated costs necessary to develop and introduce each concept?

What potential business scenarios might exist for each concept?

What is the estimated market size for each of these concepts?

What type of purchase behavior might be expected for this concept?

What ballpark unit sales volume might this concept achieve during its first 3 years?

What are the potential unit costs for this concept?

What resources might need to be dedicated to bring this concept to market?

What marketing and distribution costs might have to be incurred to launch this concept?

What range of sales revenues, costs, gross margins and growth rates might be expected from this concept?

What profits might accrue from bringing this concept to market?

What financial hurdles might this concept be expected to clear?

Figure 17. Business analysis helps answer strategic questions

Manufacturing Packaging R&D Financial Marketing Concept description

Estimated unit and refill costs Capital requirements Estimated timing

Alternative technologies Risk assessment Packaging configurations Estimated design cost Estimated timing

Estimated ROI

Consumer benefits desired Alternative technologies

Key consumer learnings Potential target markets Alternative positionings Quantitative test results Channel considerations Competitive products

Refined concept text Refined concept drawings Umbrella brand names Sub-brand names Price

Present value of cash Testing flow requirements Sales potential Delivered profit Product contribution Discounted payback Estimated development time Estimated development cost

Figure 18. Elements of business analysis

Business case development should begin with three-year sales estimates. The team may consider the following guidelines for developing sales potential estimates: consumer-based trial and repeat estimates leveraging historical launches, share estimates based on the existing and potential market size for the consumer benefit offered by the concept,
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358
Portfolio of approximately 15-20 comprehensive concept descriptions
Etc...

Extensive pipeline of fully defined, screened and prioritized ideas

Business analysis on the top 15-20 new product concepts Annual market potential estimates

Figure 19. Step 4 end results

199x XXXX XX XX X XX 199x XXXX XX XX X XX 199x XXXX XX XX X XX 199x XXXX XX XX X XX

Approximately 20-25 top-tier ideas

Idea #1 Idea #2 Idea #3 Idea #4 Idea #5 etc...

3-5-year financial pro formas

199x XXXX XX XX X XX 199x XXXX XX XX X XX 199x XXXX XX XX X XX 199x XXXX XX XX X XX 199x XXXX XX XX X XX

Second-tier ideas

Idea Idea Idea Idea Idea Idea Idea

Idea Idea Idea Idea Idea Idea etc...

Concept #3 Product description: One sentence which describes the Concept #2 Product description: product. (what form is it in, how it One sentence which describes Concept #1 works, how description:used) the Product it should be product. (what form is it in, how it One sentence which describes works, how description:used) the Product it should be Product characteristics, in, how it product. (what form is it features One sentence which describes and peformance parameters: works, how it should be used) the product (what form it is product AProduct characteristics, features brief description of key in, how it works, and peformance parameters: how and performance featuresit should be used) features Product characteristics, A brief description of key product expectations and peformance parameters: features and performance features AProduct characteristics, brief description of key product expectations and peformance Product benefits: parameters: features and performance A brief descriptionthe key product A brief description of of customer expectations Product benefits: features and performance problem/need and a list of the benefits A brief description of the customer expectations (primary adbenefits: that the Product secondary) of the benefits problem/need and a list product provides to solve thecustomer A brief description of the customer (primary Product secondary) problem adbenefits: listthat the problem/need and a product provides to solve of the benefits the customer A brief (primarydescription of the customer problem ad secondary) that the problem/need and a list the Product price parameters: the benefits product provides to solve of customer (primary Approximateand secondary) structure problem price level and that the Product price product provides to solve the for the poroduct parameters: customer Approximate price level and structure problem Product price parameters: for the poroduct Approximate price level and structure Product price for the poroduct parameters: Approximate price level and structure for the product

Implementation plans

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Business analysis on the top 15-20 new product concepts

Top 2-3 concepts move to prototype development/market testing

 Estimating the cost of materials

benchmarking against businesses with similar characteristics, including normal sales growth benchmarking.

Technology, packaging and manufacturing scenarios should be developed to estimate the cost of materials for developing a product. In most cases, the team will have several options for each scenario, and should therefore calculate each one. Scenario development was designed to help the project team create a list of possible options including costs for input in the financial scenario calculations. Financial scenarios should be developed using all of the above input. The objective of these financial scenarios is not to determine an exact launch pro-forma financial plan, but rather to aid in the selection of the most attractive ideas to move forward into development. It is too early to make a refined estimate of exact costs or develop the accuracy needed at that level. Selection of top two to three concepts. This rigorous analysis and the marketbased research will point the team into an obvious direction in which two to three concepts will be recommended to move forward. However, gameplans should be constructed for the other concepts as they were also very desirable. The step 4 report should review the process for concept development. It should describe and focus on each concept scenario developed in business analysis. After the step 4 meeting, the project team should be ready to select concepts to move forward into development (Figure 19). Once step 4 is completed, the team should celebrate and, hopefully, be recognized by senior management. Additionally, the same team should be involved in steps 5-8, while also transitioning back to their areas and core jobs. Conclusion: a few unspoken benefits of this process The following unspoken benefits can be identified: Not a penny has been spent yet on product development all product development efforts will be well grounded in market research. The project team, that has gone through this process, will now have a deeper appreciation and understanding of the criticality of new product development and the iterative steps it takes to complete a full cycle. If communications have been completely open, then each functional area should be fully abreast of what is taking place within the process. Consequently, any transitions will be made more easily and pride of ownership will be maintained. Goodwill and public relations has been enhanced for your company just by being out in the market and talking to hundreds of customers. An important message has been sent to the organizations stakeholders regarding the companys future.

Well, now that you have gone through the process with us, you can begin to understand the amount of rigor, discipline and hard work it takes to make innovation happen. Put this on your Monday morning to-do list and take the time to talk about innovation with your colleagues. This next big thing is likely to have the biggest impact yet.
Scott M. Davis is a partner and Kristin Moe is a consultant, both at Kuczmarski & Associates, Inc., Chicago, Illinois, USA.

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This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present

Executive summary and implications for managers and executives Seven actions and three cultural factors needed to make your firm more innovative Innovation is the next great business challenge. We have fought our way through TQM, BPR, JIT and other acronymic business ideas. Now, proclaim Davis and Moe, we need to embrace the challenge of innovation. And this new realization is not just a trend, it is a fundamental change in our attitude to management. Business people must shed their short-term mindsets and expand their thinking into the future. So what is this innovation stuff, then? Surely we cannot mean simply developing more new products and more new brands? Businesses are already doing that, many with great success. Nor can innovation mean yet another expensive reorganization of the business. After all where you put people and what you call them does not represent innovation merely a new shuffle of the pack followed by a new deal. A friend of mine once opined that most successful entrepreneurs founded their success on one great idea. And, the less competitors could copy the idea, the more money the entrepreneur would make. By idea he didnt just mean a new product, or even a new service, but often a subtle tweak to the way of working or a new insight into how to sell whatever it was that the business made or did. This friend went on to say that most of these entrepreneurs lost their way when either the great idea is superseded or when the business reached a size that required a different approach to management from the all-embracing everything-is-important attitude of the successful entrepreneur. I do not know whether this opinion contains any truth nor do I suggest an urgent research programme to find out how to let entrepreneurs have a second great idea. But I do feel that business success is nearly always predicated on innovation. A firm without innovation becomes doomed to decline and eventual closure or else absorption into some larger or more dynamic organization. Davis and Moe present a polemic about creating a structure and culture of innovation in a firm. Their focus is on the new product rather than a broader concept of innovation embracing service delivery, organizational structure and human resources. The principles, however, apply regardless of how we define innovation. To embrace innovation we need to take on board seven key actions and acknowledge three cultural requirements. The seven actions: (1) Have a new product development strategy. Davis and Moe point out that firms with a new product strategy succeed more than those without. Even better develop an innovation strategy stretching beyond mere material creation. (2) Develop a pay structure that rewards innovation and creativity. Do not take new product development or innovation and put it in a tidy little box leaving most staff to plod on doing the same old things day in, day out. (3) Avoid allocating innovation to a particular function. Innovation is not marketing or finance or production. The profitable new idea can come from anywhere in the business. Create cross-functional teams and make innovation a part of everybodys job.

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(4) Count the innovation beans. Measure your return on innovation and measure the benefits that seeking the new brings to productivity and loyalty in employees. Challenge finance people to finds ways to deliver rather than slam the brakes on all the time. (5) Be collegiate rather than authoritarian and hierarchical. Try to bring everyone into discussions and take the trouble to listen to what staff at any level say. (6) Recruit innovators. Do not get hung up on qualifications and education. Look out at the real world and realize that most entrepreneurs and innovators do not hold higher degrees from business schools. Yet it is their ideas that change the world. (7) Let people do their own thinking. Rather than giving them some pat solution help them solve problems and face challenges themselves. They will have more fun and you will get more out of them. Three cultural requirements: (1) Lead by example. Davis and Moe insist that, without senior management commitment to and involvement in innovation, there will not be any. And commitment does not just mean sending out a memo saying the board is committed. It means rolling up your sleeves and getting involved in the nitty-gritty of the firms thinking. (2) Allow people to fail. If you have a culture where people are terrified of making a mistake or failing at some project then you will have no meaningful innovation. Davis and Moe describe how our wider culture affects our attitude to failure. Too often we see failure as a character flaw or a stigma rather than a reflection of someones efforts to succeed. In allowing failure, though, you must set in place the support and methods for people to learn from failure. It may not be wrong to fail but people need to take time out to think about why they failed. The more your organization assesses its failures the more it will learn how not to fail and that means more successful innovation. (3) Dont get obsessed by secrecy, privacy and protection. Open up discussions and debates in your business. Do not lock doors and hold exclusive meetings. Allow staff free access to the experiences and knowledge that exists in your business. There should be nothing beyond the privacy of personnel files that employees cant see and understand. The more they can know, the more they will get involved and the more chance you have of getting their best efforts and best ideas. Innovation is not a system it is a way of working Although Davis and Moe present a structure for innovation in a new product development context, what underlies their process is a different attitude to work. Successful innovators are more prevalent where the society in which they work sees innovation as a core activity. In places like Silicon Valley innovation is celebrated and people go there because they anticipate support for ideas and the chance to play a part in leading the future of business and technology. If our information age is indeed an innovation age then successful organizations will create structures and employ staff with new ideas in mind. For those that dont the future is more frightening and less lucrative. Where do you want to be? (A prcis of the article Its not simply change, its evolution. Supplied by Marketing Consultants for MCB University Press)
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