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- Up Front
- 4From the Editor of Visions April Klimley
- 42007 Visions Editorial Calendar
- 5PDMA Update Letter from the PDMA Chairman Hamsa Thota
- News from the CEO's desk Robin Karol
- 6VIEWPOINT: The truth about ethnography: A rebuttal Anne Orban
The author rebuts Gerry Katz's September 2006 Visions viewpoint article on ethnography. - 7NPD Trends/Practices
- What makes 2 Percenters so valuable K.T. Connor
Further discussion of Kevin Ward's concept of 2 Percenters— employees who are miracle workers in NPD but difficult to manage. - 9The story of one 2 Percenter: A Sad Tale George Castellion
An anecdote that illustrates how one 2 Percenter was undervalued despite stellar performance. - 11COVER STORY: Innovation at Xerox Stephen P. Hoover
Xerox's exceptionally successful NPD process has led to positive results in a record short period of time. - 14Smart Spenders: The Global Innovation 1000 April Klimley
Visions Exclusive on Booz Allen Hamilton report: What the report results mean to New Product Development professionals - 15Booz Allen Hamilton report highlights Kevin Dehoff and Barry Jaruzelski
The authors describe some of the techniques used by “high-leverage innovators” to succeed in innovation. - 16Interview with Kevin Dehoff of Booz Allen Hamilton on outsourcing in high-tech Ed Crowley
A spirited discussion about whether or not it is feasible to outsource innovation in the high-tech industry; and, if so, how to do it. - 18Product obsolescence: Removing parasites from the portfolio Leland Shaffer, Rafael Lopez, and Eric Rose
These criteria may be able to help companies make good decisions about whether or not to remove a product from the portfolio. - 22Innovating beyond TRIZ: Weeding out the pipeline Mikhail Verbitsky and Pat Casey
Creating a successful innovation agenda helps companies bring the right products to market. - Global News
- 26Conference report from PDMA-India Venkataraj Kanakaraj and Kesavan Chandrasekaran
The authors describe the affiliate's December conference and give us a brief description of the affiliate, its vision, and goals. - PDMA News
- 29 From the Editor of JPIM Anthony Di Benedetto
- 30 Chapter Spotlight: Cincinnati/Tristate Trisha Sutton
Details of a September conference that featured national thought leaders on open innovation. - 33 What's in a tagline: PDMA Branding Mark Adkins
- 34 Advertiser Index
Innovating Beyond TRIZ–Weeding out the Pipeline
How a structured discipline can
create a successful innovation
agenda and bring the right
products to market
Mikhail Verbitsky, Director of Product Innovation (mverbitsky@gen3.com) andPat Casey, Director, Market and Business Analysis (Patrick.casey@gen3.com),
GEN3 Partners
Once companies plunge into continuous product development, they run up against a major new challenge—how to weed out the winners
from the losers. The choice is not always clear when portfolios may be spread out across divisions or even different continents. In this
article, the authors lay out one systematic approach, which has roots in the famous TRIZ method. They have updated and refined the
original process to work within the complexity of today's business development environment.
In today's global economy, innovation is the single most powerful competitive weapon an organization can wield. At the same time, it is fraught with risk. One study found that for every product success 3,000 new product ideas and 125 small projects fail. In short, innovation requires discipline that enables an organization to make the innovation more consistent, predictive, and successful, as well as to improve its ability to select the right prospects from the pipeline. Over the years, innovators like the Russian engineer Genrich Altshuller have devised methodologies that identify patterns in problems and, therefore, in inventions. In 1946 Altchuller invented the TRIZ method, a scientifically based and empirically derived theory, originated by looking at patents and how they solved problems.
Very often companies still rely on the ‘best judgment' of those involved, and this approach frequently leads to poor results.”
While TRIZ was groundbreaking for its time, it was limited in its capabilities, providing no insight into the analysis of the engineering situation and problem identification that are critical for an effective innovative project. Thus, the classical TRIZ does not have effective analytical and problem statement tools. The scientists and engineers at our firm have been able to take the TRIZ method and evolve it into a discipline that articulates product design, engineering, manufacturing, or other problems into statements that let product developers look for answers in other industries, fields, and disciplines. In other words, our Innovation Discipline provides guidance as to what problems of a specific product are the best problems to be solved.
With this article, we are making the next step in our innovation discipline development. We will now demonstrate how to determine what products in a company's portfolio are the best candidates for development.
Innovation poses last resort for American business
Today, it's widely believed that innovation is the last resort for the survival of American businesses in the competitive global marketplace. As a result, research and development (R&D) resources allocated to product innovation have grown significantly during the last few years.
With greater R&D resources in hand, managers charged with delivering new innovations to market need to answer several important questions: Are we allocating our product innovation investments appropriately over many products, processes, and divisions? Have we channeled our investments into areas that can deliver substantial competitive advantage for our firm? Do we have an “innovation roadmap” that identifies current and new product initiatives with the greatest potential financial returns?
Companies can answer these questions by using new approaches that help them better identify and predict the most promising products to bring to market.
Exhibit 1: Mapping the Products (Step 2) GEN3's Innovation Matrix
Understanding what it means
The most successful product innovators know that innovation is not an end unto itself. To identify the most promising ideas without becoming enamored of an interesting new technology, they scrutinize how much value the concepts will generate for their target customers: How much time and cost does the product save customers over current products? Does the product significantly improve the way intended customers accomplish their interests? Do customers even care about improvements in such “parameters of value”?
At our company, we define innovation as “significant movement along the Main Parameters of Customer Value” (MPV). In other words, we believe that innovation delivers actual value to the customer along parameters such as cost, function, design, or other criteria. The parameters of customer value are not always obvious to manufacturers, customers, or (luckily for you) the competition.
One executive who uncovered the main parameters of customer value for his industry is Herb Kelleher of Southwest Airlines. Kelleher was a legendary chairman at the airline, and he once said that customers gave him lots of advice over the years about how to improve the airline. They named amenities like leather seats, better food selections, and more attractive attendants. But when asked which of these parameters would actually drive their choice of airline, they were interested in low fares and convenient schedules. If a new product concept does not deliver value that is important to customers, it will fail in the marketplace. The most successful product innovators put their money behind concepts that create a significant increase in a main parameter of customer value—in Southwest's case, low fares and convenient schedules.
Many companies, including Unilever, Alcoa, Chiquita, and Xerox, have already used our company's MPV methodology to identify the greatest product innovation opportunities and to solve the technical barriers to achieving them.
Using the right tools and avoiding the pitfalls
Now that we have a definition for innovation, it is important to understand how companies can predict with confidence which products will be successful and which pitfalls to avoid. Despite the attention and heavy demands businesses put on delivering innovation, the methods companies use to select new products, processes, business models, and other innovation plans have not changed much over the years. Very often companies still rely on the “best judgment” of those involved, and this approach frequently leads to poor results.
A “best judgment” approach is particularly vulnerable to two types of errors in managing innovation resources: One is spreading scarce development resources over a lot of low-leverage maintenance projects, and second is looking for greener pastures while overlooking high-leverage opportunities to improve the current products.
These two errors continue even when organizations have adopted product portfolio management methodologies. Unfortunately, there are several problems with most of these methodologies. First, they rely on detailed financial projections for prospective products, which are notoriously inaccurate. Second, they often focus exclusively on new product proposals. As a consequence, they fail to account for all the opportunities present within the existing product portfolio. Also, existing models often overlook synergies among prospective development efforts.
To complement existing methodologies and address the challenges of product innovation planning, companies need a structured approach that enables corporate R&D planners to build an innovation agenda systematically.
Creating an innovation agenda
Many organizations want to adopt a structured approach to make well-founded decisions, based on scientific and predictable disciplines, about which product innovation to bring to market. But where do they begin?
Creating an innovation agenda—or the right portfolio—requires that companies take stock of their entire product portfolio and the interdependencies between development efforts. Doing this assessment means creating an extensive characterization and prioritization of each business unit's products and services to determine each one's relative value to customers and shareholders, its potential for innovation, and its payoffs from those innovations. Here is a description of the main steps of our discplined approach.
Useful Terminology for Weeding Out the Portfolio
- Main Parameters of Customer Value (MPV) A concept that refers to all aspects of a product or service that deliver value such as cost, function, design, et al and dominate customer's purchase decision. This concept can be measured by Customer Value—a mathematical ratio of Main Parameters of Value Performance (MPVP) to Price Performance (PP).
- Main Parameters of Value Performance (MPVP) A measurement that quantifies all the main functions a product is meant to perform and how well the product does that.
- Price Performance (PP) A measurement of how one's product price compares to that of similar competitive products in the same category.
- Gross Profit Potential (GPP) A measurement that quantifies the total profit pool available to participants in a certain market.
- Innovation Matrix A grid (landscape) on which you can map MPV measures (for example, GPP vs. Customer Value) to be compared in decision-making about product innovations.
Step #1: Scan and compare your product portfolio
Making a decision about resource allocation among different products implies that these products are going to be compared against each other; however, how can you compare hundreds or thousands of different products that comprise the company's product portfolio? You can compare “apples to oranges” or airplanes to garbage bags—in terms of parameters that are common to all of them.
Creating an innovation agenda—or the right portfolio—requires that companies take stock of their entire product portfolio.”
Here are three parameters that enable you to compare different products in a product portfolio consistently: First is the Main Parameters of Value Performance (MPVP), which refers to a measurement of all the main functions a product is meant to perform—and how well the product does that. (See Box above.)
Second is Price Performance (PP), which refers to how one product's price compares to that of a similar competitive product in the same category. Every product has its price, but the price itself cannot be very useful for comparison purposes. For instance, an airplane ticket will be always significantly more expensive than a box of garbage bags. What is common among different products is not simply a price, but how each one's price relates to the price of comparable competitive products. The ratio of Main Parameters of Value Performance (MPVP) to Price Performance (PP) gives us the ultimate measure of the MPV concept— Customer Value.
And finally, Gross Profit Potential (GPP) is the total profit pool available to participants in the market. For every product, the GPP will be calculated as the projected market size (current market size adjusted for compounded growth over the planning horizon) multiplied by the projected gross margin.
Step #2: Map the products into an Innovation Matrix
After conducting this scan of products, you will see that some products provide high value for the consumers in that they have relatively high performance in terms of their MPV and are significantly less expensive than their competitors, and some do not. In addition, when you compare these products to those in competition, you can divide the products into four distinct groups, as shown in Exhibit 1 above.
Group 1: These products provide relatively high value to their customers and address a large profit pool. These products are delivering significant value in attractive markets and should, barring other barriers to success, enjoy strong market share and corresponding profits. You should seek to maintain the strong relative position of these products and view this group as the target domain.
Group 2: Some products provide relatively low value to their customers but their GPP is high. These products have a high profit potential but are—or may become—vulnerable to competitive products with superior value. These products are the high-priority candidates for performance improvement.
Group 3: These products address a small profit pool and provide less value to their customers than do competing products; these products should be given low priority, but not before testing the potential to improve profit margins and/or expand market demand.
Group 4: These products provide relatively high value to their customers but do not enjoy high GPP. It is possible that the same competencies that created this high value could be applied to more attractive adjacent markets through product innovation.
Step #3: Use trends of technology evolution as a planning tool
This initial analysis shows that products in the second group are primary candidates for performance improvement and corresponding innovation planning. We will focus on that group.
Altshuller noticed that in the evolution of inventions there are some general patterns that describe different products across different markets and industries. Of particular note are products that are more controllable and made of materials that exhibit a higher degree of freedom—these products demonstrate superior performance and have a much better chance of surviving in the marketplace. We use these general trends as directional and selection criteria when we project specific innovation activities to improve the MPV performance of Group 2 products and eventually move them into the Group 1 category.
Step #4: Identify synergies to benefit the most products
Let us review where you are at this point: First, you scanned and compared all products of your product portfolio in terms of GPP and MPV, mapped products into an a grid which we call an Innovation Matrix, and reduced the number of candidates for product innovations, focusing on Group 2 products that are in a good market but provide less value to consumers than do their competitors. Then, for these best candidates, you applied trends of technology evolution and identified specific innovation activities to improve their MPV.
Now, you need to look at potential synergies. What we mean by that is that, all things being equal, the development of some products will benefit other products more. Those “benefits”— which we are calling synergies—mean you should start with those products first. To measure these synergies, we've developed four criteria that go into our Synergy Index. You can find out more about this on our company's Web site. You need to figure out where all your innovation activities rank in terms of these synergies.
Step #5: Perform the final innovation prioritization strategy
Now, you are ready to perform the final prioritization. At this last stage, there are four major factors to consider.
Competitive Urgency: Competitive urgency is viewed as an indication of near-term pressure from competitive products. The primary measure of competitive urgency is the customer value of a company's products relative to their competitors. This assessment can be augmented with projections of competitive value (rather than current competitive value) and recent trends in market share as a measure of de facto competitive value.
Market Attractiveness: This measure is an indication of the long-term profits that may be realized by the product family. The primary measure of market attractiveness is GPP. It can be augmented with ratings of the market's structural attractiveness and the profitability of current market participants.
... weeding out the portfolio is where many companies go wrong.”
Business Impact: This factor is an indication of the degree to which the company relies on this product family to meet its business plan. The primary measure of Business Impact is pro forma profits selected from a reasonable horizon.
Technical Synergy Index: An indication of the degree to which innovation for this product family will benefit the overall portfolio.
We have created a usable, structured, quantitative approach that allows corporate business planners to make well-founded decisions about innovation initiatives and takes stock of the entire product portfolio and the interdependencies among development efforts. It may take time and discipline to apply this methodology. We maintain, though, that weeding out the portfolio is where many companies go wrong, because they apply a subjective intuition instead of objective quantitative analysis. So by using this approach as a guideline at your company, you can define the innovation agenda and predict the success of product innovations with much greater confidence—and thus, of course, influence profitability positively. So the time and energy needed to apply these criteria in a disciplined fashion is certainly worth it.
Mikhail Verbitsky is Director of Product Innovation and Pat Casey is Director, Market and Business Analysis, at GEN3 Partners, a product innovation consulting firm located in Boston.
