Meet Matt. He’s spent five years as a new product development manager. Matt’s boss just handed him a tough development problem. Their major competitor launches almost twice as many successful products as Matt’s company. His boss wants Matt’s group, in the next five years, to meet this launch rate. And he wants Matt to do it without increasing his group’s cost for developing a successful product.
Is there a realistic way available for Matt to carry out the task his boss has set for him? Yes.
By searching the Internet, Matt uncovered a best practice for solving his problem. He found it in a study of best practices for new product development. This peer-reviewed study used an unprecedented amount of data and statistical rigor.1, 3, 4
Four discoveries Matt made in the best practices study
Discovery 1: Put more resources into front-end activities:
Companies who verify market potential assumptions produced one successful product for every 4.5 ideas. These companies, 25% of those in the study, were labeled The Best. Other companies, The Rest (75%), produced one successful product for every 11.4 ideas. Rest companies need twice as many ideas to produce one successful product.
Best’s cumulative costs to produce one successful product are 48% lower than the Rest’s. 3 (See Figure above) One look persuaded Matt to put more resources into verification. He could double the number of successful new products without an increase in budget.
Discovery 2: Use Voice of the Customer interviews (VOC) to determine market potential.
From the best practices study Matt learned that VOC interviews in the front end could determine market potential. At least thirty or more knowledgeable people are interviewed. These individuals range through direct customers to end users.5
Matt recognized that his current cost to shape an idea for a decision would increase. But, he saw his group’s cumulative cost for a successful product would be cut in half
Discovery 3: Gauge an idea’s business potential with simple estimates.
Lengthy estimates of business potential do not correlate with an idea’s success.6 Matt’s group now uses the Kill Early — Kill Cheap principle for decisions on new product ideas. 2 When Matt applied the principle fewer, but stronger, product concepts moved into the cost-intensive back-end of development.
Discovery 4: Exploit the lower cost as an opportunity to enter a virtuous cycle of profit and growth
In a virtuous cycle, a chain of events reinforces themselves through a feedback loop. Switching to the practices of Best companies opens up an opportunity to move ahead of Rest competitors. Matt’s boss could start a virtuous cycle by feeding back the increased profit flow into developing more new products.
“Data! Data! Data! I can’t make bricks without clay.”
The Adventure of the Cooper Beeches
Since 1985 I’ve used VOC to test key assumptions about market potential of a product concept. Like Sherlock Homes, I elicit undiscovered data, information, and latent needs from strangers. Holmes did most of his elicitation work face-to-face rather than on the phone. I use the phone.
Among the benefits of phone elicitations are:
- Quicker to reach knowledgeable people for elicitation conversation
- Greater openness of the conversation
- Much lower cost
- (2012) Markham, S. K. and Lee, H. Product Development and management Association’s 2012 Comparative Performance Assessment Study J. Prod. Innov. Manag. 30 p408-429
Best companies (25%) of all companies studied) are:
In the top third of their industry for NPD success
Above the mean for their new product program success
Above the mean for sales and profit success from NPD.2. (2014)
2. Gassmann, O., Schweitzer, F Management of the Fuzzy Front End of Innovation p196 Springer International Publishing, Switzerland
3. (2012) Markham, S. K. and Lee, H. Winning At NPD: Success Drivers From the 2012 CPAS Study http://www.pdma.org
4. (2013) Markham, S. K. The Impact of Front-End Innovation Activities on Product Performance J. Prod. Innov. Manag. 30 p77-92
Markham defines front-end activities as work done to develop a product concept before the NPD project enters the commercialization phase of a formal product development system. Such work includes simple demonstration of technical feasibility, a sensible understanding of how, why and when a concept’s acceptance the marketplace will occur, and a back-of-the-envelope financial viability analysis.
- (1993) Griffin, A. and Hauser, J. Voce of the Customer Marketing Science 12 p1-27
- Griffins, T. A Dozen Lessons about Business Valuation from the Iridium Debacle https://25iq.com/2017/04/14/a-dozen-lessons-about-business-valuation-from-the-iridium-debacle/