Scott J. Edgett
Top Performers Continue to Raise the Bar
In December 2010, the Product Development Institute (PDI) and APQC concluded a product development benchmarking study that revealed important data about what it takes to consistently produce profitable new products. PDI and APQC published an in-depth quantitative report based on extensive survey results from 257 participating organizations.
As shown in Figure 1, top performing organizations have a higher percentage of commercial successes (62%) than bottom performers (45%). Top performers continue to achieve better results in the marketplace. Results from the in-depth analysis confirm that these companies apply the principals of good product innovation at a much higher standard. For example they have a well-structured and applied product innovation process; gatekeeping and governance protocols work well and the front end of their process integrates the needs of the customer and the market. As expected, companies that are high performers are also experiencing fewer kills once the new product is commercially launched. They are experiencing 50% less new product failures than the next group of companies. A kill rate of only 14% compared to 28%.
Top performing organizations also have a higher percentage of product cancellations prior to launch when compared to bottom performers. The percentage of pre-launch kills is greater than commercial failures (“fails”) for top performers, while bottom performers have a higher percentage of fails than kills.
Survey results also indicate that organizations that are better able to identify and eliminate weak product concepts before the end of the product development process have a greater likelihood of having a higher percentage of successful new products. The higher percentage of pre-launch kills could be the result of more stringent criteria for passing each stage or phase of the product development process, a combination of reallocating resources that would otherwise be spent promoting a failed product and/or using those resources to develop new products, or possibly having greater “intestinal fortitude” when it comes to making tough decisions based on evaluations of a potential product’s success in the marketplace.
So why is it better to cancel a potential new product before launch instead of after? Killing a new product once it is in the marketplace can be a costly action for an organization. Typically, there is a significant investment in marketing, not limited to collateral and labor, to promote new products. There is also the danger of damage to the organization’s image and brand if it makes a big splash for a new product that then flops. It can take time and money to recover—if possible—from the resulting poor publicity and customer dissatisfaction. There are also the costs associated with production of the new item, as well as the opportunity costs of not reallocating these scarce organizational resources to other more productive projects. Relationships with suppliers can also be affected by ordering materials that might need to be returned, not to mention the reverse logistics involved in removing all the failed products from the supply chain.
Top, Middle, and Bottom Performance Defined
APQC determined the top, middle, and bottom performing organizations in Figure 1 based on a composite variable, and the percentages reported are averages for each group. The composite variable was created using responses to three scaled questions from the survey (see Figure 2). The “top” performers for this composite had consistently strong performance across all questions, and the “bottom” performers for this composite had consistently weak performance in the three areas. The “middle” group had any other combination of scores.
This article is the first in a series of articles that offer valuable data on the strategic steps organizations are taking to improve product development. A full analysis of the research study, with full case studies of the organizations described above, is available in the research report New Product Development: Process Benchmarks and Performance Metrics.
About Stage-Gate International
Stage-Gate International’s highly knowledgeable and experienced team of advisors have guided hundreds of organizations to successfully implement a best-practice Stage-Gate Idea-to-Launch process in as little as 4-8 weeks. We accelerate time-to-benefit with an extremely attractive return on investment by:
- Crafting a balanced Idea-to-Launch Process Solution of expertise, advice, facilitation and best practices that fits your company’s situation, sense of urgency, and budget.
- Collaborating with you so that your Idea-to-Launch process is implemented rapidly and your organization is equipped to ‘own’ and manage the process as quickly as possible.
- Leveraging our market-leading accelerators, Benchmarker™ and SG Navigator™, to not only deliver all of the foundational elements straightaway, and ‘clear the path’ for rapid achievement of a best-practice Idea-to-Launch process.
Dr. Scott J. EdgettScott J. Edgett is Chief Executive Officer at Stage-Gate International and is internationally recognized as one of the world's top experts in product innovation. A high-profile speaker, sought-after consultant, and executive advisor, he is the pioneer of the critical practice of new product portfolio management, and principally focuses on issues affecting innovation performance, capability and leadership. Consulting and advising some of the world's best innovators and companies among the Fortune 1000, he has extensive experience working with large multi-national clients in a variety of industries. He is credited with helping business executives and product innovation professionals successfully implement world-class product innovation programs that have generated outstanding performance results.
A co-author of eight books, including the popular 'Product Innovation & Technology Strategy', and a published author of 70+ academic articles, Dr. Edgett is a former professor at the DeGroote School of Business, McMaster University.