Causes of New Product Failure
By way of introduction, picking the best strategy depends on what type of business you are in. But before we get started we need to take a look at why one would worry about new product development strategy in the first place. The case for putting in a solid strategy is to increase the chances of new product successes. When looking at the causes of new product failure shown in the “Causes of New Product Failure”, one sees the dramatic effect that elements of a good strategy can have.
Impact of Factors on Timeliness and Profitability
This work was updated in the 1990s and 2000s. The “Impact of Factors on Timeliness and Profitability” figure shows the important effect these factors related to strategy have.
For Timeliness, the number two and number three items, “upfront homework” and “market orientation”, relate to strategy. For profitability, good strategic planning clearly influences the number one factor, product advantage, as well as once again, market orientation, the number 2 factor.
Frequency of Various Activities in New Product Projects
Now as to the causes for why the difference in project success rates is a function of some of these above elements, the answer seems to be in the variability in the activities shown in the . However when looking at the frequency in which those elements occur in new product projects, one sees significant variability in the “Frequency of Various Activities in New Product Projects” as shown in the figure.
Some elements related to project success jump out. For example a detailed marketing study and market research was only done in 25% of the projects and test marketing and trial selling only occurred in 22% of the projects. However, before throwing too many stones at marketing and business development one should note that only in half the projects was trial / scale up production tried before launching into full-scale commercial production. Clearly thinking about strategic elements of product development would improve the success rate.
Future Watch Processes
At a higher strategic level, many authors have written about strategy and the strategic planning process. Some like Thomson and Strickland have advocated a rigorous process, while others like Mintzberg promote a more evolving process. All of them agree on the need for understanding the future business environment. A list of approaches to do so is shown in the “Future Watch Processes” figure. It is not necessary to conduct all these future watch analytical methods, but sooner or later even stable industries change. By using each of these methods in at least a cursory manner, an organization stands a better chance of capitalizing on change by proactively responding to it.
Performance Impact of Product Innovation Strategies
In some of his early work Bob Cooper looked closely at the causes of success and failure new product development (He came up with a famous stage gate model to address that deficiency, a model we will talk about later). Though his work he identified five strategy scenarios for new product development. They are summarized in the “Performance Impact of Product Innovation Strategies” figure. What was interesting is that a balanced strategy outperformed all the others when he looked at each performance element in great detail.
Having made a case for a balanced strategy we need to determine for each kind of business what that might look like. To put this on a solid foundation one has to go all the way back to components of a business model.
Generalized Business Model
There are many different views of what a business model comprises. Chesbrough and Rosenbloom, Hamell, Linder and Cantrell, Petrovic, Kittl et al., Weill and Vitale, Gordijn, Afuah and Tucci, Osterwalder, Fetscherin and Knolmayer, are just a few of the many who’ve proposed such models. For our work the model proposed by Osterwalder in 2004 provides a good framework on which to start our discussion. His model is shown in the “Generalized Business Model” figure
Business Model Elements
A more visual way to think about business models in this manner is shown in the “Business Model Elements” figure. From a Canvas the information it contains evolves into Patterns which evolve into Designs which then evolve into Strategies and finally Implementation Processes as shown graphically in the “Business Model Elements” figure.
The nine building blocks of a Business Model Canvas are the key activities, key partners, key resources, cost structure, customer relationships, customer segments, value propositions, channels, and revenue streams. These are graphically laid out on a Business Model Canvas which resembles a painter’s canvas as shown in the “Business Model Canvas” figure.
A Business Model Canvas works best when printed out on a large surface so groups of people can jointly start sketching and discussing business model elements using post-it notes or board markers. It’s a hands-on tool that enhances understanding discussion, creativity, and analysis.
The next step in creating strategies from business models is to look at the Business Model Canvas and look and see how the elements on that canvas might be similar to the five basic business models found for most entities. These models can serve as a source of inspiration for refining the specific business model an organization is working on. The five patterns typically found in business models are Unbundling, The Long Tail, Multisided Platforms, Free, and Open Business Models.
Three Core Business Types
The first business model pattern, Unbundling, involves taking the three core business types often found in one business entity and splitting them out into separate organizations. This can be shown in the “Three Core Business Types” figure.
The second business model pattern, Long Tail, is about selling less of more: they focus on offering a large number of niche products, each of which sells relatively infrequently. Aggregate sales of niche items can be as lucrative as the traditional model wherein a small number of bestsellers account for most revenues (80/20 rule). Long Tail business models require low inventory costs and a strong platform to make niche content readily available to interested buyers. Specialty businesses for specific components of antique cars or specialized fishing tackle are examples.
The third business model pattern, Multisided Platforms, brings together two or more distinct but interdependent groups of customers. Such platforms are of value to one group of customers only if the other groups of customers are also present. The platform creates value by facilitating interactions between the different groups. The Multisided Platform grows in value to the extent that it attracts more users, a phenomenon known as the network effect. Examples of this can be Visa, Google, eBay, and Apple.
The fourth business model platform is Free. In the free business model at least one substantial customer segment is able to continuously benefit from a free of charge offer. Different patterns make the free offer possible. Nonpaying customers are financed by another part of the business model or by another customer segment. Examples of this business model are Flickr, Open Source, Skype, Google, and free mobile phones.
The last generalized business model platform is Open. Open business models can be used by companies to create and capture value by systematically collaborating with outside partners. This may happen from the outside-in by exploring external ideas within the firm, or from the inside-out by providing external parties with ideas or assets lying idle within the firm. Examples are P&G, GlaxoSmithKline, and Innocentive.
Business Model Strategy
Once a business model and business model pattern is understood, customer insights are gathered and ideation begins. This is supported by visual thinking, prototyping, storytelling, and scenarios. From this design and canvas work, strategies are developed by looking at the industry forces, key trends, market forces, and the macroeconomic forces surrounding the business model canvas. This is shown graphically in the “Business Model Strategy” figure.
The Six Forces Affecting a Business
This model has built upon Andy Grove’s version of Prof. Michael Porter’s Five Forces that determine the competitive well-being of a business. What Andy added to Michael’s five forces of competitors, suppliers, customers, potential competitors, and the possibility that a product or service can be built or delivered in a different way, was a six force of complementors. This is shown in the “The Six Forces Affecting a Business” figure.
Complementors are other business from whom customers by complementary products. Each company’s product works better and sometimes only works with another company’s product. For example automobiles and gasoline represent complementary products and the companies to produce them are complementors. The trick is that sometimes companies that were complementors try out new techniques, new approaches, and new technologies and then those entities strategies diverge from yours. An example is how automobiles are now switching from gasoline to electric power.
Strategic Inflection Point Examples
Andy in particular was always on the look-out for competitors that were causing a “10X” change in the business model. Walmart taking out Mom & Pop stores as an example as shown in the “Strategic Inflection Point Examples” figure. To spot these changes early the “5 second silver bullet” test was used; if you only have one bullet which competitor would you use it on. The answer is what pops up within 5 seconds of asking people in an organization. When the answers take longer or start to change you know your approaching an inflection point and need to adjust your strategic plans accordingly.
Technology Management Processes
Another view of all elements needing consideration for strategic planning is shown in the “Technology Management Processes” figure. Importantly in this view, is the role of considering Protection Issues needed to sustain an advantaged position over time, as well as ensuring new products and services have legal freedom-of-action.
Strategies also need to incorporate design elements as shown in the “Technology Function vs. Messages” figure. Even if the company’s new products and services support emerging trends they also need to embed appropriate languages and consequently convey coherent meanings. A visual illustration is shown in the “Semantic Dimensions” figure. By innovating only in the semantic dimension of a product, it is possible to introduce incremental design driven innovations. However as shown in the figure, radical design driven innovations can be introduced by combining the identification of innovative meanings embedded in new products with research on new materials, surface treatments and engineering processes. An example of this is a bookshelf that is not smooth but is instead characterized by little bubbles. This is not a defect but a technological solution to give an impression of softness both to the eye and to the touch. It is not easy to achieve this aspect because was necessary to convince the extruder to introduce a sort of imperfection. Companies that operate in the furniture industry, an industry were collaboration practices with external designers are usually considered as a benchmark, can also provide useful insights for those companies that are moving their innovation strategy from a closed approach to an open one in line with the general trend towards business ecosystems and the adoption of a Connect and Develop paradigm.
Key Tools of the Blue Ocean Strategy
Companies across the globe constantly search for strategies to catapult their organization to a greater share in the markets in which they compete. In many cases, companies take on a survivor mentality where they outspend their competition only to find those companies quickly retaliating with the same tactics and ultimately driving down the value of the entire category. The Blue Ocean strategy approach challenges companies to find new, unique factors to compete on to derive value innovation. By way of jargon Red Oceans represent all the industries in existence today. Companies try to outperform their rivals to grab share, and as the space gets crowded, opportunities for profits and growth are reduced. Products become commodities, and the competition turns bloody. Blue Oceans can be created in the midst of Red Oceans. Key is to drive value innovation: make competition irrelevant by creating a leap in value / price by choosing different factors on which to compete. In the “Key Tools of the Blue Ocean Strategy” figure, the overall strategic perspectives are outlined.
From a process standpoint, the first step is to create a strategy canvas that identifies the market, companies and competitors currently involved. Then the next sub-step is to create company profiles that illustrate the importance of these products to each company’s overall objectives. Next use and define the factors that each competitor competes on in the given space, focusing on the critical success factors that truly drive the market. Finally individually rate each factor on a numeric scale. These sub-steps allow a team to capture the current state of play in the market, the factors the competitors compete on, and what competitors receive from their level of investment.
The second step is to review the company profiles and strategy canvas and make appropriate adjustments or clarifications. The third step is to evaluate all the current competitive factors and determine which factors can be eliminated, reduced, or raised. In this step, the challenge focuses on determining what factors can be eliminated or reduced, as the team must drive out some cost to have the funding available to create a new value innovation. The fourth step is to brainstorm a list of unique factors to create. These must be new factors to the category, not just new for the Company. The create factors should fuel accelerating growth by offering the potential to pull nonusers into the category.
A final word on strategic planning is to remember the advice of Annie Duke, a professional poker player. Her book on Thinking in Bets which describes how to make smarter decisions when you don’t have all the facts contains sage advice.
Likewise it is good to remember how to tell stories with data. The book Storytelling with Data shows in great detail how to communicate effectively with data. The goal is to use data to create engaging, informative, compelling strategic planning stories.
Drivers of Change Identified by ASAE ForesightWorks
Concluding this section on factors that affect strategic planning is the list contained in the “Drivers of Change Identified by ASAE ForesightWorks” figure. These drivers, identified in 2017, typically evolve over five year periods and are thus useful as checks on strategic planning processes to ensure known drivers are accounted for in company plans.