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Source : SAP
Managing Product Innovation
Managing Product Innovation is also known as :
Managing Product Innovation,
Product Innovation Management,
Product Innovation Process Innovation,
Innovation Process,
Innovation Process Management,
Innovation Life Cycle,
Innovation Problem Solving,
Product Development Process,
Product Development Engineer,
Product Development Life Cycle,
Iterative Product Development,
Product Development Teams,
Product Process Quality Assurance,
Product Life Cycle Process,
Development Process Managing,
Lean Development Process,
Solution Product Innovation Management,
Effective Product Innovation,
Product Concepts,
Development Process,
Product Development.
Contents
- Executive Summary
- Engendering an Innovation Process
- How Product Innovation Fails
- Lack of Accessible Information
- Feedback Failures
- Inadequate Awareness of Constraints
- No Product Portfolio Context
- Poor Resource Visibility
- Process Rigidity
- Insufficient Downstream Collaboration.7
- Principles for Effective Product Innovation Management
- Flexibility
- Optimal Portfolio Orientation
- Information Richness
- Information Accessibility
- Cross-Functionality
- Process Improvement
- How It Works: A Product Innovation Management Scenario
- Opportunity Identification and Idea Generation
- Concept Development
- Analysis and Final Determination
- Process Review and Improvements
- How SAP Enables Effective Product Innovation Management
- An Integrated Solution of SAP xPD and SAP xRPM.
- Summary .
Executive Summary
Inadequacies at the front end of the product development
process ' where all products are conceived and defined ' is one of the
leading causes of product failure for consumer products companies.
Nonstandardized processes and corporate structures inhibit the exchange of
information between departments and across functions, geographies, and process
stages. The result is inadequate up-front concept assessment. With a lack of
visibility into the pipeline and suboptimal gate controls, new product concepts
are analyzed with minimal cross-functional input, and development projects are
evaluated with an insufficient understanding of resource availability and
product portfolio implications. Under these circumstances, many companies make
ill-informed decisions that become costly ' but avoidable ' mistakes. The
challenge is to establish a manageable, measurable front-end process that
nurtures profitable innovation and maximizes portfolio value in light of
resource constraints, portfolio balance, and strategic alignment.
Engendering An Innovation Process
Companies in the consumer products (CP) industry
are finding it harder and harder to create new products that sell. Over the past
20 years, market saturation and an increasingly fickle consumer base have led to
intense competition, dismal new product success rates, and a dearth of customer
loyalty. Some sobering statistics:
- In the past decade, new product introductions have almost doubled,
growing from 17,000 in 1991 to more than 32,000 in 2002.
- In the early 1970s, the market offered five sneaker styles. By the late
1990s, the market offered 285 styles.
- In 1980, 57 new ice cream products were introduced to the market. In
1998, that number grew to 556.
- From 1996 to 2002, only 3% of new brands earned more than $50 million in
year-one revenues.
In such a competitive environment, innovation is the key to success: new
products or enhancements designed to change the rules of competition, gather
substantial market share, and keep existing customers satisfied. Realizing the
importance of product development, competitive companies throughout the industry
have focused a great deal of attention on improving the product development
process. Most of these improvements, however, have focused on process efficiency
not process effectiveness ' and the distinction is crucial. Even if a company
develops new products and delivers them to market at a record pace, what's the
use if customers don't buy? Many companies have mastered the process of getting
projects right; few have mastered the process of getting the right projects.
Getting the right projects is notoriously difficult for consumer products
companies. Under constant pressure to innovate, few companies take the time to
rationalize the process of collecting new product ideas and identifying which
ideas have the greatest potential for market success. Known as the (fuzzy) front
end of product development, this process is typically unstructured and ad hoc.
Concepts are assessed and selected with a critical lack of rigor. Product
decisions are made on the fly in a helterskelter manner without input from
knowledgeable constituents and without the benefit of the full extent of the
company's informational resources. Luck, guesswork, and the vagaries of office
politics play far too great a role ' much to the detriment, ultimately, of a
company's product success rate.
Even for those companies that try to rationalize the front-end innovation
process, business realities get in the way. Disaggregated system landscapes
impede the aggregation of necessary information for business analysis, while
coordinating input from increasingly far-flung teams is difficult. Under
constant pressure to speed development, companies rush through the front-end
product development process, resulting in costly oversights and inaccuracies.
The ramifications, however, are only felt downstream when supply costs prove too
high, manufacturing processes can't support the design ' or when customers
simply fail to take notice.
Companies need a structured process for the front end of innovation that
helps them aggregate information from all relevant constituencies and sift the
good ideas from the bad based on informed analysis rather than assumptions,
hunches, and internal power struggles. Companies want to quickly identify
winning concepts that can succeed in the marketplace.
Predicted success, however, isn't the only concern. A good innovation process
also takes into consideration such factors as resource availability, governance
policy, strategic alignment, and portfolio balance. Such decisions must be
supported by technology that can help coordinate relevant constituencies and
span data silos to enhance analysis and improve information access. This, in
turn, requires system integration, IT standardization, and process adaptability.
A well-structured innovation process should be both explicit and flexible.
Moving from one stage to another should require formal authorization to ensure
that all viewpoints have been considered and that all potential downstream
constraints have been evaluated. At the same time, the process should
accommodate the bidirectional flow of information so that input from engineering
or manufacturing, for example, can be incorporated from the get-go and early
stage decisions can be communicated back to later process participants to ensure
that appropriate decisions are made downstream.
Process flexibility is also required to accommodate varying levels of risk in
new concepts. A minor modification to an existing product line, for example,
carries significantly less risk than an ambitious idea for an entirely new
product platform. The front-end product development processes for these two very
different scenarios should reflect this reality accordingly. In the end, a
successful front-end product innovation process should improve product success
rates and maximize the value of product portfolios. And with billions of dollars
invested in the output of this process, consumer products companies have a
vested interest in understanding it and mastering it so that they can improve
it. This white paper explores the typical front-end product development process
used by many companies and pinpoints areas of process breakdown and
ineffectiveness. It then discusses how this process can be improved and examines
the business technology required to support it.
How Product Innovation Fails
The typical product development process involves identifying business
opportunities, capturing ideas, and generating product concepts. These concepts
undergo detailed market and technical analysis and are then presented to
decision makers who select the most promising candidates. After final approval,
theconcept moves into prototype design and development, followed by a market
testing phase, and finally into production.
Though it seems reasonable enough in the abstract, in practice this process
presents far too many obstacles for most companies to effectively align product
characteristics with customer needs and get new products to market quickly. The
truth is, the front end of the product development process can be derailed by
many factors and can go off the track at any stage. Let's take a closer look at
these failings and see how the process breaks down.
Lack of Accessible Information
The very beginning of the product development process ' before any ideas are
evaluated ' is information intensive. The drive is on to gather as many insights
and ideas as possible from all relevant sources. Unfortunately, many companies
rely almost exclusively on research and development, in effect cordoning off
innovation to a single functional group. But R & D is responsible for only a
small fraction of new product ideas; employees, customers, suppliers, and market
intelligence are responsible for most new product ideas. Processes that reflect
this reality and nurture these valuable sources of information would benefit
companies significantly.
Even if all information sources are clearly defined, gathering the
information in a central, accessible location is a persistent challenge. In
fragmented IT landscapes, important data remains trapped in isolated business
applications where it is relatively inaccessible to cross-functional product
teams. Ideas go uncollected and pertinent groups fail to share their insights
with the larger team. Past studies or research may be relevant, but can't be
located. Data on the marketplace performance of similar products can't be
extracted from existing systems. Previous experience might inform the concept,
but companies lack the ability to apply past experience to new projects at the
organizational level, resulting in the duplication of effort ' and the
duplication of mistakes. All of this serves to raise the costs of product
development while increasing the chances of new product decisions being made on
the basis of internal corporate politics or the influence of persuasive
individuals rather than relevant research and hard market data.
Feedback Failures
New ideas are the lifeblood of product innovation. But with inadequate
feedback mechanisms, many companies unwittingly discourage employees, customers,
and partners from submitting ideas and suggestions that may lead to successful
new products. After all, nobody wants to drop ideas and feedback into a black
hole. To keep the ideas coming, companies need ways to automatically recognize
these efforts. Without this ability, companies will continue to alienate an
important source of new ideas ' much to their competitive detriment.
Inadequate Awareness of Constraints
With few means of marrying market information to internal technical
capabilities, product teams often find it difficult to establish a clear
understanding of the boundaries of the possible. All potential constraints '
current manufacturing capabilities, materials availability, supply chain
feasibility, distribution issues, legal and regulatory concerns, resource
availability ' must inform the process from the very beginning. But how are
these constraints communicated? How are they made part of the criteria at
each stage gate? How are engineers incorporated to judge concept feasibility?
How are purchasers involved to determine if material costs will be prohibitive?
How can experts downstream participate in the very earliest stages of concept
evaluation so that they can identify show-stopping issues before extensive work
is done on a concept? The answer to these questions at many companies is "not at
all."
No Product Portfolio Context
For each concept deemed viable, the question remains whether or not the
potential concept would be a strategic fit for the current portfolio of existing
products and approved product projects. Most companies, however, lack the
ability to see a single concept in this wider context. The information often
exists, but significant resources are required to assemble this distributed
information for optimal decision making by core people and teams. Process
standardization would also facilitate the objective assessment of concepts
according to their rewardrisk profile, strategic alignment, and other
considerations. The goal is not merely to understand whether or not a concept is
viable, but whether it is the best of all proposed concepts and existing
projects, and if it justifies the investment of limited resources.
Poor Resource Visibility
With little visibility into available resources, many companies take weeks
gathering the information required to determine whether or not the organization
could follow through on new concepts under consideration. This same lack of
visibility also makes it difficult to make trade-off decisions when it comes to
allocating resources to one project over another. A common result is that
resources get stretched too thin as multiple approved concepts clog the
pipeline, creating capacity bottlenecks. This drastically delays time to market.
Process Rigidity
Not all concepts carry the same risk. Some involve minor tweaks to existing
features; others involve entirely new and untested product platforms. Yet many
companies use the same stage gate procedures for small improvements as they do
for large investments. This results in delays and wasted effort for low-risk
projects. Many companies, however, lack the flexibility to fine-tune their
processes for different kinds of concepts, wasting precious resources on ideas
that should be fast-tracked for development.
Insufficient Downstream Collaboration
The front-end product development process doesn't end when a concept is
approved. Downstream, when it comes time to start making trade-offs between
desired features and product costs, collaboration between earlier and later
process participants is critical. Most product development processes, however,
do not support the bidirectional flow of information required for efficient
collaboration. The result is costly delays as participants communicate by e-mail
and phone, gathering required information on product costing, materials, and
manufacturing constraints.
When taken together, the obstacles, inefficiencies, and process breakdowns
discussed above combine to frustrate even the most earnest efforts to improve
product success rates. Instead of a finely tuned, precision machine for making
winning new product decisions, companies work with an undefined hodgepodge of
hunches and impulses. Decisions are made based on personal conviction, market
guesswork, internal politics, or similarly flimsy foundations. As a result of
this broken process, flawed concepts develop into flawed projects while
management flies blind regarding the true revenue potential of the new product
concept it just approved.
Principles For Effective Product Innovation Management
An efficient, effective front-end innovation process should be systematic,
measurable, and capable of supporting continuous improvement. It should help
participants sharply define concepts that are aligned with consumer needs,
marketing trends, and manufacturing constraints. Just as there are factors that
contribute to the breakdown of the product innovation process, so there are
factors that contribute to its success. The following examines some of these
factors in greater detail.
Flexibility
A workable process for front-end product innovation should provide structure,
but also flexibility. Rigorous criteria should be required to justify large
investments, whereas lower risk product improvements should be allowed to move
through the process at a quicker pace. Companies also need the flexibility to
execute steps out of sequence, for example, to employ fuzzy gates on management
discretion. A flexible process also facilitates change management. As companies
learn more, they should be able to quickly adapt their process without adversely
impacting business operations.
Optimal Portfolio Orientation
A standardized process ensures appropriate due diligence, but gate decisions
are critical to increasing R & D effectiveness. Gate decisions are essentially
portfolio decisions whereby concepts are selected on the basis of relative
value, risks, and strategic alignment. And such comparison is only effective if
done within the wider context of existing projects and products. This allows
companies to consider resource availability information as a critical input into
their gate decisions, helping companies avoid the trap of over-committing their
limited resources.
Information Richness
Decisions should be made on sound information rather than guesswork and
internal politics. To boost success rates, companies need access to data on
market and consumer demand, technical feasibility, past product development
results and product launches, and approximate costs. By leveraging previous
analyses, early product development teams can avoid rework, learn from past
experience, and contribute to the corporate knowledge base. Researching similar
ideas and assessing the performance of comparable products in the marketplace
can reveal important insights.
Information Accessibility
From the floor-level process participants to the executive suite, information
access is the grease that makes the innovation process work. But given the wide
range of sources and the unstructured format of much of the information,
uniformity of information is a top priority. Information must be properly
structured, categorized, and arranged within a framework that allows the right
data to be found and used efficiently and quickly. Marketing and R & D teams
should be able to drill into any list of categorized concepts. Design and
engineering teams should be able to quickly ascertain the rationale behind
trade-off decisions and the tolerances for certain concept specifications that
were made at early definition stages. Management should be able to learn from
past experiences and quickly see which concepts and practices are working or not
working. All of this requires easy access to a wide range of internal and
external data in a structured manner.
Cross-Functionality
The most successful front-end product development processes include a
cross-functional team at the earliest stages as part of a rigorous search for
objections to every new idea. While information must flow freely between teams,
structure is needed to mange the process in an orderly manner. Both
organizational and technical obstacles must be overcome to achieve this cross
functionality. This may require cultural changes within an enterprise, as well
as technical modifications to enable systems interoperability, enhanced
collaboration, and unimpeded information exchange.
Process Improvement
To continually succeed, companies must continually improve. Companies must
study their innovation processes and make modifications as markets change and
corporate strategy evolves. This requires specific metrics that can reveal
important information, such as actual product sales compared to projections,
success rates for approved concepts, and time to market for approved concepts.
As the organization learns and adapts to its own core competencies and adaptive
capabilities, the weights assigned to each concept characteristic might change
accordingly. Whatever the case, companies need the core process adaptability to
implement whatever changes they deem necessary.
How It Works: A Product Innovation Management Scenario
The challenge of effective product innovation can be looked at as a challenge
of information and process management. Information must be standardized and
organized into a consistent, logical, interconnected framework that is
measurable, improvable, and accessible to the right people at the right time. Or
as one researcher puts it: "Empower me with information, don't drown me in it."
Let's now walk through this process and demonstrate how many of the
characteristics examined earlier can work together to make product innovation
more effective.
Opportunity Identification and Idea Generation
The first challenge for effective product innovation is to manage the
richness of information in a way that facilitates visibility. Research results,
survey analyses, focus group reports, employee suggestions, customer
questionnaires, and various documents are stored in a searchable, yet structured
repository, promoting easy searching and browsing. Insights, too, are collected
and categorized, and insight-idea-concept relationships are created to aid
evaluation. A feedback mechanism that reports on ongoing idea evaluation helps
to encourage participation. With enhanced abilities to sift through large
volumes of information, identify opportunities, generate valuable ideas, and
incorporate diverse perspectives, companies are in a better position to make new
product decisions that have greater potential for success in the marketplace.
Concept Development
The goal of the concept development stage is simple: address market needs
through concepts that are technically and cost effectively feasible. Constraints
must be identified and bad ideas abandoned as soon as possible. As information
and ideas coalesce into product concepts, they are placed in standard
containers. Elements of a container include such metrics as costs, potential
market size, and net present value. The type of container is variable based on
whether the concept is for a product improvement or an entirely new product
platform. As the concept proceeds through the process, each group of experts
adds input. This information forms the basis for decision making, reducing the
influence of political and other capricious factors on the end product.
Process flexibility at this stage is extremely important so that steps can be
executed in parallel. A product team, for example, might want to create a
prototype during the concept development stage to gain more insight into a
potential new product. This might speed time to market or lead to an early
go/kill decision before resources and time are wasted on an untenable idea.
When the concept is ready for detailed assessment, it is assigned to a
category. Ideas or insights in similar categories can be reviewed to see if they
can improve the concept. Sales, cost, and other market-related data about
similar products can be extracted to the container from existing enterprise
applications such as ERP. Here, an efficient system based on normalized data and
standardized information helps bridge the gaps between segregated business units
and functions. For example, information on newly discovered materials in
exploratory R & D labs can be quickly distributed throughout the enterprise so
that product teams can evaluate how it might apply to the concept under
consideration.
An effective innovation management process also takes particular pains to
enable collaboration among cross-functional groups, such as marketing, R & D,
IP, management, engineering, compliance, and any other pertinent group that can
provide much needed insight. Process participants should be able to access and
provide input on the centralized business case from a uniform, role-based
interface and gain access to the information that they need no matter where in
the corporate IT structure that information may reside.
With process flexibility, powerful information management capabilities, and
enhanced collaboration, companies can vastly improve the effectiveness of the
front-end innovation process. Processes should be adaptable enough to
accommodate the different risk factors associated with a concept, process phases
should be allowed to operate in parallel where needed, and critical input from
all constituencies should be incorporated into the project in order to make
fully informed go/kill determinations.
Analysis and Final Determination
Once a concept passes market and technical feasibility hurdles, management
wants to know how it fits into the overall project portfolio. This requires
integration with operational project management systems so that executives can
define key performance indicators (KPIs) and
project metrics ' all easily viewed in configurable reports. From this
interface, a host of portfolio analysis tools should be available, including
bubble charts, strategic buckets, scoring models, what-if analysis, and other
tools that present a visual representation of the portfolio with respect to
overall value, risk balance, and strategic alignment.
Another executive concern is resource and program management, which requires
full visibility of project roles and resources. To avoid situations in which
projects with differing dependencies and timelines compete for identical
resources, managers need tools for performing scenario analyses so that they can
calculate the impact of potential concept approvals on existing projects,
budgets, and resource pools. This gives decision makers a better picture of how
many projects the organization can support and of fill capabilities to assemble
the best available cross-functional teams for each project.
With increased visibility, executives are better able to generate accurate
sales forecasts, manage risk, and set expectations for various constituencies. R
& D investments become clearer and more quantifiable, and management can get a
sharper picture of how the current portfolio of concepts meets customer needs
and fits into long-term company strategy.
The screening constraints that determine whether or not a concept moves into
production are built into the stage gates that define an effective product
innovation process. With better information accessibility, enterprise-wide
product and concept visibility, portfolio reports, and more powerful
collaboration capabilities for working with cross-functional groups, companies
can increase the probability that concepts will be sharply defined and that
losing concepts will be weeded out early.
Process Review and Improvements
For competitive companies, the goal should be continuous business improvement
in which innovation is a sustainable process that evolves as strategy and market
conditions evolve. Ideally, the innovation process should include not only
postlaunch metrics, but also process KPIs and the ability to track them so that
companies can learn from their successes and their mistakes and make process
adaptations that improve product success rates. By bringing the process full
circle and subjecting it to scrutiny, companies have an additional tool to help
ensure success and stay ahead of the competition.
How Sap Enables Effective Product Innovation Management
The SAP® solution for product innovation management provides powerful
capabilities for effectively managing the front-end product innovation
process. By directly addressing the challenges and inefficiencies encountered
at the front end, this solution empowers companies to quickly choose the most
effective product concepts with the best chance of ultimate success. Process
participants can gather and organize ideas, information, and customer
requirements from a myriad of sources. With standardized processes,
information-driven concept comparison, and visibility of projects and
resources, companies can take full account of market needs, technical
feasibility, resource availability, and the overall corporate portfolio
strategy when making new product decisions. The result is optimal project
selection.
The SAP product innovation management solution also helps companies
overcome the technical obstacles that often stand in the way of successful
innovation initiatives. By snapping onto existing IT systems and making sense
of the existing system landscape, this solution offers out-of-the-box
integration with desktop and back-end systems, which maximizes the value of
existing investments and contributes to a lower total cost of ownership.
An Integrated Solution of SAP xPD and SAP xRPM
The SAP solution for product innovation management is essentially a
tightly integrated bundle of two proven SAP products: SAP xApp Product
Definition (SAP xPD) and SAP xApp Resource and Portfolio Management (SAP
xRPM). SAP xPD provides idea management and concept development capabilities
whereby concepts are created from discrete ideas and thoroughly assessed
individually. SAP xRPM provides key capabilities for strategic portfolio and
resource management. SAP xRPM aggregates concept metrics so users can
compare existing projects within a portfolio context. Providing an unimpeded
view of resource availability, SAP xRPM helps companies optimize project
selection and prioritize projects that are already in the pipeline.
Furthermore, SAP xRPM captures key project budget, schedule, and staffing
metrics across all projects for proactive portfolio monitoring.
Summary
An effective front-end product innovation process makes sense of a
vast quantity of information and then preserves the understanding so it can
be reused, honed, and supplemented throughout the process. Real data replaces
guesswork, and information is instantly available to everyone involved. While
the ideal solution does not guarantee profitable products, it does increase
the chance that product concepts will be sharply defined and based on real
information. With a standardized set of guidelines, categories, and
procedures, new product concepts do not exist in a vacuum; they can be
quantified and qualified, measured against similar ideas, accurately tracked,
and properly analyzed. Elements of confusion and the unknown are replaced
with procedures and known variables, bringing form, order, continuous
improvement, and efficiency to a previously haphazard and formless process.
SAP gives companies powerful new abilities to implement this process. By
standardizing, managing, monitoring, and continuously improving the front end
of product innovation, the SAP solution for product innovation management
reduces product development costs, increases development efficiency, improves
product success rates, and ' most important ' maximizes the value of product
portfolios in the context of business constraints and objectives.
What
does this mean for you and your company? The SAP product innovation
management solution helps you:
- Capitalize on your best ideas You can
collect ideas from multiple sources while intelligent schemas classify and
relate the information so that you can work effectively from an ever-larger
idea pool. This improves your chances of finding the right idea earlier in
the process and developing it into a winning product concept.
- Ensure effective concept due diligence A standardized, yet flexible gated approval
process ensures detailed and adequate assessment of new concepts, helping
you identify winning opportunities. Analysis is based on multisource market
information, cross-functional internal capability assessments, and critical
data stored in existing systems.
- Select the most promising concepts early on Powerful reports help you prioritize projects by providing a
holistic view of concepts under consideration and the relative value and risk
each represents to your product portfolio. Managers can measure the impact of
the new concepts in relation to existing projects and make informed approval
decisions to ensure a well-balanced, strategically aligned portfolio.
- Ensure resource availability The SAP product innovation management solution
enables you to select projects in the context of resource availability.
Resource demands for proposed concepts are compared against available
resources rolled up from existing projects. You can also make complex
allocation decisions based on varying project time frames, dependencies, and
resource requirements. This ensures that resources are not oversubscribed
and development remains unclogged.
- Reduce time to market By enabling
your employees to share and leverage information across functional,
geographic, and temporal boundaries, the solution speeds the early product
development process. Project monitoring capabilities alert managers to
critical project status information, enabling proactive management and
reducing project delays. By speeding concept evaluation and minimizing
delays, the SAP solution for product innovation management ensures that your
promising concepts are brought to market quickly and efficiently. When the
status quo is fickle consumers, intense competition, and increasingly low
rates of new product success, companies need to find better ways to innovate
their way to competitive advantage. SAP provides the tools you need to
implement a successful front-end product development process ' one that
leads to better products, higher sales, and greater business success.
For
information on how SAP can help improve your innovation processes, visit us
online at www.sap.com/xapps