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MAXIMIZING PRODUCTIVITY
IN PRODUCT INNOVATION
Dr. Robert G. Cooper and
Dr. Scott J. Edgett
Product Innovation Best Practices Series
www.stage-gate.com
Reference Paper # 28
© Product Development Institute Inc. 2000-2008
2
MAXIMIZING PRODUCTIVITY
IN PRODUCT INNOVATION
OVERVIEW:
Recent evidence suggests that productivity in new
product development (NPD) is declining; that is, we
are seeing less output (measured in terms of impact on
the business) for the same relative spending level.
This article outlines seven practices or principles
which, according to studies of NPD practices and
performance, will increase NPD productivity after
they are embraced.
These principles include familiar concepts such as
building in the voice of the customer, front-end load-
ing projects, and taking a more holistic approach to
product innovation. However, while they are familiar,
it is surprising how many firms have yet to embrace
them. Other, less familiar, principles include: relying
on spiral rather than linear development; building in
metrics, team accountability and continuous improve-
ment; and portfolio management techniques to yield
higher value projects.
Finally, a number of best performers are redesigning
their idea-to-launch processes, moving to the next-
generation Stage-Gate® system; they employ methods
borrowed from lean manufacturing to remove waste
from their development processes, and they also make
their processes scalable, flexible, adaptable, and more
open to the external environment.
These pages contain copyright information of Product Development Institute and member
company Stage-Gate Inc., including logos, tag lines, trademarks and the content of this article.
Reproducing in whole or any part of this document is strictly forbidden without written permission from
Product Development Inc. or Stage-Gate Inc.
© Product Development Institute Inc. 2000-2008
KEY CONCEPTS: NPD productivity, lean product
development, Stage-Gate®, portfolio management.
The concept of productivity is simple: it is output over
input, or, "the most bang for the buck." More specifi-
cally, in the field of new product development (NPD),
productivity is defined as output (measured as new
product sales or profits) divided by input (measured as
R&D or NPD costs and time). For example:
Because the concept of NPD productivity is relatively
new, there are few hard numbers on results achieved
in industry. Indeed, a best-practices American Pro-
ductivity and Quality Center (APQC) study reveals
that almost no companies measure or report their NPD
or R&D productivity as a business metric (7).
There is strong evidence that NPD productivity is
heading in the wrong direction, however. In the
United States, the most recent Product Development
& Management Association (PDMA) best-practices
study reveals that sales from new products are off in a
period when R&D spending has remained constant:
New product sales fell from 32.6 percent of total
company sales in the mid-1990s to 28.0 percent by
2004 (2). At the same time, R&D spending in the U.S.
remains unchanged: for example, 2.76 percent of GNP
in 1985 versus 2.70 percent in 2004. That is a 14
percent drop in output per spending in less than a
decade—quite a dramatic downward shift in NPD
productivity.
If it's time to take a hard look at the methods and systems you rely on to conceive,
develop and launch new products, then these seven principles are a good place to start.
Dr. Robert G. Cooper and Dr. Scott J. Edgett
3
MAXIMIZING PRODUCTIVITY
IN PRODUCT INNOVATION
Scott Edgett is CEO and co-founder of the Product Develop-
ment Institute and Faculty Scholar with ISBM at Penn State
University's Smeal College of Business Administration. A spe-
cialist in new product development and portfolio management,
he received his Ph.D. in marketing from Bradford University.
He has consulted and written extensively in the field, with over
60 published articles and five books. His latest book (co-
authored with Robert Cooper) is Generating Breakthrough New
Product Ideas (PDI, Toronto, 2007).
edgett@prod-dev.com; www.prod-dev.com.
One startling conclusion is how much productivity
varies by industry, from a high of 14:1 in consumer
goods to a low of about 2:1 in the pharmaceutical in-
dustry. A second revelation is how low the productiv-
ity numbers are; note that output was measured by
sales over five years.
When one compares the productivity of the most pro-
ductive companies versus the least productive, the
results are even more provocative (Figure 1). There
are huge differences in productivity between the best
and worst performers—on average, almost a 1,200
percent difference! And in some industries, such as
pharmaceutical, the differences are even greater. For
example, the top 25 percent pharmaceutical firms are
31 times more productive in NPD than the bottom 25
percent.
© Product Development Institute Inc. 2000-2008
This significant decrease in just a handful of years is
cause for concern (3). What's going on? There's no
evidence that people are doing a worse job today—
deficient design and development work, poor market
studies, or bad launches. Indeed, a comparison of the
quality-of-execution of key activities between 1985
and today—from initial screening through to market
launch—reveals no change in quality-of-execution
ratings (4). On the other hand, product developers
have not improved quality-of-execution at a time
when most pundits believe they should have, so that is
a second cause for concern.
The one factor that does show a dramatic change,
however, and that explains the decrease in profitabil-
ity, impact and productivity, is the balance in the port-
folio of projects undertaken today versus in 1990.
Simply stated, businesses today are preoccupied with
minor modifications, product tweaks, and minor re-
sponses to salespeople's requests, while true product
development has taken a back seat (3).
Major Gaps in NPD Productivities
One recent Arthur D. Little study provides insights
into productivity by industry (5). The study looked at
output—measured by five-year sales from new prod-
ucts as a percentage of company sales—and input,
measured by R&D spending, also as a percentage of
company sales (see Figure 1).
Robert Cooper is president of the Product Development Insti-
tute and professor of marketing at McMaster University, Hamil-
ton, Ontario, Canada, as well as Crawford Fellow of the Prod-
uct Development and Management Association, and ISBM Dis-
tinguished Research Fellow at Penn State University's Smeal
College of Business Administration. He has won two Maurice
Holland awards for the best paper published in Research-
Technology Management ("New Products: What Distinguishes
the Winners, " in 1990, and "Debunking the Myths of New
Product Development, " in 1994) and has published over 100
articles and six books. A thought leader in the field of product
innovation management and developer of the Stage-Gate new
product process, he received his Ph.D. in business administra-
tion from the University of Western Ontario.
robertcooper@cogeco.ca; www.prod-dev.com
There are huge
differences in
productivity between
the best and worst
performers.
Dr. Robert G. Cooper and Dr. Scott J. Edgett
4
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
© Product Development Institute Inc. 2000-2008
These huge productivity differences between top and
poor performers lead to the obvious question: why?
What is it that these high-productivity businesses do
so differently? And can your business learn from
them? Data from a number of best practices studies
helps us gain insights into what the secrets to high
productivity are—what the best performing companies
do so differently (see "Sources of the Data," below).
The Seven Principles
These principles of lean, rapid and profitable NPD,
with the goal of improving productivity, have been
developed from a long line of research investigations,
culminating in the most recent APQC study (1,6).
Each of the seven principles is very much fact-based;
that is, research investigations reveal that businesses
or project teams that employ each principle achieve
superior performance results.
For example, in the sections to follow, you will see
bar chart results from the APQC study. What these bar
chart results show is that best-performing businesses
do employ each of these seven principles to a far
greater extent than the rest of the businesses, and that
poor performers in particular tend to ignore these prin-
ciples. Note that the research results have been widely
published in refereed journals, including RTM, lend-
ing credibility and authenticity to what is presented;
this is not simply a treatise based on a handful of an-
ecdotes, case studies or home-grown research.
The message is clear—if you want your business to be
among the best performers in NPD, do what the high-
productivity businesses do: adopt and embrace these
seven principles of lean, rapid and profitable NPD,
which lead to improved performance and higher NPD
productivity (7).
Figure 1 .— NPD productivity varies greatly among companies, with huge differences between the best and worst Compa-
nies in each industry. Source: A. D. Little Innovation Excellence Study (5). Source: A.D. Little Innovation Excellence Study (5).
5
© Product Development Institute Inc. 2000-2008
1. Customer Focused
Developing and delivering new products that are dif-
ferentiated, solve major customer problems, and offer
a compelling value proposition to the customer or user
is the number one key to NPD success and profitabil-
ity (see Figure 2). Indeed, one of the reasons why
NPD productivity is down is because of the lack of
breakthrough new products with a "wow" factor in
most companies' development portfolios.
When one compares the practices of the high produc-
tivity businesses (the top 20 percent) with the average
and poor productivity businesses in Figure 2, we see
that:
• The great majority of high-productivity busi-
nesses develop and launch new products that offer
new and unique benefits to their customers or
users (only 7.7 percent of low-productivity busi-
nesses do this).
• New products developed by high-productivity
businesses offer the customer or user better value
for the money.
• And their new products meet customers' and us-
ers' needs better than competing products, by
about four-to-one when compared to new products
from low-productivity companies.
Sources of the Data
A number of studies of new product performance and of
what drives this performance have been conducted by the
authors and co-workers over the last 20 years (6,10). The
seven principles outlined in this article are based on the
collective results of these many studies; that is, they are
those factors that consistently separate top performers from
the rest over the years and appear to have the strongest im-
pact on performance (7). The general approach in each study
is to gauge the NPD performance of a large sample of busi-
nesses on multiple metrics. Next, a number of practices are
also investigated within each business—what is done and
how well it is executed. These practices range from strategy
development and portfolio management methods to which
market studies are undertaken and how project teams are
organized.
Finally, these many practices are correlated with the various
performance metrics to determine the most important drivers
or determinants of performance.
Conceiving such unique, superior products is no easy
feat. On occasion, it is the result of a genuine techno-
logical breakthrough or a disruptive technology. But
most often, coming up with a differentiated, superior
product begins with a thorough understanding of the
customers' and users' unmet and often unarticulated
needs through in-the-field voice-of-customer (VoC)
work. Note that, from Figure 2:
• More than two-thirds of high-productivity busi-
nesses work closely with their customers and us-
ers to identify their needs and problems (only 15
percent of low-productivity companies do this).
• High-productivity businesses tend to rely on mar-
ket research to define the product requirements
much more than do low-productivity businesses
(although here even the best performers are
weak).
• And by a four-to-one ratio, the best performers
use concept testing with customers or users to
gauge expected product acceptance before devel-
opment begins (again this is a weak area, even for
the high-productivity companies).
In short, the customer or user must be an integral part
of the entire development process—from scoping,
through product definition, development and right on
to validation and beyond.
In addition, most of these principles have been well-
researched in studies that probed large samples of individual
new product projects and project teams. The results were
clear in these studies as well: those project teams that em-
ployed each principle or practice were more successful.
These studies have shed much light into what makes new
products a success and why some businesses are so much
more effective at NPD than others.
The specific data shown in the bar charts are from the most
recent study, namely the APQC (American Productiv-ty &
Quality Center) best practices study (7). NPD productivity
was measured for 105 firms on a number of metrics includ-
ing percentage of sales by new products, new product suc-
cess rates, percentage of projects meetings sales and profit
targets, time to market and slip rate, and profitability relative
to spending.
—R.G.C. and S.J.E.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
6
© Product Development Institute Inc. 2000-2008
Here again, high-productivity businesses excel, with
five times as many high-productivity firms building
the customer into their development processes.
Note that VoC does not mean "voice of the salesper-
son" or "voice of the product manager." They are not
the customer or user and do not necessarily speak for
them, nor do they necessarily understand true cus-
tomer needs. Further, responding to short-term re-
quests from the sales force results in a series of small,
incremental and reactive new products. Some of these
small developments are necessary in order to keep the
product line fresh and to respond to key customers'
requests, but a steady diet of such projects leads to a
dearth of genuinely new products, no game-changers
and ultimately very mediocre performance (3).
Six different methods of undertaking VoC work were
identified among best performing businesses in the
APQC and other studies (1,6). These are:
1. Customer visits with in-depth interviews.—The
entire project team does face-to-face visitation and in-
depth interviews with customers or users. In the case
of business-to-business (B2B) markets, the visit team
is usually three people—marketing, technical and
sales— and the customer is often represented by a
group as well. The interviews are set up by the sales
force, and are based on a carefully crafted interview
guide that probes for unmet needs, unarticulated prob-
lems, and functions and benefits sought—probing well
beyond what is normal in just a casual conversation.
2. "Camping out" or ethnography.—This method is
essentially cultural anthropology, and involves camp-
ing out with users in their homes, offices or factories.
Here the visit team is non-intrusive and spends most
of their time observing customers use, abuse and mis-
use products as they go about their daily routine. An
insightful research team gains a much better under-
standing of the customers' challenges and problems,
and is thus in an excellent position to design the next
great new product.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
High-productivity
businesses excel in
doing the right
up-front homework.
Figure 2 .—A strong market focus with voice-of-customer work is key to achieving product advantage. Note how much
stronger the high-productivity firms are here. Source: APQC best practices study (1).
7
© Product Development Institute Inc. 2000-2008
This method sees many applications in consumer
goods, but we also saw it effectively used to generate
significant new products in B2B settings.
3. Lead user analysis.—Your innovative customer has
your next new product! In this method, the goal is to
identify particularly innovative customers or users—
those who are ahead of the wave (8). Working with
them—for example, via a customer group meeting at
an off-site event—you are bound to come up with
innovative product designs and solutions.
4.Focus group problem detection sessions.—
Customers and users are invited to a moderated round-
table discussion or focus group session, not to evalu-
ate new concepts, but rather to articulate their prob-
lems and challenges. Understanding customer points
of pain is often the starting point for developing a
breakthrough solution. In some cases, the host com-
pany also has a group of design engineers watching
the customer focus groups on closed-circuit TV; once
a problem has been identified, the engineers quickly
brainstorm and propose solutions, which are promptly
tested on the focus group. After some iterations back
and forth between the focus and brain-storming
groups, an innovative solution often emerges. The
methodology works with either B2B or consumer
products.
5. Brainstorming group events with customers.—
Customers are invited to a company "innovation day."
As part of the day, attendees break out into teams with
company people—marketing, sales and technical—
intermingled. One team exercise is often a reverse or
inverse brainstorming session, where the purpose is to
rip apart the current products. Other breakout sessions
include brainstorming or group creativity methods to
yield possible solutions. This method is most appro-
priate for B2B products.
6. Crowd sourcing using online or IT-based ap-
proaches.—The advent of communities of users com-
bined with the widespread availability of high-speed
Internet has enabled some companies to tap into the
creativity abilities of their customer base. They seek
input, ideas and, in some cases, partially completed
product designs. Whether you are a T-shirt maker in
Chicago, a furniture manufacturer (such as Muji in
Japan), or a household products company (e.g., P&G
with its Connect & Develop system), opening your
doors to external inputs and your customers' wishes
via company hosted webpage and the Internet is an
increasingly popular route in this trend toward open
innovation (9).
2. Front-End Loaded
Due diligence in the early days of a new product pro-
ject pays off—just ask a venture capitalist! A good
dose of the right up-front homework pays for itself in
terms of saving time and also higher success rates.
Consistently and across the board, high-productivity
businesses excel here (see Figure 3).
• About twice as many high-productivity busi-
nesses undertake a preliminary market assessment
early in the life of a development project when
compared to low-productivity firms.
• A much higher proportion of best performers con-
duct technical assessments, to assess technical
risk and probable technical solutions, and source-
of-supply (manufacturability) assessments early
in the project.
• Although they are weak areas, market research
(VoC), concept testing, and determining the value
of the product to the customer are activities prac-
ticed by high-productivity businesses much more
than by poor performers.
• Finally, conducting a detailed financial and busi-
ness analysis before development begins is a de-
cidedly weak area in low-productivity business,
and much stronger among high-productivity com-
panies.
The activities in Figure 3 are a good beginning list of
what constitutes front-end work on a typical major
project. They should be built into one's idea-to-launch
system, and include:
• Preliminary market assessment: a quick assess-
ment of the market to determine market size and
potential, customer interest, initial insights into
customer needs, requirements and value, and the
competitive situation.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Smart product teams
move quickly by
practicing spiral
development.
8
© Product Development Institute Inc. 2000-2008
• Technical assessment: a pre-development assess-
ment of the technical challenge, identifying the
probable technical solution (on paper), the develop-
ment route, technical challenges, risks and poten-
tial "showstoppers," the IP situation, and outside
technology required (including the need for tech-
nology alliances). This is the best-executed activity
in the front end, with almost half of businesses
rated well here.
• Source-of-supply assessment: an initial appraisal
of source of product supply, including operating
requirements, probable materials and equipment
needs, and possible outsourcing needs, suppliers
and partners or alliances. This is judged to be a
very weak area, with only about one business in
five doing a solid job here. Too often, project
teams do not involve the manufacturing or opera-
tions people early enough in the project, when key
decisions—such as product design decisions—are
taken that later impact strongly on the operations
people.
• Market research: a more in-depth market investi-
gation, involving the project team doing VoC re-
search, highlighted above. Market size and seg-
mentation analysis may be conducted here as well.
• This is also a very weak area, with only 18 per-
cent of businesses judged to do this well, but
again, best performers seem to do better here, and
by an almost five-to-one ratio versus poor per-
formers.
• Concept testing: This is a different type of cus-
tomer input, where the proposed product, perhaps
as a model, concept or virtual prototype, is pre-
sented to customers, and feedback is sought. Inter-
est, liking and purchase intent are established.
This is good and necessary research, but no sub-
stitute for the VoC work outlined above as input.
• Value-to-the-customer assessment: a value-in-use
analysis, whereby the product's value is quanti-
fied. This activity usually involves looking at the
economic impact on customers' operations versus
how they solve their problem now (for example,
versus competitive solutions and then considering
competitive prices and their products' cost in use).
This is perhaps the weakest of the front-end ac-
tivities with only one-in-six businesses doing this
well. Again, best performers handle this value
assessment much better—by an eight-to-one ra-
tio—but still this is a task needing improvement
in many businesses.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Figure 3 .—High-productivity businesses do the front-end work much more than poor performers. But weaknesses exist—
front-end load your projects! Source: APQC best practices study (1).
9
© Product Development Institute Inc. 2000-2008
• Product definition: the entire project team inte-
grating the acquired information into a product
definition. This definition specifies the project
scope, target market, product concept, benefits
and value proposition, target price and position-
ing, and features, requirements and high-level
specs.
• Business and financial analysis: integrating the
data obtained in the homework stage into a busi-
ness case, which features a full financial and busi-
ness analysis. For major projects, this is usually a
spreadsheet with net present value (NPV), internal
rate of return (IRR) and the payback period calcu-
lated, along with sensitivity analysis.
Smart managements demand and get the right front-
end homework done on projects—the right market,
technical and business assessments. This homework is
not excessive, but is designed to yield just enough of
the vital information to make a Go-to-Development
decision, and to define the product and project suffi-
ciently to proceed. The right homework is also instru-
mental in yielding a winning product and project defi-
nition.
3. Spiral Development
In traditional linear development, the project team
charges into the Development stage with a product
definition based on information that might have been
right at the time, and which they believed was accu-
rate. Such a definition may even have been developed
from solid VoC or customer visitation work done in
the project's pre-Development stages. Months then go
by as the project team labors to design and develop
the product consistent with the agreed definition.
However, things invariably go wrong. The customer
did not know what she wanted; or he changed his
mind as the product evolved; or the project team did
not listen very well; or the market shifted; or a com-
petitive product was introduced. Thus, when it comes
time for field trials or beta tests, everything has
changed, and the product is not what the customer or
market wanted at all. So launch is delayed and it's
back to the drawing board! Indeed, unstable product
specs and project scope creep are two of the main
causes of long times to market, significant project
delays, and even product failure (10).
By contrast, smart development teams practice spiral
development, shown in Figure 4.
They develop a first version of the product, perhaps a
virtual prototype. And they test it with the customer,
seeking immediate and early feedback, which they
then use to produce the next and more complete ver-
sion, a working model or protocept. These fast-paced
teams remove unnecessary work and move quickly to
a finalized product by building a series of these itera-
tive steps or "loops"—"build-test-feedback-and-
revise"—into their project. These iterative loops begin
early and become an integral part of the entire devel-
opment process from early-stage scoping through the
Development stage and into testing. When sketched
on a flow diagram, these loops appear like spirals in
Figure 4, hence the name "spiral development."
4. Holistic Approach Driven by Effective Cross-
Functional Teams
Product innovation is very much a business func-
tion— not an R&D activity—and team-based en-
deavor. And the core team, an effective cross-
functional project team, is the primary key to cycle
time reduction and to getting to market on time. Al-
most three-quarters of businesses now use cross-
functional teams for their major development projects.
Many firms miss the fine points in fostering a team
culture, however. Let the high-productivity businesses
model the way (see Figure 5). In best-performing
businesses, effective cross-functional teams consist of
key players drawn from different parts of the organi-
zation, and players are assigned so that it is clear who
is on the team and who is not. Further, each team
member has an equal stake in and commitment to the
project, and remains on the field from end to end, not
just for one phase of the project. The team is led by a
carefully-selected leader or captain, driving his or her
project down the field to the goal line in entrepreneu-
rial fashion, and also remaining leader from beginning
to end. And senior management provides strong
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Most businesses
have too many
development projects
underway, and often
the wrong ones.
10
© Product Development Institute Inc. 2000-2008
support and commitment to the team and its members.
Team accountability—results measured against suc-
cess criteria—is also key to effective team perform-
ance.
Note that, in Figure 5, high-productivity businesses
consistently embrace these team practices, much more
so than poor-performing companies. Thus, how the
team is organized, its composition, the roles and au-
thority of key players, and the choice and role of the
team leader or captain make all the difference between
efficient time-driven projects and those that languish
forever.
5. Metrics, Accountability and Continuous Im-
provement
You cannot manage what you do not measure. Many
businesses are guilty of not measuring their new prod-
uct results—only 30 percent of businesses measure the
performance or outcomes of new product projects
once launched (7). As a result, it's not clear whether a
specific project was a success—met its profit targets
or met its launch targets. Further, the post-launch re-
view is one of the worst-rated activities in the entire
innovation process, and is executed proficiently by
only 22.1 percent of businesses. Without metrics in
place, project teams cannot be held accountable for
results, while learning and continuous improvement
are next to impossible.
Best-performing businesses put metrics in place. Suc-
cess criteria are established for each project, and how
well the project performs against these success criteria
is measured. The project leader and team declare their
projections on key performance metrics as part of
their business case at the Go-to-Development gate.
Example projections might be:
• NPV ($000) (or some other profit metric such as
EVA).
• Year 1 sales ($000 or units).
• Launch date (or time-to-market).
These are important numbers, and are a major input
into the Go/Kill decision. On the basis of these and
other data, senior management makes the decision to
move the project into development, and these projec-
tions now become success criteria.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Figure 4 .—Top performers build spiral development into their Stage-Gate® system—a series of "build-test-feedback-revise "
iterations.
11
© Product Development Institute Inc. 2000-2008
The project team is then held accountable for deliver-
ing promised results against these success criteria. For
example, Go/Kill decisions at successive gates are
based in large part on whether or not the project and
team continue to meet the stated success criteria. The
post-launch review is the fvasl point of accountability
for the project team. Actual results achieved are deter-
mined: the first year's sales realized; the actual date of
launch; and the actual NPV based on latest expected
results. These numbers are then compared to the pro-
jections—the original success criteria. When vari-
ances are spotted, problem solving sessions that focus
on root causes are held, and corrective actions de-
signed to stop future recurrence are identified. Thus,
learning and continuous improvement become integral
and routine facets of the development process—
"every project executed better than the one before."
The most popular metrics to gauge the performance of
individual new product projects are sales and profit
measures: revenue achieved versus forecasted revenue
is used the most (70.5 percent of businesses that meas-
ure project performance use this metric), followed by
profitability (NPV or operating profits).
Customer satisfaction is also employed (64.8 percent
of businesses) and includes a variety of tools, such as
results from satisfaction surveys, warrantee claims,
returns and complaints tracking. Additionally, over 80
percent of businesses rely on project metrics that cap-
ture time—either time to market or on-time perform-
ance.
6. Focus and Effective Portfolio Management
Most businesses have too many development projects
underway, and often the wrong ones. That is, they fail
to focus, spreading their resources too thinly across
too many initiatives, and their project choices result in
the wrong mix and balance of development projects in
the portfolio (see Figure 6). Most companies do a poor
job of ranking and prioritizing development projects;
there are too many projects underway for the limited
resources available, and portfolios contain too many
low-value projects. Not surprisingly, there is no for-
mal portfolio management system in place. The result
is that projects take too long, key resources go to too
many low-value projects, and NPD productivity suf-
fers.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Figure 5 .—The best performers organize their NPD project teams for maximum productivity. Source: APQC best practices study (1).
12
© Product Development Institute Inc. 2000-2008
Making the right Go/Kill decisions and effectively
allocating development resources is fundamental to
productivity improvement in NPD. Recognize that
every development project is an investment, and like
stock market investments, these development invest-
ments must be carefully scrutinized and focused
through an effective portfolio management system.
This is achieved through a funneling approach: start
with many solid new product concepts, and succes-
sively remove the weak ones via a series of gates.
While a formal portfolio management system is still
rare in even the best of firms, the tendencies in Figure
6 are evident: best-performers have such a system by a
seven-to-one ratio when compared to poor-performing
businesses. Note also that high-productivity busi-
nesses—the ones with the best NPD performance
overall—achieve a much better balance between num-
bers of projects and resources available; that is, they
do not overload their development pipeline. Further,
they have a much better balance between small, short-
term projects and major, longer-term ones; and finally,
they are more judicious about the specific projects
they select, and end up with a portfolio of much
higher value-to-the-corporation projects. These portfo-
lio management efforts combine to yield a significant
improvement in productivity.
Some of the tools that best performers include in their
formal portfolio system and which they use to make
better development portfolio decisions include (11):
• Strategic buckets: setting up "buckets of re-
sources" to ensure the right mix and balance of
projects (by project type, and across market seg-
ments and technologies).
• Product and technology roadmaps: to map out the
major development initiatives (major projects,
technologies, platforms) required over the next
five-to-seven years.
• Scorecards: rigorous qualitative methods em-
ployed by gatekeepers at gate meetings to help
select and prioritize the best development pro-
jects.
• The Productivity Index: a financial tool with a
difference, which attempts to maximize the eco-
nomic value of the portfolio, subject to personnel
or financial resource constraints.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Figure 6 .—Most NPD portfolios reveal major deficiencies: too many projects, wrong balance, low-value projects. High-
productivity firms fare better. Source: APQC best practices study (1).
13
© Product Development Institute Inc. 2000-2008
7. NexGen Stage-Gate® Process
Many businesses' idea-to-launch processes contain
much bureaucracy, time wasters and make-work ac-
tivities. By contrast, smart companies have made their
NPD or NexGen Stage-Gate process lean, removing
waste and inefficiency at every opportunity. They
have borrowed value stream analysis from lean manu-
facturing, and have applied it to their new product
process. (In value stream analysis, one analyzes the
development process from idea to launch and system-
atically removes all non-value-added activities in or-
der to streamline and accelerate development projects
to market).
Stage-Gate has also morphed into a much more flexi-
ble and adaptable innovation process, one that adapts
to changing conditions and fluid, unstable informa-
tion. The notion of simultaneous execution is also
built in, whereby key activities and even entire stages
overlap, not waiting for perfect information before
moving forward. The cost of delay must be weighed
against the cost of being wrong.
NexGen Stage-Gate has become a scalable process, to
suit very different types and risk-levels of projects—
from very risky and complex platform developments
to lower-risk extensions and modifications, and even
to handle simple requests from the sales force. Each of
these projects has risk, consumes resources and thus
must be managed, but the nature of your Stage-Gate
process will vary greatly depending on the project
type. One size of Stage-Gate does not fit all types of
projects.
Stage-Gate has also been modified to accomodate
open innovation. Best performers have reinvented
their NPD process to accomodate the flow of ideas,
IP, technology and even totally developed products
into the company from external sources, and also the
flow outward. Companies such as P&G, Kimberly
Clark and Air Products have moved to open innova-
tion, and they have modified their Stage-Gate proc-
ess—built in the necessary flexibility, capability and
systems—in order to enable this network of partners,
alliances and outsourced-vendors from idea generation
right through to launch {9,12). For example, P&G has
released its SIMPL 3.0 version of its Stage-Gate sys-
tem, which is designed to handle externally-derived
ideas, IP, technologies, and even fully developed
products.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
Figure 7 .—These are the seven principles of lean, rapid and profitable NPD. Note how much more the high-productivity
businesses practice each principle.
14
© Product Development Institute Inc. 2000-2008
Finally, NexGen Stage-Gate has been automated. In-
creasingly companies are utilizing software to under-
pin their development process and pipeline. And there
are indeed some excellent software tools designed to
accommodate and support a Stage-Gate system (13).
Moving Forward
Whenever a progressive company crafts its unique
philosophy and model for product innovation, invaria-
bly there is animated discussion to agree on the princi-
ples that should underlie the model. After all, any in-
novation model designed to change the behavior of
the corporation should be founded on clearly spelled-
out basic principles. Some examples:
• Toyota has fashioned its NPD approach on its
Seven NPD Lean Principles (14). A review of
Toyota's principles of innovation sheds much light
on why the company is so successful at creating
new products; interestingly, there are many paral-
lels to the list in Figure 7, but some of Toyota's
principles obviously apply only to the automotive
industry (15).
• Procter & Gamble relies on Six Principles that
underlie the company's SIMPL™ approach to
product development. SIMPL, which stands for
"successful initiative management and product
launch" model, has been in part responsible for
the company's stellar product innovation track
record in recent years (16).
• At Danfoss, a major European company, the com-
pany's high-productivity product innovation sys-
tem is predicated largely on lean principles bor-
rowed from the factory floor, and emphasizes
continuous improvement designed to remove
waste (7 7).
• At Apple Computer, cycle time reduction is
achieved via a global new product process that
clarifies roles, nails down the timeline, and maps
out the process end to end (18).
The point is that if you and your fellow executives are
not satisfied with the results and performance from
your business's product innovation efforts, now is the
time to take a hard look at the methods and systems
that you rely on to conceive, develop and launch new
products. And when you do overhaul your methods
and systems, be sure to base your new model on some
solid principles. The list of seven principles in Figure
7, derived from practices in best-performing compa-
nies, is a good place to start.
References and Notes
1. The initial APQC study results were published in
RTM in a three-part series: R. G. Cooper, S. J. Edgett and
E. J. Kleinschmidt, "Benchmarking best NPD prac-
tices—Part 1: Culture, climate, teams and the senior
management role," Research-Technology Management
47, 1, Jan.-Feb. 2004, pp. 31—43. Also Part 2: "Strategy,
resources and portfolio management practices" in
RTM47, 3, May-June 2004, pp. 50-60; and Part 3: "The
NPD process and key idea-to-launch activities" in RTM
47, 6, Jan.-Feb. 2005, pp. 43-55. The full report is in Best
Practices in Product Innovation: What Distinguishes Top
Performers, Product Development Institute, 2003
(www.prod-dev.com).
2. M. Adams and D. Boike, "PDMA foundation CPAS
study reveals new trends," Visions, XXVIII: 3, July 2004,
pp. 26-29; and: The PDMA Foundation's 2004 Compara-
tive Performance Assessment Study (CPAS). For mid-
1990s data, see: A. Griffin, Drivers of NPD Success: The
1997 PDMA Report. PDMA 1997.
3. Section taken from: R. G. Cooper, "Your NPD portfo-
lio may be harmful to your business's health," PDMA
Visions, XXIX, 2, April 2005, pp. 22-26.
4. For 1985 data, see: R. G. Cooper and E. J. Klein-
schmidt, "An investigation into the new product process:
steps, deficiencies and impact," Journal of Product Inno-
vation Management 3, 2, 1986, pp. 71-85. For current
data, see APQC study, endnote 1, Part 3.
5. Arthur D. Little, How Companies Use Innovation to
Improve Profitability and Growth. Innovation Excellence
study, 2005.
6. These studies are summarized in: R. G. Cooper, "New
Products: What Separates the Winners from the Losers,"
Chapter 1 in: The PDMA Handbook of New Product
Development, 2nd edition, New York, NY: John Wiley
& Sons 2004; also: R. G. Cooper, Winning at New Prod-
ucts: Accelerating the Process from Idea to Launch, 3rd
edition. Reading, MA: Perseus Books, 2001, Chapters 2
and 3.
7. These seven principles are described in detail in: R.
G. Cooper and S. J. Edgett, Lean, Rapid and Profitable
New Product Development, Product Development Insti-
tute, 2005 (www.stage-gate.com). Parts of this section
are from: R. G. Cooper, "Formula for success," Market-
ing Management Magazine, American Marketing Asso-
ciation, March-April 2006, pp. 21-24.
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
15
© Product Development Institute Inc. 2000-2008
8. For more on the lead-user method, see: E. A. Von
Hippel, Democratizing Innovation, Cambridge, MA:
The MIT Press, 2005; also: G. L. Lilien et al.,
"Performance assessment of the lead-user idea genera-
tion process for new product development," Manage-
ment Science 48, 8, Aug. 2002, pp. 1042-1059.
9. Open innovation is described in: H. Chesbrough,
Open Innovation: The New Imperative for Creating
and Profiting from Technology, Harvard Business
School Press, 2003; also: Docherty, M., "Primer on
'open innovation': Principles and practice," Visions,
April 2006; and Chapter 5 in: R. G. Cooper and S. J.
Edgett, Creating Breakthrough New Product Ideas:
Feeding the Innovation Funnel, Product Development
Institute Inc., 2007 (www.stage-gate.com).
10. Reasons for new product failure and success have
been widely studied. For good summaries, see PDMA
Handbook and Winning at New Products, in endnote
6.
11. These portfolio tools can be found in: R. G. Coo-
per and S. J. Edgett, "Ten ways to make better portfo-
lio and project selection decisions," PDMA Visions
Magazine, XXX, 3, June 2006, pp. 11-15; and: R. G.
Cooper, S. J. Edgett and E. J. Kleinschmidt, Portfolio
Management for New Products, 2nd edition. New
York, NY: Perseus Publishing, 2002.
12. These open innovation company examples are in:
L. Huston and N. Sakkab, "Connect and Develop:
Inside Procter & Gamble's new model for innovation,"
Harvard Business Review 84,3, March 2006, pp. 58-
66. also: P. Clusman and A. Achter, "How Kimberly-
Clark uses open innovation to enhance NPD success,"
Visions XXX, 4, Sept. 2006, pp. 10-11; and: J. Tao,
and V. Magnotta, "How Air Products and Chemicals
'identifies and accelerates'," Research-Technology
Management, Sept.-Oct. 2006, pp. 12-18.
13. See www.stage-gate.com for a list of recom-
mended suppliers of Stage-Gate software.
14. M. N. Kennedy, Product Development for the Lean Enter-
prise, The Oakley Press, 2003. See also summary of University
of Michigan study on Toyota, reported in: J. Morgan, Applying
Lean Principles to Product Development, report from SAE
International Society of Mechanical Engineers, 2005
(www.shop.sae.org).
15. J. Morgan, 14.
16. For P&G's six NPD principles, see: R. G. Cooper
and M. Mills, "Succeeding at new products the P&G
way: A key element is using the 'Innovation Dia-
mond'," PDMA Visions, XXIX, 4, Oct. 2005, pp. 9-
13. SIMPL™ is a trademark of P&G and is their ver-
sion of a Stage-Gate® process. Stage-Gate® is a reg-
istered trademark of Product Development Institute:
see www.prod-dev.com.
17. J. Messmer, "Increasing productivity with lean
development," Danfoss A/S internal company docu-
ment, 2004.
18. Management Roundtable, Apple Rethinks Core
Process: Improves Cycle Time, Knowledge Roundta-
ble, Waltham, MA, 2004.
www.stage-gate.com
www.prod-dev.com
MAXIMIZING PRODUCTIVITY IN PRODUCT INNOVATION
16
World’s Top Innovation Management Scholars
-Journal of Product Innovation Management, May 2007
Dr. Scott J. Edgett is internationally recognized as one of the world’s top ex-
perts in product innovation and is the pioneer of portfolio management for prod-
uct innovation. He is a high profile speaker and sought-after consultant. Dr.
Edgett has had extensive experience working with large multinational clients in a
variety of industries, principally focusing on issues affecting innovation leader-
ship and capability. He is credited with helping business executives and innova-
tion professionals successfully implement world-class innovation processes that
have generated outstanding results. His speaking engagements and consulting
work have taken him around the globe to work with some of the world’s best
innovators and companies among the Fortune 1000.
Dr. Edgett is Chief Executive Officer and co-founder, with Dr. Robert G. Cooper,
of both Product Development Institute and Stage-Gate Inc. He has spent more
than 20 years researching and developing innovation best practices and working
with organizations in product innovation. He is a prolific author having co-
authored six books including the popular ‘Portfolio Management for New Prod-
ucts, 2nd Edition’ and has published more than 60 academic articles. Dr. Edgett
is a former Professor of the Michael G. DeGroote School of Business, McMaster
University in Ontario and is a Faculty Scholar at the Institute for the Study of
Business Markets (ISBM) at Penn State University.
Dr. Robert G. Cooper
Dr. Scott J. Edgett
Dr. Robert G. Cooper is one of the most influential innovation thought leaders in
the business world today. He pioneered the original research that led to many
ground-breaking discoveries including the Stage-Gate® Idea-to-Launch process.
Now implemented by almost 80% of North American companies, it is considered
to be one of the most important discoveries in the field of innovation
management. He has spent more than 30 years studying the practices and pitfalls
of 3,000+ new product projects in thousands of companies and has assembled the
world’s most comprehensive research on the topic. His presentations and practical
consulting advice have been widely applauded by corporate and business event
audiences throughout the world making him one of the most sought-after
speakers.
A prolific author, he has published more than 90 academic articles and seven
books, including the best selling ‘Winning at New Products, 3rd Edition’. He is the
recipient of numerous prestigious awards including the Crawford Fellow from the
Product Development and Management Association (PDMA) and the Maurice Hol-
land Award from the Industrial Research Institute (IRI). Dr. Cooper is a Professor
of Marketing and Technology Management at the Michael G. DeGroote School of
Business at McMaster University in Ontario, Canada and Distinguished Fellow at
the Institute for the Study of Business Markets (ISBM) at Penn State University in
Pennsylvania, USA.
© Product Development Institute Inc. 2000-2008
17
© Product Development Institute Inc. 2000-2008
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Advanced Techniques for Accelerating the New Product Process for Maximum Productivity
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to attend their Innovation Best Practices Seminars
Developing A Product Innovation Strategy and Deciding Your New Product Portfolio -
Making Strategic Choices and Picking the Winners
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Winning At New Products - Achieving New Product Success with Best Practices
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