Just as keeping a trim waistline is good for your health, maintaining a trim new product development (NPD) pipeline is important to funding successful innovation and improving the bottom line. Consider these statistics from innovation guru Dr. Robert G. Cooper1. He finds that for every seven new project concepts, four will enter development, and only one to two will be commercialized. Even then, there is no guarantee that commercialization will translate into profitability. That is why the next best thing to a quick win is a quick loss-eliminating unsuccessful NPD projects before they unnecessarily drain company resources.
The idea of any loss as being good is counterintuitive, but it makes sense in the broader context of the four typical NPD outcomes.
Clearly this is the ideal. It is characterized by early validation from customers or supply chain partners who are interested in a concept and understand the value being delivered. Though a win in this case isn't a launch, customers signal they are ready to buy. In business-to-business environments, they may even collaborate to develop the product, drive out costs, or bring the product to market.
This is often a good, second-best outcome, particularly when financial and human resources are scarce (see figure 1). By understanding early in development that a product cannot succeed due to inherent economics or its value proposition allows companies to reallocate resources to those opportunities with the most potential. Equally important, a quick loss can lead to valuable insights, intellectual property, and design components, which can be captured for potential re-use.
This is okay and often is simply the cost of doing business. The market may not be ready for an innovation, may be slow to adopt, or may require a capital investment that needs to be timed and budgeted accordingly before committing. A Slow "Win" is not the best outcome, but it is still a win. If the scale or profit is big enough, the customer or the opportunity strategic, it can be tolerated.
This is the worst-case scenario. It drains resources and takes people away from focusing on other high-potential opportunities. Moreover, it kills the overall climate for innovation in an organization and makes leadership detrimentally risk-averse over time. To the extent that manufacturers can do so, slow losses should be avoided in favor of quick losses.
Embracing the Quick Loss
To enable NPD teams to embrace quick losses, three important tenets must be institutionalized within the organization:
Leadership embraces a quick launch culture.
NPD teams are conditioned by the actions and environment established within their organizations. In order to drive change, leadership must create a culture that views early project cancellations as a positive outcome, resulting in cost-effective insight that allows other opportunities to be funded with the savings. Senior management needs to reinforce this by supporting managers who recommend stopping projects prior to committing expensive R&D or marketing efforts and translate the associated insights into better opportunities. It may take time for a quick loss culture to permeate within an organization. It also may require altering performance measurements and reward structures, so long-term leadership support is critical.
Project leaders need commit to accepting quick losses.
While senior management sets the organizational tone, project managers are equally accountable in driving early determination of value -- most importantly by admitting when the value is not there. Project leaders must reaffirm the culture established by senior management and ensure their teams are committed to accepting a quick loss. Recommending project termination with confidence is difficult, even when the next assignment is assured. Project managers who help move the organization on to the next, better opportunity clearly recognize the greater good, and they display an understanding that personal status within the organization will not be compromised. High-performing managers will actually be rewarded for providing the information necessary to make the correct decision.
NPD teams must adopt enabling techniques to assess value.
Most NPD teams are ill equipped to achieve quick losses, so organizations need to support them, not only with the appropriate corporate mindset, but also with the techniques and tools to gauge the potential of their projects earlier. Validation of market potential with various members of the value chain early in the development process is the best way to avoid slow losses en route to commercialization. This can be done without prototypes, fully tested or even proven technology.
The cumulative impact of engaging the market and shifting validation efforts up in the development process allows for the productive use of otherwise 'wasted' funds.
Regardless of the development phase, NPD teams should engage customers to confirm key choice drivers, explore economic assumptions, and glean insights. Injecting external perspective into the process focuses NPD teams, and provides the context and knowledge to ensure they are developing a compelling and differentiated value proposition. Embedding rigorous value management tools and techniques as part of the early stages of the phase-gate process is a great way to do this, and it helps answer key questions: Is this a real opportunity? Can we win? Is it worth doing?
Analytical tools such as value maps, value waterfalls and key choice driver charts enable teams to quickly form an internal hypothesis of a project's quantitative and qualitative value. These tools provide a simple but effective manner to validate concepts and assumptions "in-market" by engaging customers, suppliers, partners, and key influencers before any substantial development takes place. The insights yielded will reveal any showstoppers -- such as issues in the positioning, branding, business model, capital investment, or engineering -- and steer the team along (or off) the development path.
When enterprise-wide development teams consistently accelerate early validation using value management techniques, organizations can minimize wasted development spending, fund new opportunities and accelerate winning projects with existing R&D and marketing budgets.
No one likes to fail, and the goal of innovation is not to aspire to quick losses. At the same time, it is important to acknowledge quick losses as an acceptable and insightful part of the development process that can fuel future innovation and ensure the availability of resources for a company's most promising new products. By embracing quick losses as a positive outcome in all levels of the organization, and deploying the tools and techniques required to assess value, manufacturers can foster the right environment for teams to ultimately bring the best ideas to market.
Scott Siegel is a manager at management consulting firm Kalypso, who specializes in value management, pricing and strategy projects.