If innovation and new products are going to be America’s leading competitive advantage in the future then it is not enough to just become more innovative and do produce more products; the answer is to produce more successful new products that sell enough to justify their costs.
I define innovation as something that has been successfully brought into the world that has been justified by enough sales, while invention can be defined as a clever idea that is not necessarily successfully commercialized. A good analogy lies in the sport of mountaineering. It is not enough to suffer through all of the hazards and dangers of reaching the summit, you must get back down alive or it is not a successful climb. It is the same with new products. It is not enough to invent a clever product and to develop it through a complex stage-gate process; if you don’t sell enough new products it is a failure.
In this fast changing economy manufacturers are having trouble just keeping up with both competitors and the changing needs of customers. This represents an opportunity because it suggests a very big need for line extension and modification to old products. The starting point for most manufacturers in the new product process is to carefully assess their product lines to determine if they have (or don’t have) a competitive advantage – model by model.
While there is great potential in leading edge products like Apple’s I-Pod, or using brand new technologies for new products such as nano-technology where markets are not yet defined, however these types of new products require huge investments and are very risky.
From my experience with small and midsize manufacturers I think the most popular process of developing new products is still to invent a clever product and then go look for buyers. I call this the mousetrap approach because it is based on the assumption that if you build a better mousetrap, the market will beat a path to your door. Even though the failure rate is 6 out of 7 ideas it is still the method most manufacturers, particularly small manufacturers, use. Why, because it is much easier to devote your time to the joy of inventing something then to spend a lot of time finding out if prospects really want to buy it. Second, the mouse trap approach does not require leaving the factory and going into the market place to find out whether there are enough buyers to justify the costs of developing it. The fact remains that regardless of how unique or clever the product is, if customers don’t buy enough of the new product the project will be a failure.
The alternative to “the mouse trap approach” is get input from the external market place. This is really an old idea that has been re-packaged under the banner of open innovation. This approach is about doing interviews with customers and prospects, but it is also about defining changes and trends in the market, using new technologies in your products, or licensing technologies from partners. This also includes collaborating with customers to develop a product for them as well as interviewing industry gurus and doing competitive intelligence.
The following are some examples that will explain different approaches to developing new products using open innovation techniques.
Getting Lead User Input for a Leading- Edge Product
When visiting customers and prospects it is helpful to show them something tangible. It is easier for prospects to form an opinion if you get them involved with specification, slides, videos, isometric or concept drawings, cardboard mock-ups, computer simulated models, or a prototype. But get out there and let the market tell you what it needs. This step is particularly vital if there is no defined market as in the case of leading edge products.
Take the case of Gerry Langeler and his partners who started a company that could develop a new software product for what was to become the Computer- Aided Engineering market. Like most start-up companies, Gerry's new enterprise had limited funding and the partners had to work out of their houses to develop the new product idea. They spent weeks working on the specifications for a new software product, and had progressed to the point where they were convinced that they had invented a product that could revolutionize computer-aided engineering.
Unlike many high technology start-ups, Gerry and his partners knew they had to get a reaction from the marketplace before they asked people to invest the large sums of money that would be needed. They chose companies in the U.S. that they considered target accounts for this emerging market niche, and decided to take their product idea to these accounts.
They were right. These companies not only told Gerry their needs and problems they helped him change the specifications to fit their future needs. After a whirlwind customer trip lasting four weeks, Gerry returned with a completely revised product and a lot of potential customers already knowledgeable of the new product.
There was still a lot of work to be done but they had defined the customer needs well enough to design a leading edge product that achieved phenomenal success. This small start-up company was named Mentor Graphics and would achieve sales of 1.7 million in its first year of business.
This market-driven company would continue to lead the industry with customer driven, product development, and grow from a small start-up company to a $400 million industry giant in less than 8 years.
Customer Collaboration and Investment in New Product Development
Another good strategy was described in the 2006 Industry Week Census of Manufacturers. They asked product development executives which strategies are most effective for meeting customer requirements and bringing innovative new products to market. More than 97% selected collaboration with customers; 90% cited having the customer configure and specify the product; and nearly 90% said integrating design with their partners. Design becomes something that should be done with the customers not for the customers.
A good example is the material handling Division of Columbia Machine Inc. where I was General Manager They are a midsize manufacturer of automatic, material handling machines that stack consumer products at the end of a production line. To begin the process, I selected one of the biggest and best plants in the customer’s paper division and made a call on the plant armed with engineering drawings and specifications of a new machine that had the potential of doubling the production line speeds. The customer liked the idea but they informed me that the machine design would have to be taller, wider, and be built to their plant specifications which were voluminous.
I offered them a deal where we would build a prototype machine, install it in their plant and let them test it for 6 months. At the end of the test they could buy or return the machine. This would give them time to evaluate the prototype in production and make design changes. This is the step that allows the customer or prospect to touch, feel, and operate the new product. With complex technical machines and other products it is very difficult for the customer to know exactly how the product will work or how it will fit their needs until there is something to play with. This allowed the customer to suggest design changes and give us continuous feedback on the testing.
This is a critical phase of new product development for production line machines because as good as the design was, there is simply no way of finding out design problems until the machine is operating 24 hours a day in production. When a problem was discovered, the division had to react within 24 hours in terms of service or parts because the machine was in production. Organizing a team of service and engineering support people who could monitor the machine daily and make all necessary design changes was one of the most difficult challenges.
In this collaborative effort the customer invested hundreds of their own engineering and production hours testing and developing the machine. They spent six months of production time on making the new machine work in their plant. So both the manufacturer and the customer had made heavy financial investments in the new product project.
The bugs were all worked out of the new prototype and the customer had enough information to settle on a final design as the standard for all of their production lines. The new machine doubled their line speeds which drastically increased the amount of trucks leaving the plant everyday with paper products. The new machine eventually achieved 99% uptime on the product line and the customer began purchasing new machines for all of their plants.
Experimenting with New Technologies
Mike LaRocco, President of American Made in Pittsburgh, Pa. ,had become very experienced in developing new products for various segments of the trucking industry. By working with his truck dealers, he learned of yet another new problem/opportunity in trailer vans. This time, the problem was that plywood wall panels did not hold up to the scuffing and abrasion of fork trucks. His preliminary market research showed that both end users and truck trailer OEMs wanted a wall panel that would wear much longer than existing panels. For this project, Mike began by doing research on various types of new plastic and glass materials.
A small article in a trade journal led him to a trade show to meet a European company that had just developed a brand new high strength fiber material. Mike and his design team experimented with the new fiber product and figured out how to build a very hard (but very light) panel that was stronger than steel.He called this new composite product Bulitex because it would stop a 45-caliber bullet fired from 20 feet.
They built some prototype panels that were successfully tested on some trucking company vans. His next step was to design the special process and machines to build the van panels. The manufacturing process takes a multi-layered woven fiber material and processes it through a heating – compression – and a cooling stage, to create a final rigid panel. The Bulitex panel turned out to be (pound for pound) the most impact resistant material available. It is water-resistant, will withstand extreme temperatures, and eliminates cracking, splintering and snagging.
They were an immediate hit with all eight of the major OEMs who manufacture dry van trailers. This product saved the OEMs both in material and in the downtime it took to replace trailer wall panels.
Sales Potential and Forecasting
After gathering all kinds of data in the marketplace, you should have enough information in the form of testimonials, interest, and an initial “snapshot” of the number of potential buyers in the niche you’re aiming at to convince yourself and perhaps other investors that the product has sales potential. The big leap of faith is to determine how many products can be sold in the first few years.
Most owners or investors will want to know how you arrived at the sales forecast in terms of units. They are looking for some kind of evidence that enough customers will eventually buy the new product to justify their investment.
You might begin by trying to find out industry data on similar products, which would at least show you the relative size of the market. Or you might get testimonials from prospects and customers on why they might buy the machine. If the product is small and low cost, you can make some prototypes and have end users evaluate them as a market test. Or if the product is large and expensive, you might consider inviting some of the most progressive end users to your plant to evaluate your concept, or make a deal to install a prototype in their plant for evaluation.
At a minimum you should have a clear idea of how many units you must sell a year to break even and how many years it will take to recover your investment. If you haven’t gathered enough information to do this calculation, you should either go back and get enough information to be convinced or abandon the new product idea.
But there are exceptions. If the investment is all your money and you don’t have to borrow money or convince investors ...go for it. But if losing money on the new product is a big deal or you are beholding to the board of directors and share holders then spend the time in the market place like the people in these stories did.
Mike Collins is the author of "Saving American Manufacturing" and the Growth Planning Handbook. He is also the President of MCP Management.