The IndustryWeek Value Chain Survey: New Product Development -- Lesser Royals

April 1, 2002
The customer may be king, but too often he's given less than the royal treatment.

New-product development is a lot like real estate. Well, OK, it's a little like real estate. In each case, success is dependent on just three factors. You already know what drives real estate: location, location and location. According to participants in the IndustryWeek 2002 Value-Chain Survey, which was conducted in conjunction with PwC Consulting, here is what counts in the launch of new products: customers, customers and customers.

Did we mention customers?

Seventy percent of the survey respondents cited customer needs as the primary driver of their product-development strategies. The next-closest factor cited, low product cost, accounted for just 13%, followed by innovative features (11%) and first to market (5%).

Furthermore, 37% of the survey respondents said that collaboration with customers and suppliers has had the most significant impact on the effectiveness of their companies' product-development efforts. Also significant were the existence of a formal product-development process (22%) and cross-functional teams (19%), followed by reallocation of resources to key projects (12%) and Internet technologies (5%).

Of those who reported having a 90% or better success rate for new-product launches, the numbers remained convincing. More than 31% cited collaboration as the most important factor to success, followed by the existence of a formal-product development process (23%), cross-functional teams (26%), resource reallocations (11%), and Internet technologies (6%).

See the full report: The IndustryWeek Value Chain Report: Getting Down to Brass Tacks

Yet despite the overwhelming sentiment that the customer is king -- a sentiment loudly echoed in follow-up interviews with survey respondents and other industry professionals -- a disturbing disconnect also was revealed by the survey results. A lack of understanding of customer needs was given as the most important single factor in the failure or delay of new-product launches.

"I think a lot of it can be summed up in, 'Old ways die hard,' " says Glenn Miller, manager of product development for Hanna Steel Corp., a steel service center based in Fairfield, Ala.

Put another way, it's an old adage turned on its head: Unfamiliarity, it seems, breeds contempt. As a result, customers often resist innovative new products and approaches even when they clearly stand to benefit. If that is the case, however, the root cause of their ignorance is an absence of practices and procedures that involve the customer in the development process from the start. That failure is costly indeed.

Nearly 40% of the survey respondents said their new-product success rate was less than 70%. Less than 18% reported a success rate greater than 90%. And following poorly defined customer needs (35%), respondents said insufficient resources (20%), lack of business strategy (14%), poor execution (14%), and lack of executive support (6%) contributed to new product failures.

The economics of recession-era manufacturing will not tolerate this communication breakdown with customers for long. Especially when the development or purchase of expensive new equipment is involved, the success of new-product launches must be certain before the investment is made.

Time-to-market is also a critical component because even a sure-winner product won't be profitable until customers buy it. Yet, slightly more than half of the survey respondents reported no change or an actual increase in product-development time-to-market in the past three years. And once again, customer and supplier collaboration was reported as having the most significant impact. Thirty three percent of the respondents cited collaboration as the primary driver of time-to-market reduction, followed by reallocation of resources to key projects (29%), a formal product-development process (22%), and a shift toward shared platforms (8%).

Speed, of course, can contribute to disaster as well as to profits. "If you speed it up and make a mistake at the end, it adds to the time," acknowledges Ohio-based Andrew Wellener, business development manager for Goodrich Aerospace, Charlotte, N.C. "If you wind up with a hiccup at the end, it adds to time and it adds to cost."

Still, the competitive edge belongs to those who act both quickly and well. The competitive advantage attributed to time-to-market performance tracked consistently with survey respondents' reports of their successes in launching new products. Just 38% of those who reported a less than 70% success rate, for example, cited a competitive advantage resulting from their time-to-market performance. The percentage increased to more than 54% among respondents who said they had a better than 90% success rate in taking projects from the drawing board to the launching pad.

Examples of speed-driven success are as plentiful as, well, as new products on the market.

At Manco Inc., in Avon, Ohio, new products are referred to as "secret weapons," and preemptive strikes are encouraged. The manufacturer of Duck-brand duct tape employs a formal process to catalogue ideas no matter what source they come from -- whether inside or outside the company.

Jim Semon, general manager of Manco's business development team, tells the story of a shelf-liner product that was born of an offhand comment a buyer for WalMart made to then-CEO Jack Kahl at a trade show. "We respond very quickly to ideas," says Semon, neatly setting up the story with an understatement. "We had shelf-liner samples within 12 weeks."

No doubt having the boss behind the effort is a powerful force in driving speed. Asked who within their companies develops new-product strategy, 47% of the survey respondents reported that the strategy was developed by R&D in direct response to corporate objectives; 29% said the strategy was dictated by corporate management.

Regardless of the strategy's genesis, execution is all about collaboration. Asked to cite the collaborative relationships most valuable in their product-development efforts, 18% of the survey respondents gave the nod to suppliers. A whopping 68%, however, underlined the point that the customer is king. Design services and consultants were cited by only 6% of the respondents, and contract manufacturers by just 5%.

The message has not gone unnoticed along the value chain. Dave Crandall, vice president, manufacturing and distribution, for Steris Corp., a surgical instrument maker in Mentor, Ohio, acknowledges that the new-product side may be the most difficult area along the chain to implement collaboration. But, he says, collaboration is the key to success. And the customer is the key to collaboration.

"You need to involve (customers) at all ends, at the beginning and at the end, inviting them in to kick the tires." Crandall says.

"Companies have put forth the effort to get collaboration on new-product development, and now they are listening to the customers a little more," says Ivey Webb, a consulting manager for PwC Consulting who contributed to the survey.

Manufacturers' lives may depend on it. Overall, more than 73% of the survey respondents said sales growth is moderately or highly dependent on new-product introductions.

"We want to be revolutionary in what we produce," says Cindy Grantello, new product development manager for Burton Golf Inc., Fort Walton Beach, Fla. "We need to bring in people who actually talk to customers every day."

And shouldn't we all be talking to customers every day? Bill Mitchell, operations engineering services manager for shipping services provider Roadway Express, says the rewards of customer interaction are obvious. "You get involved with a customer trying to solve something, and you end up creating a new product," he says.

Who knows? As Crandall of Steris points out: "There's a lot of weird ideas out there that become excellent new products."

Customers Drive Product Development Which one of the following is the primary focus of your company's product development efforts?

Best fit with customer needs 70%
Lowest product cost 13%
Most innovative features 11%
First to market 5%
Other 2%

Customer Needs Are Ill Defined Which of the following, if any, is the most frequent reason for product development delays or failures?

Poorly defined customer needs 35%
Insufficient resources 20%
Lack of clear business strategy 14%
Poor execution of process 14%
Lack of executive level support 6%
Other 12%

Time-To-Market Factors Vary Which one of the following, if any, has had the most significant impact on reducing new product development time-to-market?

Collaboration with suppliers and customers 33%
Reallocation of resources to key projects 29%
Formal product development process 22%
Shift toward shared platforms 8%
Other 9%

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