Given the rapid changes in consumer tastes, technology and competition, companies must develop a steady stream of new products and services. A firm can obtain new products in two ways. One is through acquisition – by buying a whole company, a patent or a licence to produce someone else’s product. Facebook recently did this with the virtual reality tech company Oculus Rift. The other is through new-product development in the company’s own R&D department.
According to Google CEO Eric Schmidt, when it comes to new-product development at Google, there are no two-year plans. The company’s new-product planning looks ahead only four to five months. Schmidt says that he would rather see projects fail quickly than see a care- fully planned, long drawn-out project fail. Google con- tinuously reviews its portfolio and is not scared to kill off products if they no longer fit or are not working or performing as hoped. That remains true even when it has user bases in the millions – groups who have often voiced their displeasure at their toys being taken away but have found their pleas falling on deaf ears. Google Reader, Meebo and the social network Orkut – all dead and gone.
The list above consists of products that are software based. As you are almost certainly aware, the last few years have seen Google get into physical, tangible elec- tronics products. Chromebook netbook computers run- ning the Chrome browser with add-ons to make it an operating system and the notorious Google Glasses lead the charge in wearable technologies.
Google is open to new-product ideas from about any source. What ties it all together is the company’s passion for helping people find and use information. Innovation is the responsibility of every Google employee. Google engineers are encouraged to spend 20 per cent of their time develop- ing their own new-product ideas. And all new Google ideas are quickly tested in beta form by the ultimate judges – those who will use them. According to one observer:
Any time you cram some 20,000 of the world’s smartest people into one company, you can expect to grow a garden of unrelated ideas. Especially when you give some of those geniuses one workday a
week – Google’s famous ‘20 per cent time’ – to work on whatever projects fan their passions. And espe- cially when you create Google Labs, a website where the public can kick the tires on half-baked Google creations. Some Labs projects go on to become real Google services, and others are quietly snuffed out.
Even though Google Labs have now closed down, the ethos behind them moves on. In the final analysis, at Google, innovation is more than a process – it is part of the company’s DNA. ‘Where does innovation happen at Google? It happens everywhere,’ says a Google research scientist.
Talk to Googlers at various levels and departments, and one powerful theme emerges: whether they are designing search engines for the blind or preparing meals for their colleagues, these people feel that their work can change the world. The marvel of Google is its ability to continue to instil a sense of creative fearlessness and ambition in its employees. Prospective employees are often asked,
‘If you could change the world using Google’s resources, what would you build?’ But here, this is not a goofy or even theoretical question: Google wants to know, because thinking – and building – on that scale is what Google does. This, after all, is the company that wants to make available online every page of every book ever published.
Smaller gauge ideas die of disinterest. When it comes to innovation, Google is different. But the difference is not tangible. It is in the air, in the spirit of the place.
Sound like a company you might want to work for?
Every year Google runs the Google Online Marketing Challenge – look it up and get a team entered.
Sources: See note 1 at the end of this chapter.
GlaxoSmithKline does this when developing new drugs. By new products we mean original products, product improvements, product modifications and new brands that the firm develops through its own R&D efforts. In this chapter, we concentrate on new-product development.
Innovation can be very risky. These days the Sony name is associated with a wide range of successful consumer electronics products and many successful innovations, but in the 1970s and 1980s Sony was famous as the company that introduced the Betamax video recorder format – a format that lost decisively in the marketplace to the alternative VHS format.
Later the whole electronics industry fought in the Blu-ray vs HD-DVD wars, only to be con- quered by newer downloadable formats supplied by Netflix and Apple. In fact the Internet has spawned a whole new generation of product failures, including CyberRebate.com (who offered to give customers all of their money back after they bought something), CueCat (a cute bar-code reader offering quick access to advertising websites), iLoo (Internet-enabled toilet) and the infamous Pets.com.
New products continue to face tough odds. Studies indicate that more than 90 per cent of all new consumer products fail within two years. Tens of thousands of new consumer food, beverage and beauty products are launched each year. But on average only 2 per cent of them are considered successful. New industrial products appear to fare better but still face failure rates as high as 30 per cent.2 App stores for smartphones see launches of upwards of a thousand apps per day. Less than one per day goes on to have any commercial success and a terrifying (for app developers anyway) proportion of them are never downloaded at all – snowed under by hundreds of rivals.
Why do so many new products fail? There are several reasons. Although an idea may be good, the company may overestimate market size. The actual product may be poorly designed. Or it might be incorrectly positioned, priced too high or poorly advertised.
A high-level executive might push a favourite idea despite poor marketing research findings.
Sometimes the costs of product development are higher than expected, and sometimes com- petitors fight back harder than expected. However, the reasons behind some new-product failures seem pretty obvious. Try the following on for size:3
Strolling the aisles of the NewProductWorks collection at GfK Strategic Innovation’s Resource Center is like finding yourself in a new-product history museum. Many of the more than 110,000 products on display were quite successful. Others, however, were abject flops. Behind each of these flops are squandered dollars and hopes and the classic question, ‘What were they think- ing?’ Some products failed because they simply failed to bring value to customers – for exam- ple, Look of Buttermilk Shampoo, Cucumber antiperspirant spray or Premier smokeless cigarettes. Smokeless cigarettes?
What were they thinking? Other companies failed because they attached trusted brand names to something totally out of character. Can you imagine swallowing Ben-Gay aspirin? Or how about Gerber Singles food for adults (perhaps the tasty pureed sweet-and-sour pork or chicken Madeira)? Other mis- begotten attempts to stretch a good name include Cracker Jack cereal, Exxon fruit punch, Smucker’s premium ketchup, Fruit of the Loom laundry detergent, and Harley-Davidson cake- decorating kits. Really, what were they thinking?
So companies face a problem – they must develop new products, but the odds weigh heavily against success. In all, to create successful new products, a company must understand its consumers, markets and competitors, and develop products that deliver superior value to customers.
It must carry out strong new-product planning and set up a systematic new-product development process for find- ing and growing new products. Figure 8.1 shows the eight major steps in this process.
FIGURE 8.1
Major stages in new-product development
Idea generation
New-product development starts with idea generation – the systematic search for new- product ideas. A company typically has to generate many ideas in order to find a few good ones. Major sources of new-product ideas include internal sources and external sources such as customers, competitors, distributors and suppliers, and others.
Internal idea sources
Using internal sources, the company can find new ideas through formal R&D. However, in one recent survey, 750 global CEOs reported that only 14 per cent of their innovation ideas came from traditional R&D. Instead, 41 per cent came from employees and 36 per cent from customers.4
Thus, companies can pick the brains of employees – from executives to scientists, engi- neers, and manufacturing staff to salespeople. Many companies are making it everybody’s business to come up with great ideas and are searching internally and externally for the next one. For example, Internet networking company Cisco has set up an internal wiki called Idea Zone or I-Zone, through which any Cisco employee can propose an idea for a new product or comment on or modify someone else’s proposed idea. Since its inception, I-Zone has generated hundreds of ideas and Cisco selects ideas that draw the most activity for further development.5
Some companies have developed successful ‘intrapreneurial’ programmes that encourage employees to think up and develop new-product ideas. For example, Samsung built a special Value Innovation Programme (VIP) Centre in Suwon, South Korea, to encourage and sup- port internal new-product innovation:
The VIP Centre is the total opposite of Samsung’s typical office facilities – which feature grey computers on grey desks inside grey walls – where workers adhere to strict Confucian traditions and would never dream of questioning a superior or making a wacky sugges- tion. Instead, the VIP Centre features workrooms, dorm rooms, training rooms, a kitchen, and a basement filled with games, a gym and sauna. Grass sprouts from the ceilings, doors are covered with funhouse mirrors, and walls are covered with chalk drawings of ideas. Inside the centre, Samsung researchers, engineers, and designers sport Viking and bumblebee hats, play with Elmo toys and inflatable dolphins, and throw around ideas without regard to rank. Recent ideas sprouting from the VIP Centre include a 102-inch plasma HDTV and a process to reduce material costs on a multifunction printer by 30 per cent. The centre has helped Samsung, once known as the maker of cheap knock-off products, become one of the world’s most innovative and profitable consumer electron- ics companies.6
External idea sources
Companies can also obtain good new-product ideas from any of a number of external sources. For example, distributors and suppliers can contribute ideas. Distributors are close to the market and can pass along information about consumer problems and new-product possibilities. Suppliers can tell the company about new concepts, techniques and materials that can be used to develop new products. Competitors are another important source. Com- panies watch competitors’ ads to get clues about their new products. They buy competing new products, take them apart to see how they work, analyse their sales, and decide whether they should bring out a new product of their own. Other idea sources include trade maga- zines, shows and seminars; government agencies; advertising agencies; marketing research firms; university and commercial laboratories; and inventors.
Some companies seek the help of outside new-product consultancies and design firms, such as IDEO or ZIBA for new-product ideas and designs. For example, when Cranium
needed innovative new ideas for extending its popular family board game, it turned to award-winning design firm IDEO. A team of IDEO and Cranium designers began with the core premise that the games should focus on laughter, togetherness and creativity rather than competition. For inspiration, the team observed people who exemplified the Cranium characters – Word Worm, Creative Cat, Data Head and Star Performer – and then tested prototypes in actual game-playing sessions with families. Based on customer insights gained from these observations and interactions, the IDEO–Cranium team developed four new popular character-based games.7
Many companies are also turning to online collaborative communities to help solve new- product problems. For example, collaborative network InnoCentive puts its corporate clients (‘seekers’) in touch with its global network of more than 100,000 scientists (‘solvers’). The seeker companies post ‘challenges’, and solvers can earn up to $100,000 for providing solu- tions. For example, P&G wanted to create a dishwashing detergent smart enough to reveal when just the right amount of soap has been added to a sink full of dirty dishes. After seeing the problem posted on InnoCentive, an Italian chemist working from her home laboratory, Giorgia Sgargetta, solved the problem by creating a new kind of dye that turns dishwater blue when a certain amount of soap is added. Her reward: $30,000. P&G estimates that more than 50 per cent of its new-product innovations today have elements that originated outside the company, up from 15 per cent in 2000.8
Perhaps the most important source of new-product ideas is customers themselves. The company can analyse customer questions and complaints to find new products that bet- ter solve consumer problems. Or a company can actively solicit ideas from customers. For example, Apple releases multiple versions of new software to limited numbers of customers and key developers. By letting these expert users play with it to destruction, weak spots, defects, and ways and means to improve the user experience for the typical user can be found, removed and implemented respectively. Sugru, the makers of the cult self-setting rubber, asks users to send in photos of how they have used the product to effect repairs.
Sugru can incorporate these ideas into its own advertising and informational materials and consider how related problems could also be solved using their products – a virtuous circle of improvement.9
Customers often create new products and uses on their own, and companies can benefit by putting them on the market. For example, for years customers were spreading the word that Avon Skin-So-Soft bath oil and moisturiser was also a terrific bug repellent. Whereas some consumers were content simply to bathe in water scented with the fragrant oil, others carried it in their backpacks to mosquito-infested campsites or kept a bottle on the decks of their beach houses. Avon turned the idea into a complete line of Skin-So-Soft Bug Guard products, including Bug Guard Mosquito Repellent Towelettes and Bug Guard Plus, a com- bination moisturiser, insect repellent and sunscreen.10
Finally, beyond simply gathering new products from customers, companies can work with customers to create new products. Through customer co-creation, companies involve customers directly in the innovation process in multiple ways at various points. For exam- ple, the LEGO Group used customer co-creation to develop its most popular product ever, LEGO MINDSTORMS:11
The LEGO MINDSTORMS build-it-yourself robot was initially an internal effort in partner- ship with MIT. Within three weeks of its introduction, however, more than 1,000 intrigued customers formed their own web community to outdo each other in making it better.
Rather than fight the idea of co-creation (as Sony did with its Robot Dog), the LEGO Group embraced it. The next generation of LEGO MINDSTORMS featured user-defined parts.
Then, the LEGO Group made customer co-creation official by creating the MINDSTORMS Development Programme (MDPs), through which it selected the most avid MINDSTORMS fans – 100 pioneers, inventors and innovators from across the globe – to play with LEGO MINDSTORMS and create innovative new features and applications. The MDP’s share their ideas with other customers and invite feedback. The MINDSTORMS co-creation experience
also spawned the LEGO Factory, where users can design products, create 3-D models on the web, design packaging (which the LEGO Group will manage), and sell the products on the LEGO site.
Although customer input on new products yields many benefits, companies must be careful not to rely too heavily on what customers say. For some products, especially highly technical ones, customers may not know what they need. ‘You can’t ask people what they want if it’s around the next corner,’ said the late Apple founder and former CEO, Steve Jobs.
‘And even when they think they know what they want,’ adds an innovation management consultant, ‘merely giving people what they want isn’t always enough. People want to be surprised; they want something that’s better than they imagined, something that stretches them in what they like.’12
Idea screening
The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. The first idea reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible. Product development costs rise greatly in later stages, so the company wants to go ahead only with the product ideas that will turn into profitable products.
Many companies require their executives to write up new-product ideas on a standard form that can be reviewed by a new-product committee. The write-up describes the prod- uct, the target market and the competition. It makes some rough estimates of market size, product price, development time and costs, manufacturing costs and rate of return. The committee then evaluates the idea against a set of general criteria.
For example, at the large Japanese consumer products business Kao Company, the new- product committee asks questions such as these: Is the product truly useful to consumers and society? Is it good for our particular company? Does it mesh well with the company’s objectives and strategies? Do we have the people, skills and resources to make it succeed?
Does it deliver more value to customers than do competing products? Is it easy to advertise and distribute? Many companies have well-designed systems for rating and screening new- product ideas. The Swedish pharmaceutical company Orexo has a Product Development Committee that meets regularly to develop criteria for establishing the priority to be given to new-product ideas.13 Companies that can direct efforts more often towards the best and most commercially exploitable ideas, and waste less time and effort on dead-end or marketplace duds, will outcompete those companies that cannot or do not.
Concept development and testing
An attractive idea must be developed into a product concept. It is important to distin- guish between a product idea, a product concept and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. To put it another way, a product idea is the company explaining the product to itself, and a product concept is the company explaining the product to customers. A product image is the way consumers perceive an actual or potential product, it is their view of the concept as presented to them.
Concept development
One idea for the future of motoring is the fuel-cell-powered car. This car’s non-polluting fuel-cell system runs directly on hydrogen, which powers the fuel cell with only water as a by-product. It is highly fuel efficient and gives the new car an environmental advantage over even today’s economical petrol–electric hybrid cars.