Appunti per il primo parziale dell'opzionale di New Product Development And Open Innovation

New product development and open innovation

New Product Development is very important because it is one of the most strategic processes in a company. Even if companies recognize that innovation is very important, many of them are not so efficient and effective in organizing the process itself, so they are not so able to identify, create, and explore the opportunities that come from the competitive environment for innovation in a continuous way. It is not a matter of having a genial idea and then developing it but having a process within a company that systematically and continuously launches on the market different innovations, in order to be and remain competitive.

Delivering new products and services is not as easy as we might think and requires a structured and organized process, starting from the ideation phase (how to be more creative) and developing the idea into prototypes, testing products, considering also the needs of the production in terms of costs, and then being able to correctly commercialize it.

This course aims to explore the practices of organizing, creativity, technology, and innovation and then explain which are the possible tools that could help in increasing the results and outcomes of the process itself.

Innovation: a broad term in a fast-changing environment

Why is innovation one of the most strategic but also complex processes managed by firms? Innovation means creating value for a market and thus for customers. Innovation is so important because it is linked with progress (social value): for this reason, in certain fields, national or supranational governments (such as the European Union) are financing R&D.

Innovation is important because:

• Gives competitive advantage
• Can help reduce costs
• Creates value
• Increases the opportunities to make money
• …

However, it is not so easy to create innovation: you have to invest in a risky activity because it is not certain that you will arrive at a successful product or service or that you can reduce the costs of the process… Innovation has to be organized to take some sort of control of this risk: there are some risks that can be managed and forecasted, and some others that cannot, for example, the global pandemic of this year.

Innovation management means trying to understand what can go wrong in your project and gather information to limit the possibility of an unsuccessful result. Since innovation is useful to create value, companies must understand where these opportunities to create value are. The marketing department does this: analyzes which are the possible gaps, the possible customer needs, and gives useful inputs related to where you can create value.

R&D, researchers, engineers, technical offices… are very useful to promote and propose new ways to do things or new technologies to be implemented, but then they have to be combined with the needs (also latent) of the target market.

Product innovation

• Improving performances of existing products
• Adding new meanings (design-driven innovation)
• Innovation for different target customers: B2C, B2B, specific needs (like sugar for diabetics)
• Innovation towards substitute products
• New shapes
• New processes/services: controlled supply chain (CSR)
• Innovating packages
• Safety and traceability
• Value innovation: boutiques, selling the experience, exclusive lifestyle, status symbol (Nespresso)
• Market innovation: bringing innovation in different markets (e.g., Venus Gilette also for the female market with the adaptation of the product)
• Business model innovation→Example: Tesco video groceries on the subway through the smartphone

Challenges in innovation

Innovation is a complex process with several challenges:

• The importance of time to market: respecting the strategic window of opportunity.
• Financial issue: balancing investment and expected returns in a strategic timeline. Innovation means that you have to have money to invest in a risky environment to hopefully obtain results in terms of returns. Is the financial evaluation of the investment worthy enough?
• The value of speed: the importance of timing in launching new products.
• Break Even Point = when you start to have profits or Payback period in terms of time.
• Time to market = is the time between the idea generation and the launch on the market.
• The difficulty of intercepting the "right" problem: the industry issue (different levels of communication with the market) and the demand issue (different evolution of tastes, needs, segments…).

Example: Tetrapack: it is a B2B2R2C business (business to business to retail to customers): it is not easy to understand who is the customer because there are direct and indirect customers. Also, the needs of indirect customers will affect the success or not of the innovation. Downstream supply chain: who is the main decision-maker of the success of the product? Who drives the success of the package? The final user, that will select a plastic bottle instead of the tetrapack.

Industry issue insights: Data gathered by The Economist illustrate the percentage of projects that are actually introduced on the market and the percentage of projects that actually reach profitability, i.e., the break-even point.

The failure rate

Why is B2C the least successful? What are the difficulties of B2C? In B2C, it is more difficult to readapt/change/review the characteristics of the new product after the launch on the market, and also B2C serves a lot of different consumers compared to B2B (where you have your set of customers and you collaborate) and compared to services (that can adapt easily depending on the needs of the customers).

The acceptance of the innovation from the market is a key factor for the success of the new launch:

• Possible needs of B2C markets are more difficult to intercept compared to B2B markets.
• Service industries often have the possibility to quickly align the offer to the requests of their (potential or actual) customers (e.g., in a restaurant, you can ask for a personalized dish for kids or for allergies).

Demand issue: Maslow's pyramid: depending on the status of the customer or the product that solves the customer's problem. The higher the level, the more difficult it is to interpret in terms of need. In the lower part of the pyramid (Physiological Needs), you focus on the functionality of the product.

The convergence issue: Boundaries among industries are blurred, and solutions (product, services, processes, business models…) imply multiple competencies. Industries and different companies collaborating with each other make it more difficult to replicate the same business model, which is a combination of multiple competencies. Products/services are more complex and imply the combination of competencies from different fields/industries/technologies.

Information is easier to find, and information asymmetry between companies and customers is reduced. Solutions can be often comparable in an accessible way: the competitive issue. Before buying a complex product (such as smartphones or computers), we always search for comparisons and read the online reviews of the product to get as much information as possible. This was not possible a few years ago without the internet.

Technology issue: Technology is very fast. Final products/services are the result of a series of new releases of technologies (beta tests approved and improved). Technological progress will allow obtaining better products at a cheaper price.

Why should companies innovate?

Create value, gain and maintain competitive advantage, and grow and, in some cases, survive. Companies must innovate but:

• Innovation disturbs both operations and logistics: before the innovation, the production process was optimized to be more reliable, quick, and cheap. Innovation creates physiological conflicts.
• Innovation does cost.
• Innovation is risky: it does not provide a certain result.
• Innovation does not ensure a long-term competitive advantage: even if I put on the market a genial product or innovation, my competitor reacts. I cannot wait and enjoy the results of my unique innovation, but I have to be dynamic and continue to innovate.

The process has to be:

• Continuous, efficient, and controlled
• Before designing a new product, design the right innovation process

Critical success factors for process design

Innovation management and the new product development process

Project portfolio planning.

ARTICLE: Wheelwright, S.C. & Clark, K.B., 1992. Creating project plans to focus product development. Harvard Business Review, 70(2), pp. 70-82.

Innovation is not only creativity or invention, but it requires creativity. Creativity and technology are inputs for the innovation process. A product/service is new if a customer perceives it as new: it has to create value, first to the customers and then to the company.

The innovation process has mainly two different processes:

1. Divergent phase: Originating from the market’s needs or technological opportunities. This is the starting point for the brief. This is the phase that activates the idea generation process. Creation of a set of ideas.
2. When you have multiple ideas to be selected, you can move to the convergent phase of the innovation process. Selecting ideas in terms of consistency, strategy, technical, or economical visibility… If the idea passes all the stages, it arrives on the market.

Strategy and new product and technology planning

Strategy of a company:

1. One point of view coming from outside: How the world will be, Scenarios planning Analyzing the current trends, we could have an idea of which are the possible futures in which we will leave.
2. One internal element: Vision and Mission What are the core competencies, the strength points, which is the positioning that the company wants to have, compared to that possible scenario.

That gives us the strategic plan of the company, so where the company wants to put itself within the competitive environment, and that has to be translated into innovation strategy.

Innovation strategy is split into two parts:

1. Strategic product planning: Referred to the final outcome Product plan
2. Strategic technology planning: Referred to the R&D, research, exploration of the materials, processes, so the development of new technologies Technology plan

Objective of projects mapping

1. To link the corporate strategy to the product plan, classifying the development projects depending on their degree of newness and their time to market in a unique tool
2. To distribute the resources to satisfy market requests
3. To have a tool to check the alignment between “what has to be done” and “what is being done”

The tools that allow the company to understand if the project is in line or not with the strategy:

• Projects roadmap (of the entire portfolio of innovations): underlining the distribution of the project along the timeline.

The tool theoretically is very easy, but what it is not so easy is applying it to reality and feeding it on a rolling base, so updating the data. In the upper part, we have the timeline. The diamonds represent the strategic goal on the market, so for example which are the market objectives to maintain competitiveness (for example: we are in September 2020, I can plan for March 2021 a new collection).

In order to be ready to adapt key points (the diamonds) in time, I have to estimate the duration of a project of developing the new product. The length of the blue bar is proportional to the estimated duration of the project. If we need specific new projects or ingredients to produce the new product, then we ask also for new technologies developing projects. The more you go down vertically in the road map, the more you go in detail of the project.

Project map (of a single category of product), (Wheelwright and Clark matrix): selecting the factors that you want to map, usually with a two-dimensional matrix. The goal is to determine which are the different releases that the product can have, in time. You start from a core product, something that is finished and already on the market, and then you can have an improved version of the original one or an economical version, a cheaper version.

Then in the second versioning (moving to the right of the timeline), you can have a customized version of the initial product or a hybrid (a combination of two cores). Example of a hybrid product: Nutella snack and Go. Breadsticks already existed, and Nutella already existed. What is new is the combination of the two to serve a new market.

Project mapping objective:

• The classification of the development of projects per typology can help to decide which is the best mix to launch new products
• These categories are different in the degree of change (newness) of the product and process technology, in the know-how and in the requested information
• The different clusters help management to understand how each class is characterized by dimensions such as extension, number of people on the team, available budget, maximum duration, …

Project mapping determinants:

We can map different classes of projects, and this is important because each class of project has a different level of risks, investment rate, expected return, and likelihood of success. Moving from a product and process incremental improvement to product and process completely newness, projects increase their degree of innovation, as their technical and commercial risk.

Project classification

• Basic R&D: Advanced projects with scientific objectives more than commercial returns. They often originate from collaboration programs with research institutes, universities, and external partners.
• Breakthrough: Radical changes in product technologies or production process technologies. They normally create new products or new markets, for which customers cannot express their opinion in advance. The duration of these projects is normally more than one year.
• Platform: They create a new generation of product lines. The new product will have new functionalities or technologies, with great improvement also in their production process. The time to market is generally a year or less.
• Derivatives: Incremental improvements to existing products or related production processes. The focus is on the customer (improving or adding a function) or on the reduction of cost. Resources involved are often limited to some organizational function and the development time is short.
• Cost reduction/Law compliance: These projects imply big changes (and risk) from the technical point of view, mainly related to the process used to obtain a product similar to the one already existing on the market. The key reasons for these projects are reducing the cost of production and/or being compliant with new laws (e.g., LED light bulb).
• Byproduct/New markets: This category of projects aims to obtain new products in new markets with marginal modification of the current production process or technology implied. Usually refers to the export of existing/adapted products in new geographical markets or to new target customers.

Project mapping: projects

Once we have mapped a project, we can have different information that we can add. All projects of new product development are represented in the matrix. We can add the sizes of the black dots (projects) to indicate the size of the project itself (in this case expressed by hours, but another possibility is to express it in Euros):

In this case, the different colors indicate the expected launch date of the new products:

Example of two different companies:

Combining the two tools (roadmap and matrix) we can obtain the disposition along time of the different models belonging to a specific product category and the projects that we have in mind year by year. The company has under control the innovation process. These tools are important because we can map where we are investing the money, the entire portfolio projects at different levels (connection to each other, time of releasing) and if we want, we can also map based on a timeline the different versioning of each product in the portfolio. So in this way, we can map the evolution of the innovation that we want to release time to time on the market.

Innovation and the organization of the new product development process

ARTICLE: Cooper, R.G., 2008. Perspective: The Stage-Gate Idea to Launch Process - Update, What’s New and NexGen Systems. Journal of Product Innovation Management, 25, pp. 213-232.

Product innovation

Product innovation refers to the company capability to introduce new products and new features. Firms operating in high change environments have to develop new products quickly (respecting the planned Time to Market) and on an ongoing basis, decreasing costs, while maintaining high levels of quality standards. Reduction in time to market at decreasing costs allows firms to develop new products on a continuous basis because new resources are available for new innovation projects.

The New Product Development process

The New Product Development process consists of different phases that we can ideally separate. The number of phases depends on the company, which adapts the model to its process. The stage – gate model combines stages and gates: at the end of each phase (gates), a control mechanism verifies if the project can continue or it has to be stopped.

The stage – gate model has a dual objective:

• Clarify which activities are needed at each phase of the process
• Have a control mechanism that verifies if the process can continue or not.

And here you have four alternatives:

1. GO to the next stage: if it respects the selection criteria of that particular gate (inconsistency with the strategy and the culture of the company).
2. KILL: the project has to be stopped. The idea is not compliant with the strategy of the company and does not respect the established criteria (for example: not interesting, not feasible, not enough profitable…).
3. REVIEW: the project is interesting, but the idea has some problems and criteria that are not respected to pass to the next stage. It needs to be refined and improved. Then, it will be re-evaluated.