Your company depends on being able to formalize your innovation process properly. According to urban legends of new product development, between 70 and 90 percent of new products fail. More conservative, peer-reviewed studies compiled by the Product Development and Management Association (PDMA) actually put that failure number between 30 and 49 percent. Even with these lower failure rates, however, there is still a large amount of money at stake. Therefore, a process model is critical to saving your company money and time. There are many different approaches and models for innovation, depending on the needs of your company. Most process models can be categorized according to their relative objective within your company. These include those that:
- Describe and evaluate actual practice
- Recommend an ideal process
- Make a system out of development activities
- Simplify development activities
- Are centered around your customers
- Are team-based within your company
The following are the most commonly used models, with varying levels of utility and success for different companies.
The Scorecard-Markov model: The Markov analysis model is a mathematical model that deals with the probabilities of things happening. These things are divided into the past, present, and future. The past isn’t as relevant as the present, because the present gives us the probability of something happening in the future. The Markov model is especially helpful in scenarios where there are transitions from one state to another. In this model, you develop a matrix that represents the transition states and how likely they are to go from one to another, and apply it to the Scorecard-Markov model to make new product screening decisions. Developed to act as a scorecard for new product ideas, the matrix includes your customers’ needs, the strength of your marketing, your company’s competency, the compatibility of your manufacturing, and your distribution channels. In other words, this model is used to whittle down all of your ideas from FFE to ones that make mathematical sense for your company. It is a formal, evidenced-based process for the people you report to who want “real data” on why some ideas make it out of FFE and some do not.
The IDEO Process: This model comes from a design and consulting firm of the same name, and is set apart because it is the “human-centered design process,” designing from the perspective of the user. IDEO’s designers make a point to observe real people in real situations, looking for the Form-Fit-Function (FFF) of their designs. FFF specifies the interchangeability of parts in a system and describes the characteristics of parts. Further, if a part is not needed for the fit, form, or function, it should not be added. This process targets the FFE of innovation and includes the following steps:
- Prototype quickly
- Get user feedback
The Booz, Allen, and Hamilton (BAH) model: This is one of the earliest and most well-known models for new product development. It is considered foundational for all other models developed to the present day in any industry and is meant to be sequential. Booz, Allen, and Hamilton state that, “For every seven new product ideas, only one succeeds.” This model does not take into account the need for speed and flexibility in today’s marketplace product development. The seven steps of the BAH model are:
- New product strategy
- Idea generation
- Screening and evaluation
- Business analysis
The Stage-Gate model: Also known as the Phase-Gate model, this is a project management approach that divides up the process of developing new products into a funnel system. Once each stage of product development is complete, it passes through a management-approved gate prior to moving onto the next stage. Sometimes stages are processed simultaneously. In this model, companies save money by filtering out the bad concepts and ideas through a funnel by the time the process is complete. In a study in 2010 by the American Productivity & Quality Center (APQC), the Stage-Gate model was the most popular system for new product development in the United States – 88 percent of businesses use it. Originally, Robert G. Cooper developed this eight-step model in the 1980s, boasting a 30 percent cycle reduction time. Dr. Cooper developed the Stage-Gate model using benchmarking research, on the premise of determining why some products succeed and some fail. Benchmarking in the Stage-Gate model is evaluating your process against other processes or standards of product innovation in the industry.
The following eight stages were developed to improve the new product’s marketability and your team’s productivity once you have a product idea. After each stage is complete, you must decide whether or not to continue.
Stage 1: Generating
Your company has a product idea. The first step counts on your performance of a SWOT analysis. In a SWOT analysis, also known as a SWOT matrix, you perform a basic scan of your organization’s Strengths, Weaknesses, Opportunities, and Threats. Strengths and Weaknesses are internal to your company, whereas the Opportunities and Threats are external. Things to consider during your SWOT analysis are the current marketing trends, return on investment (ROI), and any notable costs such as distribution. This step is where you develop the roadmap for the product. Many experts advise developing more than one road map scaled to fit different risk levels.
Stage 2: Screen the Idea
In this step, an objective group or committee reviews criteria that you developed and decides to either continue or drop a project. This step is done quickly so that you drop any ideas that do not make the cut. Market potential, competition, ROI, and realistic production costs should be part of the criteria.
Stage 3: Test the Concept
In this step, you are testing the concept with your customers. This is after the internal screening step, so the picture itself is more firm. The customers should be able to display their understanding of the product, and say whether they want or need it. Their feedback gives your company some marketing ideas and potential tweaks to the product itself.
Stage 4: Business Case Analysis
In this step, you have a fully formed product; the concept has been reviewed internally and externally. At this time, you can develop a set of metrics and a business case. The metrics should include the development time, the value of any launched products, the sales figures, and other data that shows the utility of your process. The business case should paint a complete picture of the product, from the marketing strategy to the expected revenue.
Stage 5: Product Development
This is the step where your product takes flight. You are getting ready for consumer testing, so the technical team must complete your design. During this step, you should complete beta versions, settle on manufacturing methods, and address packaging.
Stage 6: Test Market
In this step, the whole concept is together and pitched to your consumer test group as the beta test. In this way, you validate your concept. At this time, you should work out any technical issues with the product.
Stage 7: Commercialization
This is the step that finally takes your product to launch in the marketplace. Complete final marketing and prices, and give the finalized details to rest of your company – especially the sales and distribution teams. Set up technical support to monitor customer’ needs.
Stage 8: Launch!
The launch plan should be comprehensive for maximum impact. At a minimum, include these seven things in your launch plan:
- Market research including who will buy your product
- A competitive analysis outlining how your product is different and similar to the competition, why customers may buy elsewhere, and how you will lure them to your product
- A marketing strategy and the test of the strategy with your focus group
- A public relations program
- A complete product
- A marketing plan timeline
- A trained and ready sales team
It is important to understand this model, as many firms still adhere to the traditional eight-step process. The APQC revamped this eight-step model and consolidated into a five-step, five-gate model. This also aligns with traditional process mapping. Stage zero of this consolidated process is your innovation process with all of your company’s great ideas. Stages one and two could ideally be categorized under the same screening step. Also, after you launch the product, you should perform a review of your process. The steps in this consolidated and slightly reworked model are:
Stage 1: Discover new product ideas
Stage 2: Build your business case
Stage 3: Development
Stage 4: Test
Stage 5: Launch
The following picture illustrates where the stages are in the new model. Decreasing the number of steps also decreases the number of decision points, which streamlines your process.