Benchmarking Best NPD Practices-II: Strategy, Resource Allocation and Portfolio Management Are the Focus of This Second in a Three-Part Series

Abstract

Countless pundits have pointed to the need for a product innovation and technology strategy for the business (1), and to translate that strategy into effective resource allocation via portfolio management methods (2). These are the subjects of this second in a three-part report on the results of a benchmarking study of N PD in 105 U.S. businesses (3). Part 1 reported NPD performance results of these businesses, identified a group of Best Performing businesses (the benchmark businesses) and identified the practices which separated the Best from the Worst Performers (RTM, Jan. Feb. 2004, pp. 31-44). This Part II focuses on five questions: * How do businesses fare in terms of a product innovation strategy? And which strategy elements have the greatest impact on performance? * What is the typical breakdown of development projects, and how do best practice businesses differ? * What methods are in place to better manage resource allocation what portfolio management methods are used? And do they yield positive results? * Are businesses committing sufficient resources to NPD? And dues this make a difference? * At the project team level, are resources sufficiently focused? Performance Drivers: Distinguishing Best/Worst New product strategy for the business A product innovation and technology strategy for the business should include, among other things, clearly defined NPD goals, strategic arenas or areas of focus, a product or technology roadmap (which maps the major initiatives over the next 5-10 years) and so on. But such a strategy is apparently more myth than reality, at least for a good percentage of businesses in the study (Figure 1). The results suggest that improvements are needed in the area of NPD strategy delineation. Overall, a significant minority of businesses appear to lack much in the way of NPD strategy, except for defining strategic arenas. In descending order of importance or impact, the key components of NPD strategy are (4): 1. The role of NPD in achieving the overall business goals--Strategists suggest that one should link the NPD goals of the business to the overall business goals, so that the role of NPD in achieving business goals is clearly articulated. What we witness instead are very mediocre practices: only 46.3 percent of businesses define the role of NPD in achieving their business goals. However, 58.6 percent of Best Performers (versus only 30.8% of the Worst Performers) do define this role, and this element of an innovation strategy is the most strongly correlated with NPD performance. It is clearly a practice. 2. Strategic arenas (areas of strategic focus on which to concentrate NPD efforts) defined.--Focus is the key to an effective NPD strategy. Here, businesses do a solid job: 64.8 percent clearly identify and designate strategic arenas--markets, product areas, industry sectors or technologies--in order to help focus their NPD efforts. Best Performers define strategic arenas more than do Worst Performers: 69.0 percent versus 53.8 percent. This strategy element is again strongly correlated with NPD performance. 3. Clearly defined NPD goals--Best practice suggests that a business should clearly define its longer-term goals for new products; for example, what percentage of the business' sales, profits or growth will come from new products over the next three-to-five years? Only 38.1 percent of businesses appear to proficiently define such NPD goals, however. Best Performers adhere to this NPD goal-defining practice much more than do Worst Performers: 51.7 percent versus 34.6 percent of businesses. 4. Long-term commitment--Does the business have a long-term view of its NPD efforts? Or is product development largely a short-term effort, with an absence of longer-term projects? Here too there are problems: only 38.1 percent of businesses have a longer-term new product strategy. …

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