Built to fail?

Innovation and new product development are, it can be argued, the lifeblood of a healthy organization. Without new products or markets, modern corporations face declining market share and ultimate death. Years ago, the concepts of cost cutting and value engineering drove many organizations to focus on driving out costs in current products at the expense of new product development. While this can yield some short-term advantages to the bottom line by way of cost savings, this will not help propel a company to growth and prosperity. One of the most impactful pillars of growth is a continual pipeline of new products and innovations. But even a pipeline of new products and innovations will not be enough to sustain a company unless those products can provide enough value for customers to buy them.

Until the 1980s, new product development was seen as the domain of scientists and engineers. It was these individuals, with their backgrounds in technology and science, who were seen as the stewards of seeing what is next and were given the responsibility of creating new and innovative products and technologies that would entice customers. Their new ideas would be developed into products and then thrown over the wall for marketing and sales. They would then be expected to create the demand and, ultimately, the orders for these new products which customers neither requested nor necessarily needed.

This philosophy of creating technological innovations driven by the engineering department instead of customer needs accounts for much of the reason so many products have been unsuccessful at launch. New products (products that have been on the market for three years or less) currently account for 25-30% of a healthy company's yearly sales, but many new products do not enjoy commercial success. According to a research study performed by the American Productivity and Quality Center (APQC), just 53.2% of businesses' new product development projects achieve their financial objectives and only 44.4% are launched on time. Even more alarming, according to the Product Development and Management Association (PDMA), only one out of nine new product concepts becomes a commercial success, 40% of new products fail at launch, 46% of the company's resources spent on New Product Development (NPD) go toward unsuccessful ventures, and 44% of a company's development projects fail to meet their internal profit objectives.

There are many reasons why products do not enjoy market success. Sometimes it is because the product has had technical difficulties, which compromised its success. Sometimes it is because the product is not positioned in the market correctly and the price is in conflict with the value proposition. Often, it is because the product does not meet the market window, and competitive products get to enjoy a first mover advantage.

There are a number of key things to avoid when developing new products to minimize the potential of failure:

Too many companies try to develop a product using information found solely within the walls of the organization. Either from the marketing expert who claims to know customers better than they do themselves, the executive who deems that we must create this new product because he/she knows best, or the product based on customer feedback that is delivered through the salesperson without a view of the entire market. The main reason new products are not successful is because the companies did not have a clear view of who their customers were and/or what their customers want and need, as well as their willingness to pay for those wants and needs.

There are a multitude of products introduced every year to the market that are me too products, or products that have simple incremental benefits to the customers. Some recognizable ones are the Microsoft Zune or the Blackberry 10, which were nothing more than incremental products versus the iPod and iPhone/Android phone. We also see examples of products that were obviously driven by engineers, developers, or the marketing department in the organization, such as many of the financial products offered by banks and brokerages, which are very confusing and customer unfriendly. Products can also be driven from the top down because management or the founder thought it would revolutionize the world, which was the vision for the Segway. Such products are destined to a niche or non-existent market. And too often, products are driven by one customer without any consideration to the larger market or non-customers who could provide much more revenue to the company offering the products. More often than not, these products are developed, launched, and go through their short life in search of a market.

New products that offer unique benefits and superior value to customers result in a successful product more than any other single factor. These products typically have four times the market share and four times the profitability of products that are undifferentiated from the rest of the market. As at least one study has shown, successful products have most, if not all, the following characteristics:

All of these attributes of successful products share one key element in common. These are attributes as defined by the customer or the user, not by the engineering or RnD departments. A thorough understanding of the customer's needs and wants, as defined by the customer, with an eye toward the internal capabilities, competition, and nature of the market is what will define product success. Conversely, failing to understand the competitiveness of a market, your own development expertise, an unwillingness to understand the market, and, most critically, leaving the customer out of the product development process will spell certain failure. In more than 75% of product development projects, market studies are not performed at all, and the task that should be driving the future product definition, the marketing and customer analysis, account for less than 20% of the project, leading to multiple product failures.