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Article Excerpt
For as in one body we have many members, and all the members do not have the same function.... Having gifts that differ according to the grace given us, let us use them (2).
If we get the right people in the right job, we've won the game--Jack Welch (3).
Staged processes with periodic management review gates for new business development (NBD) have been in existence for well over 50 years (4-7). Over half of all Fortune 500 companies are estimated to use such processes, which typically have 4 to 8 stages (8).
Many excellent benchmarking studies over the last 50 years have focused on the factors associated with industrial NBD success across hundreds of projects. Virtually every study has found that the number one success factor at the project level is "product superiority," or "product advantage" (5,6,9-12). More recent studies at the company level by Cooper and Kleinschmidt show that the number one success factor is a high-quality NBD process (13).
However, in spite of the innumerable changes in NBD thinking over the last 50 years, in spite of all of the NBD staged-gate processes that have been put in place, and in spite of the many studies of NBD success factors, the overall odds of success at the commercial launch stage have remained essentially unchanged. Only 60 percent of new product launches succeed, or one out of 1.7 launches (14).
Indeed, a recent global study of 360 industrial firms launching 576 new industrial products confirms an overall success rate of 60 percent from launch. The success rate was close to the same in all the countries studied: The Netherlands (61 percent success), the United Kingdom (62 percent), and the United States (56 percent) (15). These success rates from launch are virtually identical to the success rates reported in the 1950s and 1960s (4,5,6). While much has changed "on the surface" of NBD during the last 50 years, it appears that the underlying success rates from launch have remained virtually unchanged. Based on these results, one might question whether significant progress in NBD has really been made. Yet, failures at launch continue to be very expensive because production plants have been built or a service has been fully designed and promotional dollars spent.
While the cost of failure is less at the earlier stages of the NBD process, the failure rates at earlier stages are much higher, as shown in Figure 1, the "universal industrial success curve" for NBD projects involving substantially new-to-the-world products. The curve was developed from three distinct sources of information: 1) tracking the commercialization of patents; 2) venture capitalists' experience; 3) the project literature. The success rates found (as a function of the stage of the project) were remarkably similar in all three cases (14). The universal success curve is a benchmark that shows, for example, that the odds of commercial success for new-to-the-world products averages 1 in 300 at the idea submission stage (or at the patent disclosure stage), and 1 in 125 at the small project stage (or after a patent is granted). After Stage 4 of 7 stages, when a detailed analysis has been completed and an early-stage development effort is underway, the success curve shows that, on average, only one in nine projects or 11 percent is commercially successful. Even when a project reaches the stage of major development, the odds of success typically remain no greater than 1 in 4, or 25 percent (14).
[FIGURE 1 OMITTED]
Given that excellent NBD processes are often in place within major corporations today, as was the case in the company studied for the research reported here, the issue becomes how to further increase the productivity of these processes. With the success rates from launch essentially unchanged over the last 50 years, it is critically important to look for any factors that can improve success rates.
Overlooked Human Factors
The studies conducted to date show some of the things that can be done to increase the rate of NBD success. Yet, even with the future success of firms riding on the outcomes of NBD efforts, these things are rarely done, and NBD success rarely occurs. Why? We believe that it has to do with overlooked human factors. Others have advanced similar hypotheses. For instance, one of Crawford's interviewees raised the following questions in 1977:
Why, then, do we have such a high rate of new product failures? Is it possible, as some of the research studies suggest, that the problem is one of people, not technology? If so, just what is wrong? ... we can speculate that many (perhaps most) market researchers assigned to new business development are precisely the wrong people unless the department has been permitted to staff up especially for this purpose (12).
Crawford suggests that market research supporting early-stage NBD project analysis is not often done well because the individuals typically selected for both early-stage project management and market research are risk-averse, patient and persistent, whereas market research for NBD requires people with high risk tolerance, creativity and openness to the "irrational" process of new business development (12).
Numerous studies have also shown that the most significant differences between successful and unsuccessful products lie in the quality of execution of the first few stages of NBD, i.e. the "fuzzy front end." Simply stated, "the first few plays of the game determine the outcome" (6,16,11).
It is in the early stages of NBD activity that a key individual, acting as a project analyst or director, often plays a critical role in the outcome of the project. During the first 3-4 stages of the NBD process at the company we studied, management was relying primarily on one person to make a recommendation about whether to proceed to the next stage of product development. Few companies would want to assign a four-person multifunctional team to every one of the 300...
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