Disruptive Innovation - Building a Business Case from Concept to Commercialization

Disruptive Innovation – Building a Business Case from Concept to Commercialization??

New product innovation has been a foundation of American business success since this country’s inception.??Despite spending over $500 billion annually on R & D in the US; a sum that is greater than the GDP of over 100 other countries, unfortunately, more than 80% of new product launches and over 50% of new startup companies fail. ?Indicating that the alignment between customer expectations, value creation and delivery remain a challenge for many companies and development teams.?By most measures, a large portion of R &D spending is directed to New Product Development (NPD) ostensibly to address unmet customer needs and growth initiatives.??

This paper discusses various types and methods of NPD from “breakthrough”, disruptive innovation to incremental product extensions and how to foster and accelerate innovation, weigh risks versus velocity, embed metrics, and develop and scale new products without a large capital R & D budget.?Specifically, accelerated development directly funded by customers and technology grants, can augment front-end innovation, partially offset R & D costs and provide a direct sales channel for new products.?In addition, the early identification of enabling technologies can foster disruptive innovation and market paradigm shifts.???

Stage-Gate NPD Model

The Stage-Gate process, attributed to Dr. Robert Cooper, is widely used by many companies as a formal NPD process and normally includes the following steps:

·??????NPD ideation – researching and “brainstorming” to develop a list of potential new products

·??????Screening – down selecting the best few based on commercial and technical feasibility?

·??????Proof of Concept & Prototyping – early product development with customer, market feedback

·??????Testing & Validation – to ensure that design & first articles meet intended form, fit, function ?

·??????Scale Up & Commercialization – tooling, processing, supply chain to produce at mkt. pricing

Each Stage of the process is a new advancement in the NPD progression.?The Gates serve as decision points, where the NPD team is assembled to review progress relative to project costs, goals and deliverables.?Importantly, building a Business Case with Return on Investment (ROI) scenarios, is essential in the justification of new projects. ?Without an attractive return, projects should not progress.

In this area, several critical aspects of the Stage-Gate process are consistently emphasized – Market Research – identifying unmet customer needs and the size of the addressable market.?Cross Functional Development Teams - the deployment of resources across an organization including senior management, engineering, marketing and manufacturing to approve and execute NPD.?And a repeatable, measurable new product development process which includes criteria to identify and screen market opportunities, make go/no go decisions at the various review stages associated with product development, testing and validation, as well as, scale up and commercialize new products.?

A primary value in using the Stage-Gate process is its thoroughness in formally executing NPD and shutting down projects early if they are not supported by a solid business case or R & D results. ?Common critiques of the stage-gate process is that it is best suited for a full scale development and not very agile.?In addition, the stage-gate process is more amenable to producing comprehensive, market based product solutions.??As shown in Figure 1, several versions of the Stage Gate process are commonly used in NPD.

Regardless of planning and execution, development is often a non-linear process.?Considering that the vast majority of new product developments (>85%) are actually product extensions, companies often circumvent the stage-gate process for expediency or cost or because the type of development does not warrant the full resources deployed in the stage-gate model.??Figure 2 highlights areas and justifications in NPD, where the Stage Gate process is sometimes compressed for expediency.?

A key consideration is the value created by the innovation.?Companies often focus on incremental product extensions because they involve less risks and costs to execute, and generate ROI as well. In contrast, disruptive innovation, with the power to change entire industries comes along much less frequently.?Think, digital photography replacing film based photos; on-line shopping, movies on demand versus video stores and even smart phones. ?These market disruptors, confronted well established industries with an initial concept that consumers place high value on convenience.?In addition, these disruptive technologies, were very easy and more often cheaper than the products they replaced.?However, the infrastructure to realize these technologies, took years to build and become adopted and, therefore, the first mover advantage of early innovators requires a long time horizon for ROI.??Capitalization of disruptive innovation is generally expensive and risky. ???

None the less, informal or abbreviated development processes also bring inherent risks.?Inadequate market research can lead to product launches that miss the mark in terms of cost, value proposition, timing or target market. ?In addition, insufficient product testing and design validation may result in products that work well in a lab or on a low rate production scale.?But are not sufficiently robust for mass production.????Finally, truly innovative products can inherently “stretch the capabilities” of organizations.??????

Collaborative development, between vendors, partners and customers, in a supply chain can be leveraged to share expertise, spread costs and fast-track NPD. ?Advantage of collaborative development include:

·??????Existing market knowledge, infrastructure and technical expertise

·??????Existing materials and capital equipment can be used to reduce front end costs

·??????Supply chain and market access exists to launch new product more rapidly

Finally, innovation is often initiated by the methods companies use to automate, assess, and combine traditional stage gate steps and how they apply an iterative Voice of the Customer (VOC) process to integrate new features and functionality into product development and value propositions. ???

Product Concept and Feasibility

As a first step in innovative NPD, Ideation associated with new product concepts can come from many different sources.?In addition to direct customers, university technology licensing, government innovation grants, patent searches, vendors and distributors are all sources of new product development requests. From preliminary analysis of NPD market requirements, product concepts are evaluated and moved into the feasibility stage generally based on key financial, technical and market criteria.??On a basic level, a business case that produces affirming data on the value proposition, size of the market for the new product, production and marketing costs and return on investment dictates if the new product will “clear the 1st gate” and move to a development phase.?

Disruptive Ideation

A way to identify next generation products or even disruptive technologies is to first understand the genesis of innovation and ancillary enabling technologies.?For instance, smart phones emerged as a disruptive next generation product due to the advent of enabling technologies; projective capacitive touch screens as an intuitive user interface, Moore’s law applied to microchip miniaturization and the internet to provide connectivity, GPS and rapid access to information.?For the consumer, this integrated solution that resulted in a product that provided the convenience and combined functionality of a computer, camera and a phone in a single device with a touchscreen interface justified the greater expense.?Often, disruptive innovation requires “collecting and connecting the dots”; having ?the vision to see future possibilities of products and services, and how they will save time, money, as well as the enabling technologies to support this realization.?As shown in Figure 3, market drivers and advantages of disruptive innovation come from value creation, magnitude and speed of adoption, and the delta between current and ideal state.?True “Greenfield” product ideation requires a vision to see possibilities before widespread market demand is present.??As it takes time and money to build awareness of the innovation, building a business case to move new products into development relies on a structured data analysis and a robust vetting process to determine: “fit, feasibility and finances”.

Front End Analytics (VOC & SEO)????????????????????????????????

Commercially, the value innovation bring is ultimately measured by the end customer.?A broader “Fuzzy Front-End” innovation process centers on idea generation, acquiring customer data, social and technology trends; while using formal customer interviews is commonly used to collect and analyze new product design input.?It is important to apply the VOC to thoroughly assess the technical and business fit with the organization as an early NPD feasibility measure.?In addition to customer interviews, two ways to apply a more quantified front end process is to use SEO and Web Analytics to explore product concepts and systematically capture and assess data from prospects. ?“Collecting and Connecting the Dots” includes the who, what and why prospects search for your products or services.?It is often a non-sequential process because product concepts and value propositions, as well as market drivers are being identified, defined and modified as more data is being incorporated into the development process.??Driving demand for new products is another critical aspect of acceleration user adoption of new technologies.

Using key words centering on the potential product’s applications and attributes is way to determine the quantity and types of companies searching for a specific solution.?For instance, if a company is developing a new barrier coating for flexible packaging, using SEO key word phrases “barrier coatings” and “flexible packaging” in SEO can direct web traffic to general or specific landing pages.?Capturing, responding to, and qualifying discrete customer inquiries can provide “Crowd Sourced” VOC insights on the perceived value, budgetary pricing and time frame for product development.?These prospects, with a need for your products, can even serve as “early adopters” of your newly developed product.?Applying metrics such as total and unique website visitors, click throughs, leads, and lead conversions can be formatted into a New Business Pipeline with revenue metrics supporting the NPD business case.?Once launched, tracking quotes, wins and revenue for NPD within a marketing campaign informs the success and initial ROI of the product commercialization.

Accelerated NPD through Collaboration

Successful product development in any form requires that companies apply diligence in screening internal and external NPD opportunities and in progressing selected developments with the best chance of commercializing.?The screening and development process generally includes:?

·??????Well documented design input, voice of the customer (VOC)

·??????Strong, fact based business case; including target costs, sufficient addressable market

·??????Well defined product development plan, budget and workflow

·??????Solid execution and defined schedule of product development deliverables

·??????Product testing, validation and launch; marketing and sales execution

·??????Post launch “lessons learned”

·??????Innovation Metrics – NPD Pipeline, Products Launched, Revenue, Gross Margin/Costs

Within this context, NPD deliverables include the ability to meet (Gate) schedules, revenue generation and profitability from new products, markets, customers (per month, quarter, year) and commonly serve as Key Performance Indicators (KPI’s).

While Stage-Gate is a verified Market-Centric process to systematically develop, manage and measure new product development, other less formal development methods are commonly used.?Although less comprehensive, a Customer Centric Development (CCD) model is often a faster, cheaper, method of NPD because it provides several advantages including; 1) direct key customer input on product development including technical and material expertise; 2) development funding costs are shared; 3) marketing costs are reduced, because a successful development generally leads to immediate business with the key customer.?In a CCD model, the customer is directly involved in the new product development usually funding part of the development costs, testing early prototypes and becoming a commercial customer once the product is completed and available.?Figure 4 shows the schematic of a how and where Stage Gate and collaborative development processes differ.

In addition, collaboration between customer and vendor(s) leverages the strengths of multiple development teams and materials resources.?In its most successful form, a supply chain model can spread development costs over multiple organizations and result in stronger upstream and downstream channels for the final product as shown in Figure 5.?From a customer perspective, leveraging vendor technology as an extension of the company’s R & D process can accelerate speed to market and provide exclusivity.?The net result of customer centric development is that the product conceptualization and business case steps are combined because the technology developer immediately has a customer for the product.?The limitation of this type of development is that marketing to a wider group of customer may be restricted (as well as revenue generation) due to intellectual property rights.?

Collaborative Innovation & Supply Chain Partnerships

This supply chain network of customers, vendors and advisors working to solve mutual challenges, constitutes “Collaborative Innovation”, whereby expertise in areas such as materials, process knowledge and market access compress time frames and NPD spending through:?

·??????Shared R & D expenses and facilities

·??????Reduced material costs – using standard developed products vs. custom solutions

·??????Application of proven technology in new innovation initiatives

·??????Manufacturing efficiencies - running a new product in conjunction with an existing production

·??????Speed to Market

·??????Market Access

A collaborative innovation model leveraging NPD concepts, technology and manufacturing expertise of multiple companies, in contrast to a stage-gate, is usually more iterative, agile and less risky.??Within this context the following market dynamics can drive successful innovation by creating strategic partnerships and Multiple-Win scenarios including:

·??????Smaller companies tend to be closer to the market and collectively more innovative

·??????Large companies offer economies of scale in resources, manufacturing, materials and process technology?

In contrast to “Open Innovation” (where companies share ideas, data and technology), the collaborative model, provides exclusivity to those members of the supply chain funding the NPD.?Therefore, in order to foster trust and cooperation, partners within the supply chain should not be in direct competition.?Likewise, intellectual property (IP) ownership and protection is always a key consideration in any new development and must be part of the initial engagement conversation and contractually protected.?

The value in collaborative innovation is to mitigate risks such as material selection, testing and validation, capital investment in manufacturing assets and market access.?As a starting point, using established functional properties and test data for NPD, can accelerate both product validation, acceptance test plans (ATP’s) and manufacturing scale up.?Additionally, using proven processes and production assets for running new products (provided they are sufficiently similar), reduces manufacturing costs and compresses schedules.?Finally, product marketing and referrals in relation to NPD can occur both upstream and downstream in a supply/value chain.?

NPD Launches & Commercialization

Once a new product has been sufficiently tested and validated, the process of market introduction and scale up generally entails the following:

·??????Generating technical datasheets and safety datasheets – based on the validation test results

·??????Building website content for a digital marketing program

·??????Pricing and promotional strategy execution

·??????Building some sample materials?for early market testing and customer feedback

·??????Supply chain and manufacturing logistics to scale up production

·??????Post launch follow up to formally capture customer feedback for product enhancement

In commercializing products, different sets of resources are needed to develop, scale up and cost effectively bring the new product to market. ?While disruptive innovation may have high potential rewards, working collaboratively with suppliers can drive more favorable material costs and process efficiency.?Collaborative development may also include the developing party subcontracting the manufacturing process to another vendor and also supports downstream value added services such as testing/validation, converting and packaging products into market ready forms.??Especially when it brings greater efficiency, out-sourced manufacturing, can be a successful approach in bringing new products to market faster and even as a sustained business model.?????

Companies that excel at NPD and successful product launches build value and growth for existing and prospective customers.?Furthermore, accelerating the velocity of NPD without increasing the risks and costs, can be achieved through collaborative innovation and well executed supply chain partnerships.

Preliminarily, developers need to answer the following questions – are you attempting to develop a new version of an existing product or a novel new product.?What constitutes a new, disruptive innovation in your market??What are the time frame, cost and functionality objectives??Will outside resources be needed for materials, development or manufacturing? ??In the case of novel, proprietary NPD, the Stage-Gate route offers greater intellectual property protection, albeit typically a slower develop cycle.?If the organization has constrained development resources or outside sources are needed for funding, scale up and manufacturing, then, the CCD model may be more applicable.??

In designing for manufacturability and cost, it is important to assess the features necessary to develop a Minimally Viable Product (MVP).?The MVP contains the functionality needed to meet the basic requirements of early customers, contains costs, and allows for modification to add additional functionality with future versions.?By incorporating the voice of the customer earlier in the development process, significant time and cost avoidance can be realized.??Consequently, an iterative, lean NPD process can produce a wider innovation portfolio for companies and bring products to market more efficiently and rapidly.