New Products: Managing the Fuzzy Front End

by Robert G. Cooper

Introduction

The new product game is won or lost in its first five plays. Simply put, the front end of the new product process makes or breaks the new product project: Those activities which precede the Development phase - the up-front homework or fuzzy front end - are pivotal activities, strongly correlated with the eventual outcomes of projects. But firms typically devote very little time, money and effort to these early stages, which may account for the unacceptably high failure and kill rates in product development. These were some of the provocative findings of our studies of new product success factors.

High performing businesses in product development had three common denominators:

• a high quality new product process:

• a defined new product strategy; and

• sufficient new product resources;

according to our recent benchmarking study of 161 business units. Strategy is a well- known critical success factor: having a product innovation strategy for the business which ties product development to the business’s strategy and goals; which identifies arenas of focus for product development; which has a longer term thrust; and which is clearly enunciated to all in the business. Sufficient spending and resources is yet another familiar success factor: having the necessary people and R&D spending in place.

According to our investigation, however, process has the strongest impact on the business’s new product performance - specifically, having a high quality new product process with a proficient front end, and with certain key ingredients built in, was the number one driver of performance.

A High Quality New Product Process

A high quality new product process increased new product success rates by almost 40% and the meeting of profit objectives by 88%! Note that merely having a formal new product process had no impact whatsoever; it was the nature of the process - what ingredients were built in and the conscientious implementation of the process - that made all the difference. Many of these winning ingredients focused on the fuzzy front end of the process.

1. Successful businesses emphasize the up-front homework steps in the process - both market and technical assessments - before projects move into the Development phase.

Too many projects move from the idea stage right into Development with little or no assessment or up-front homework: a “ready, fire, aim” approach. The results are usually disastrous: inadequate up-front homework was a major failure reason. By contrast, solid up-front homework drove up new product success rates by 43 percentage points and was strongly correlated with performance. Projects which boasted solid up-front homework achieved 2.4 times the success rate and 2.2 times the market share as those with poor home work, according to our studies of hundreds of new product projects. More evidence: The benchmarking study revealed that homework is a key ingredient in a high quality new product process, and was significantly and positively correlated with the two performance dimensions, namely profitability as well as impact of the firm’s total new product efforts.

A paucity of homework seems to be the rule in product development, however. Indeed, the benchmarking study gauged the mean quality score on this ingredient to be a very mediocre 57.5 points out of 100. (Note: in the benchmarking study, firms rated their proficiencies on each of the performance drivers on a 0 to 100 point scale; here 100 was “excellent” and 0 meant “very poor”). Similarly, in the projects studies, quality of execution was rated (0-10) for each of 13 key tasks.

The results:

• quality of execution across homework or pre-development tasks was mediocre at best (quality ratings of 5.35 and 5.93 out of ten for the two projects studies); and

• successful teams undertook superior up-front home work (more time, money and effort; also better quality work) and executed the early-stage marketing actions much better than did failure teams.

Message: The fuzzy front end is perhaps the weakest facet of the entire new product process; yet it appears to decide success or failure. So build a detailed homework stage (or two) into your new product process - a home work phase which results in a business case based on facts rather than speculation. Insist that solid up-front homework be undertaken, and ensure that no significant project enters the Development stage missing this vital homework.

2. Sharp, early product definition, before Development work begins, is one result of strong up-front home work, and is another common denominator of successful businesses and projects.

A failure to define the product - its target market; the concept, benefits and positioning; and its requirements, features and specs - before Development begins is a major cause of both new product failure and serious delays in time-to-market. In spite of the fact that early product definition is consistently cited as a key to success, firms continue to perform poorly here: the benchmarking study revealed a modest mean score for the product definition step of 66.8 points out of 100 - hardly stellar performance. More importantly, this same study found that sharp, early product definition was significantly correlated with both the profitability and the impact of the firm’s total new product efforts. In a similar vein, the projects studies discovered a very strong impact of product definition on performance: sharp, early product definition enhanced project success rates by 59 percentage points. Such well-defined projects had 3.7 times the success rate and 1.6 times the market share as those which lacked definition; and product definition was significantly and strongly correlated with profit performance.

Message: Sharp, early product definition follows from solid homework (above). This definition includes:

• the target market;

• the product concept, benefits to be delivered, and positioning strategy; and

• the product’s requirements and high level specifications.

Make it a rule: no project enters Development without a product definition, agreed to by the project team, based on solid homework and facts, and signed off by senior management.

Sharp product definition is important for three reasons:

• First, it serves as one check that the homework is done - that the front end work is proficient. Try getting a sharp product definition, and signed off by both management and all project team members, without solid homework - it can’t be done!

• Second, product definition provides clear targets for the technical people on the project team. A major time waster uncovered in the projects study was changing product specs; lacking a solid definition of the product, the development team chased moving goal posts, which in turn meant lower success rates and longer times to market.

• Finally, a clearly defined product prior to the beginning of Development, signed off by management, means that there is functional alignment - that R&D, Marketing, Sales and Manufacturing all see the product and project the same way.

3. Successful businesses and projects emphasize a strong market orientation, and build in the voice of the customer throughout.

Successful business units, and teams which drive winning new product projects, pay special attention to the voice of the customer. New product projects which featured high quality marketing actions - preliminary and detailed market studies, customer tests, field trials and test markets, as well as launch - achieved more than double the success rate and 70% higher market shares than those projects with poor marketing actions. Further, a strong market orientation increased success rates by 38 percentage points and was strongly correlated with new product performance (projects study). In the bench- marking study, a new product process which emphasized the customer and marketplace via market studies, market research, concept tests, competitive analysis, customer field trials etc., was significantly correlated with profitability of the business unit’s total new product efforts.

A market orientation and customer focus was notice ably lacking in many firm’s new product projects. Marketing actions were among the most weakly executed in the entire new product process, according to our studies, especially those in the early stages or fuzzy front end. The mean quality-of-execution rating for marketing tasks was a dismal 5.61 out of ten in the chemical projects study and 6.22 out of ten for all industrial products. Further, building in the voice of the customer was rated a mediocre 61 points out of 100 in the benchmarking study.

Message: Spare no effort in building the customer or user into your new product process. This means right from the beginning of the process, namely ideation: seventy-five percent of all successful new products saw the new product idea come from the marketplace. So focus on the customer to identify needs and wants and to solicit new product ideas. Next, the customer must be an input into product design, and not just an after-the-fact check that the de sign is satisfactory. Where market research was done at all in the front end of projects, we observed that it tended to be mostly of two types:

• research to characterize the market - for example, to determine market size, growth and pricing; to define segments; and to assess the com petition; and

• concept testing - research which presented the proposed product concept to the user/customer, and gauged interest and purchase intent.

Both are valuable studies, and should be a key facet of the early stage activities in any project. But if these two are the only types of studies which you do, then your company is missing perhaps the most important market study of all: “the user needs-and- wants study”. The latter determines exactly what the ideal product should be in order to delight the customer. It fleshes out an idea into a winning product concept; and it is here where you amplify ordinary ideas and translate them into great product concepts.

The challenge is that this needs-and-wants study is perhaps the most difficult of all to do: it means face- to-face interviews and in-depth discussion with potential customers/users; moving beyond conversation and right into the customer’s use system (e.g., spend time in your customer’s operation; observe; don’t talk... listen; and immerse yourself); working with many customers and many people per customer; moving down the value chain to your customer’s customer; and using very knowledgeable people to undertake the research (for example, both a technical person and a marketing/sales person to con duct the interviewees together).

4. Successful businesses build in tough Go/Kill decision points in the process, where projects really do get killed.

Too many projects tend to get a life of their own! In the benchmarked companies, projects moved too far down the process without serious scrutiny: once a project began, there was very little chance that it would ever be killed - the process was more like a tunnel rather than a funnel. The lack of tough Go/Kill decision points meant: too many product failures; resources wasted on the wrong projects; and a lack of focus. The result was many marginal projects underway, while the truly meritorious projects were starved.

A new product process which features tough Go/Kill decisions is a critical but often missing success ingredient. Having tough Go/Kill decisions was strongly correlated with the profitability of new product efforts. Sadly, this ingredient - tough Go/Kill decision points - was the weakest ingredient of all process ingredients studied, with a score of 49.0 points of out 100 across all firms. The front end screens were noticeably weak: in one of the projects studies, for 88% of projects studied, the initial screen was judged as deficient; and 37% of projects did not even undergo a pre-Development business or financial analysis. Most of the critical Go/Kill evaluation points were characterized by serious weaknesses: decisions not made, little or no real prioritization, poor information inputs, no criteria for decisions, and inconsistent or capricious decision-making.

Message: A gating mechanism, featuring a series of rigorous Go/Kill decision points or “gates” throughout the process, is essential. The goal is to move from a tunneling process - where projects are rarely killed - to a funneling process - where mediocre projects are screened out at each gate, ideally in the earlier stages; and re sources are focused on the truly meritorious projects. The goal is an integrated portfolio management process featuring rigorous gates to scrutinize individual projects, and portfolio reviews to oversee the entire portfolio of projects.

4. The most profitable projects built in product superiority: a unique superior product, which delivered unique benefits and better value for the user.

Successful businesses focus on new products which are differentiated, offer unique benefits to customers, and are excellent value for money for customers. Surprisingly, many companies failed to address this one vital success ingredient in their new product processes. Yet, countless success/failure studies reveal this to be the overriding success factor: in our projects studies, such superior products had five times the success rate, over four times the market share, and four times the profitability as products lacking this ingredient.

Very few firms can point to specific facets of their new product processes which emphasize this success ingredient. Often “product superiority” or “sustainable competitive advantage gained via the product” are noticeably absent as project selection criteria. Rarely are steps deliberately built into the process that encourage the design and delivery of such superior products (indeed, quite the reverse is true: the preoccupation with cycle time reduction and the tendency to favor simple, inexpensive projects actually penalizes projects which lead to product superiority).

Product superiority - delivering differentiated products which promise unique benefits and superior value to customers - must be emphasized throughout the new product process, especially in the early stages. This can be done by using elements of product superiority as key screening criteria at Go/Kill gates, and also by demanding that certain actions be included in the process - actions such as user needs-and-wants studies, constant iterations with users during Development, and user preference tests - to ensure that product superiority becomes a goal of the project team.

What Top Performers Do

What should the fuzzy front end comprise? Here are some actions which successful businesses and project teams built into the early stages of a new product project in order to realize the five success factors out lined above:

1. Solid up-front homework means building in a “first cut” or preliminary investigation stage, involving:

• A preliminary market assessment: a quick scoping of the marketplace to assess market existence, probable market size, and expected product customers and users. Con duct to determine customer needs, wants and preferences; product performance requirements; and a definition of the customer’s wish list (described in item 3 above).

• value-in-use study assessment of the customer’s economics - what economic value the product will bring to the customer (this often involves an in-depth look at the customer’s use system, the current solution, and various cost drivers).

• competitive analysis a detailed look at competitors’ products, pricing, bases of competing, and performance (e.g., share and profitability).

• concept tests a testing of the proposed product (in concept or prototype form) to gauge interest, liking and purchase intent (and an estimate of expected sales); also price sensitivity.

2. Detailed technical assessment: a more thought out technical activity to prove technical feasibility, identify the likely technical solution, deal with technical risks, assess manufacturability (route, costs and probable capital requirements), and deal with safety, health, legal and regulatory issues. This usually involves some physical technical work, such as lab work, modeling, or the development of a crude working model or prototype.

3. Building the Business Case: this defines the business proposition and product, provides the justification for the project (the business rationale for the new product), and maps out the action plan through to Launch. Tasks here include detailed financial analysis and business risk assessment.

One Solution: Stage-Gate™ Processes

Numerous firms have implemented Stage-Gate™ processes in order to build best practices into their new product process, particularly in the earlier stages. A Stage-Gate process is simply a template or roadmap for driving new product projects from idea through to launch and beyond. It breaks the product innovation process into stages - typically five or six - with each stage comprising a set of parallel, cross-functional and prescribed activities.

Between stages are gates: these gates are quality control check points in the process; they open or close the door for projects to move to the next stage. Here senior management meets with the project team to decide on the merits of the project, and whether or not it should receive funding or resources for the next stage. Each gate has a pre-defined set of deliverables: the information that is required to make the Go/Kill decision to the next stage. Each gate also features a list of criteria, against which the project is scored in order to make the Go/Kill and prioritization decisions.

Sounds simple, but stage-gate processes are much more complex than the brief description above implies:

• Each stage specifies the required actions, including the details on how to do each task as well as various best practices. These stages thus prescribe the play-by-play game plan, which, if adhered to by the team and leader, maximizes chances for success.

• The gates make the process work: by specifying the deliverables or the desired results of each stage, they make expectations for project teams and leaders crystal clear. Gates mean tough Go! Kill and prioritization decisions based on solid criteria, so that the truly meritorious projects are funded, and the mediocre ones screened out.

Achieving a steady stream of successful new products and reducing times-to-market remain elusive goals. For results, look to the fuzzy front end of the process, for it is here where success and failure are often decided. Consider implementing a Stage-Gate new product process which builds the necessary up-front home work, as well as the other critical success factors out lined above, into your process by design, rather than by accident!

Dr. Robert G. Cooper is the Lawson Mardon Chair in Industrial Marketing & Technology Management at McMaster University. He is the author of several books and articles on new product development.