Most organizations recognize that innovation is crucial for both the short-term and long-term success. We are acquainted with stories of familiar brands, like Kodak® and Sears falling into decline. And while business and change management played a role in the recent decline of the JCPenney’s brand, a lack of customer-oriented innovation is also to blame.
Innovation and new product development (NPD) serve as important business functions for strategic growth. R&D requires a long- term investment, as do market and technology development. Thus, we can say that NPD serves three primary purposes for the business:
- Value Creation,
- Value Extension, and
- Value Preservation.
Note that “value” here means the ability to deliver profit to the organization while simultaneously establishing market demand for products and services.
Most of us think of innovation in terms of value creation. By designing new-to-the-world products with new technologies, we can create market value. Such products meet the specific needs of a target customer who spends their money to acquire a convenience, a luxury, or a new way to solve a problem.
Consider some examples from your office that you probably use every day. These products create value for you through convenience. For instance, a combination webcam and microphone provide the ability to move about during a virtual meeting. You are not tethered by a USB cable to a headset and with a wide-angle camera, you can move a few feet to the left or to the right. This convenience allows you to stand or stretch during a virtual meeting, just as we used to do in real life.
Another convenient product that you might find in your office that adds value to your everyday routine is the software on your computer. We have the luxury of single click calendar scheduling in apps. This saves us the time and headaches of back-and-forth scheduling with others. It’s especially a time-saver to schedule meetings with large groups of stakeholders!
So, new products give us new value, especially through convenience and solving problems to eliminate wasted time, money, and energy. NPD also offers to extend the value of existing products and services. We often call these innovations “derivatives” since they are derived from a primary product. Many organizations spend the bulk of their R&D effort in value extension.
Value extension uses new technology to make the product better, faster, or cheaper. Making the product better allows the company to maintain strategic pricing and sustain revenue over the long–term. Making the product faster or cheaper (from the manufacturer’s viewpoint) goes directly to cost-savings and to the bottom line.
Google appears to have mastered value extension. A combination of products and product families has grown from a simple search engine. Accessing advertising, shared documents, and e-mail through a single log-on ID and password offers convenience but also offers more (a version of better, faster, cheaper). Features extend from desktop and laptop computers to mobile devices giving customers access to their accounts at all times, all places (value extension).
Finally, NPD helps to preserve product value over the long run. A typical product life cycle includes introduction of a new product, growth in market share, maturity with increased competition, and decline as the market reaches saturation and profits decrease. (Read about the product life cycle – PLC – here.) Innovation can revamp and revitalize a product or brand so that declining profits are reversed.
For example, many of us remember an advertising campaign from a few years ago for a very dull, everyday product: milk. The California Milk Processor Board successfully reversed declining sales and preserved product value by increasing product awareness.
Preserving value might be as simple as a new ad campaign to re-ignite interest in a product or service. On the other hand, technology improvements or new market applications may be needed to spark renewed customer interest in the product or brand. It is the job of a product manager to watch for market disruptions and trends, including timing for revamping a product or brand.
As a business owner, product innovation professional, or technologist, you have some simple take-aways to construct your own analysis of NPD functions. Follow these steps.
- Classify your new product portfolio according to the NPD function (value creation, value extension, or value preservation).
- Assess the value (revenue or cost-savings) of each product and category of products.
- Prioritize the projects and resources assigned to NPD efforts.
- Identify gaps between necessary resources need and assigned for the highest value-add projects.
- Reprioritize your new product portfolio according to available resources and strategic growth objectives.
Let me know if you want some guidance in assessing your NPD functions! A deeper dive into the knowledge base, such as NPD Processes (sponsored by PDMA and Global NP Solutions), can introduce you to some additional important concepts for successful innovation. Register here – the first session is 17 June 2021. Contact me at info at Simple-PDH.com to learn more about the functions for value in NPD.
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