Over the past couple of weeks, the Idea Incubator has gone back to the basics. We have covered the four fundamental stages of management and revisited the project management process groups. Basic management skills help to ensure successful new product development (NPD) through best practices in implementing projects. It never hurts to review the fundamentals – this is, of course, why elite athletes work on their basic skills far more than their competitions.
While basic management skills (such as planning, organizing, leading, and controlling) are necessary for innovation success, they are not sufficient. Likewise, project management skills (initiating, planning, executing, monitoring and controlling, and closing) are required to successfully implement a new product development project, though these capabilities are not fully complete to create repeatable innovation success.
The key to innovation success is a well-considered, thoroughly vetted strategy. Without a complete innovation strategy, no new product development program can be successful over the long-term. Management tools assist us in building accomplishments, but strategy drives innovation success.
What is Innovation Strategy?
Innovation strategy incorporates the company’s mission, vision, and values. Strategy is defined as a methodology that intends to bring about organizational change to realize a specific future state for the firm. Innovation strategy is how the organization positions its new products, technologies, and services yielding profit for the firm.
Strategy is used to guide all of the activities of a firm regarding new product development and innovation. These activities may range in scale and scope from incremental improvements to new-to-the-world products and technologies. Decisions regarding investment and staffing are guided by strategic plans and should be aligned with short-, medium-, and long-term goals of the firm.
For example, a strategy may be to grow the international component of a business by 25% over the next three (3) years. Proctor and Gamble pursued an innovation strategy to increase the number of open innovation ideas to 50%. A large oil and gas company has a strategy to divest of service stations and focus insteadon drilling and refining operations. In all cases, the business strategy reflects senior management’s perception of future trends in which the company can grow profitably and deliver value to its shareholders.
Within the field of new product development, innovation strategy is normally implemented through tactical and operational decisions. Senior management utilizes portfolio management to select active NPD projects and mid-level managers advance individual NPD projects through the structured NPD process.
Portfolio Management
Portfolio management is a dynamic project selection methodology in which senior management evaluates and compares all named NPD projects to select the most valuable projects to include in the active portfolio. In this case, value may not be solely isolated to a dollar amount. Value may indicate penetration of markets, technologies, and products that support the strategy, but do not necessarily deliver a substantial or immediate profit.
The purpose of portfolio management is to ensure alignment with the strategic goals of the firm. Senior management is responsible for the decisions at a portfolio review meeting as well as the allocation of resources to support the active new product development projects. For instance, a firm that is seeking a high percentage of outside ideas, such as P&G, should ensure that funding for open innovation efforts supports this goal.
In addition, senior management will set the tone for the organization’s culture to accept external ideas and inventions. Culture is manifested in a variety of ways, including active project selection and resource assignments. With a goal of significant open innovation contributions, senior management would need to
ensure that these projects are selected in the active portfolio and supported by appropriate human resources.
Portfolio management can drive organizational culture through project selection and funding mechanisms. Senior management should honestly evaluate all acceptable ideas and do so on a consistent basis. Projects in the portfolio should be compared for the value-added to the firm, including elements of strategic alignment of open innovation and maximizing resource capability. Projects that are not aligned with the strategic plan should be removed from the portfolio to ensure adequate resourcing of active projects, yet the individual parties responsible for generating new ideas should be recognized for their contributions.
Beginning with portfolio management, senior management can ensure that tactical plans are in place to implement the strategy. NPD projects in the portfolio will range from short-term applications or incremental improvements to longer range research and technology development activities. The balance of these projects can ensure the strategy is implemented as designed. At the operational level, senior management will typically delegate decision-making authority to mid-level managers at NPD gate reviews within the structured NPD process.
Structured NPD Process
Commonly called a “stage-gate system,” the structured NPD process involves progressive elaboration of an individual project throughout its life cycle. Work on the new product is done during stages and future investment decisions are made at gates. In order to pass the gate and advance to the next stage, a project must be supported by an appropriate project plan, resources, and be aligned with the innovation strategy.
Operationally, then, gate decisions are usually delegated to mid-level managers. The key factor in decision-making authority for NPD projects is the approval limit for the next stage of work. A gate meeting will normally consist of a review of product development work in the prior stage, validation of continued customer interest in the new product, and an approval of the resourcing required to advance the project to the next stage. A mandatory requirement for project progression to the next stage is strategic alignment.
Because individual projects are reviewed in detail at gate meetings, the level of detail is considered operational in implementing the overall business and innovation strategies. While a strategic plan may indicate the firm’s desire to grow internationally and tactical portfolio management selects innovation projects with global markets, the operational reviews of individual NPD projects will validate 15% penetration in emerging markets such as India and Brazil, for instance.
Driving Innovation through Strategy
Strategy sets the overall goals and objectives for a business. Innovation strategy specifically guides research, marketing, and new product development activities at a high level. Portfolio management is a tactical methodology to implement the innovation strategy by selecting the projects of highest value to include in the active NPD portfolio. Meanwhile, these individual projects are managed at an operational level, ensuring strategic alignment through the structured NPD process.
To learn more about innovation strategy, portfolio management, and the structured NPD process, please contact Global NP Solutions at info@globalnpsolutions.com or by phone at 281-280-8717. All of these topics are covered in detail in the new product development professional (NPDP) training. Please join us for an NPDP workshop addressing best practices for successful innovation. NPDP workshops are held monthly through guided webinars or at your own pace in a cost-effective self-study format.
© 2015 Global NP Solutions, LLC
Your Strategic Training Partner for NPDP Certification and Project Management Training