I was listening to Clayton Christensen’s “The Innovator’s Solution” the other day and a statistic he mentioned in Chapter 3 stuck with me:
“More than 60 percent of all new-product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market.”
If you do the math, that is 76% of all new product development (NPD) efforts fail to make it to market or become profitable. This data is astounding. If 60% of NPD efforts are scuttled before they ever reach the market and 40% of those that do make it market fail to become profitable companies are wasting a lot of resources and effort.
Three out of every four NPD efforts is failing to provide any return on that investment and the first thing that it made me think about is a presentation I heard Craig Stull, the founder of Pragmatic Marketing gave where he suggested Product Management is about risk management.
Risk Management in Product Management
When I was an executive at GE one of the core pillars of the management philosophy they instilled in me was the concept of Risk Management. How do you mitigate risk through your strategies and decisions you make, and through that “maximize the realization of opportunities” (Wikipedia definition of Risk Management).
From a Risk Management point of view the challenge with NPD is:
- How do you maximize the percent of NPD efforts that make it to market;
- How do you maximize the percent of products that make it to market that become profitable; and
- How do you maximize the profits of these products?
Translating this to a Product Management lens the challenge is:
- How do you make sure you are putting the best opportunities in the new-product development process – those that have the optimized combination of market potential and best odds for success;
- How do you empower your product development organization to deliver the right product for the right market segments and personas; and
- How do you empower your marketing and sales organizations to maximize their ability to identify, qualify and close the right customers?
Doing these three things will increase the percent or opportunities that make it to market, increase the success rate of these opportunities in the market, and delivering increased customer value leading to maximizing the profits from these opportunities.
Opportunity Management at The Front End of Innovation
So how do we do this? We start with Opportunity Management, to ensure we are focusing our NPD efforts on the right opportunities
Sun Tzu has a great quote which I find relevant to Opportunity Management:
“The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.”
Simply, Product Management needs to do the “calculations” on the front-end of NPD to make sure NPD efforts are focused on the right opportunities. The opportunities that optimize market potential and odds for success. The opportunities that align with the company’s strategic focus – market segments, solution areas, differentiation, and strategic goals. The opportunities that create the most value for customers and the market.
How do you do this? Through an outside-in/market-driven approach to products and a transparent method for prioritizing which opportunities to focus on, which opportunities to pass on, and which in-flight opportunities and/or existing products is it time to sunset.
In my experience a phase-gate approach to the front-end is critical. Product Management needs to be in the market Discovering and building a backlog of opportunities – Ideas of where value could be delivered to the market; screening those Ideas to prioritize the opportunities to fully Understand and scope – truly understanding market segmentation, personas, pain points and the market’s appetite for a solution; and Validating product concepts while building a full Business Case – gaining insight from the market and prospective customers as to if your concepts for how you will deliver value to them align with their needs, wants and expectations.
Figure 1 – Phase-Gate Approach to the Front-End of New Product Development (NPD)
The Gates/Screens become the application of Risk Management. The Idea Screen at Gate 1 ensures that only the Opportunities that are best aligned with corporate strategy and with the best potential move forward. The Opportunity Screen at Gate 2 makes sure we truly understand the opportunity in the sense of market segments, personas, market problems, and potential value, and only move forward with those opportunities where the market is interested and ready. The Investment Screen at Gate 3 is where our final business case is made leveraging what we have learned through validation of product concepts in the market (wireframes, prototypes, analogs, etc.) and our investment/resource requirements to make sure we only allocate resources to the opportunities that have the highest chance of success and profitability.
Through this front-end of the NPD process, Product Management enables the organization to focus NPD resources on the right opportunities and in that maximize the realization of opportunities. Through this front-end of the NPD process – Product Management is Risk Management. In a future blog we will talk about how Product Management can also deliver Risk Management through how they empower the organization’s execution on opportunities – not only go after the right opportunities but build the right products, market these products to the right customers (market segment and persona) with the right message, and enable sales to align their process with how these customers want to buy.