Everyone knows that new products are the lifeblood of growing companies. Most people associate innovation with new products which for the most part is correct. There are also process innovations and business model innovation, but in the next series of posts, we will focus on new product innovation. The question is, how do you figure out what new products to develop? Most companies have many new product concepts they are considering at any given time. Some will be a huge success and many will be duds. So what is the process to separate the “hits versus the misses.” Fortunately, there are many new product portfolio analysis tools to guide your selection process.
First, let’s talk about what is a New Product Portfolio Analysis? Portfolio analysis is a systematic process to evaluate multiple projects against established metrics (typically specific to the company or business) and compare with the resources available for product development. One thing is constant in any company, from huge corporate giants to small start-ups, there are only a finite amount of resources available for new product development. This could be hundreds at a Dow or DuPont, or 2-3 at a small start-up, but nonetheless, every company has a resource constraint.
Let’s look at an overview of the portfolio analysis process:
- Starts with understanding the business strategy. All new products need to fit the company strategy.
- Identify the new product concepts that achieve the best return on investment
- Identify the risks and rewards
- rewards can be financial (increased margins, increased market share, etc.) or improved reputation (Apple is widely considered as a very innovative company)
- Determine the resources required
- technical
- commercial
- manufacturing
- Use a scoring or ranking process to identify the best projects
- Develop the product development path forward
At a high level this sounds pretty simple, but in practice this is hard work.
Successful new product development starts with strategy. Companies need to be very clear on how they want to grow. Do they want to be known for product innovation such as Apple, Google, and Samsung or low cost transactions and easy to do business with such as Amazon. Another consideration for product innovators is do you want to be known for breakthrough innovations or be a fast follower. Apple is a great example of a fast follower; it didn’t invent the mp3 player or the cell phone, but developed the iPod and the iPhone to exceed customers expectations in ease of use. One might ague that iTunes was a breakthrough in terms of making music downloads super easy, but there were many music sharing sites around the time of the iTunes rollout. In the next post we will discuss more on new product development strategy.
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