It sounds like a simple question, but it is a bit more complex. And after you answer the question, the second question is how do you know if you should develop the new product. I like to make things as simple as possible. When I was developing a stage/gate process at AlliedSignal, I heard a phrase that really stuck with me. When evaluating a potential new product, ask the following three questions:
- Is it Real?
- Is it Worth it?
- Can we Win?
To answer the first question, Is it Real? you have to evaluate the two key components of a new product; a) is there a market driver, an unmet need, or a potential to disrupt the way something is done, and b) is there a technical solution or a way to satisfy the unmet need? I have found it is more efficient to go looking for the unmet need, or the market driver first. This is called technology pull. For example, there are many emerging new electronic packaging applications that have some tough material challenges. It is best to find the high value material challenges, then go develop the new product. In any case, you have to answer the question Is it Real?
The second question is whether the Return on Investment (ROI) will justify the spending on product development. To answer this question, you have to dig in and find out what are the material costs, the potential market pricing, and can you capture value. Highly formulated adhesives used in electronics have a high value proposition and nice margins since they are not commodities. The sale is not an adhesive, but reliability. Customers will pay for reliability, but not a commodity.
Early in the product development process, there is uncertainty in the market size, growth rate, and pricing, but you have to make some best estimates so you can make some preliminary calculations of the Net Present Value (NPV) or better, the Expected Commercial Value (ECV) which is a risk adjusted NPV calculation. The ECV takes into consideration the probability of technical success and the probability of commercial success. In any case, you have to develop some type of quantitative financial evaluation to answer to the question; Is it Worth it?
The last question is sometimes forgotten, but it is a critical question to ask. Can we Win? addresses the competitive landscape and most importantly the intellectual property (IP) landscape. The competitive landscape is usually pretty straightforward, but in rapidly growing applications or industries can be tricky. Prior to spending a lot of money and R&D resources, the IP landscape should be determined. You don’t want to get far into the development process only to find out that a patent, or series of patents exist that prevents you from practicing your new technology. Additionally, knowing the patent landscape can also allow you to navigate around existing patents and find an area where you have freedom to practice.
I had a potential client come to me to develop a new product and we started discussing where they were in answering the three questions. Things were going well until we got to #3. I knew from previous work that there were a lot of patents and a pretty crowded IP landscape for the product they wanted to develop. I told them the first thing to do was to map out the IP landscape so they would have an idea of what technical space was available for the new product They said they didn’t want to spend the money on IP landscaping, just help them develop the product. I said good-bye. There was probably a small area where they could carve out a new product with freedom to practice, but it would take some careful investigation. It would be a bad thing to charge ahead, spend a fair amount of money and R&D resources only to find a patent or series of patents blocking the commercialization path. Better to get your upfront homework done before you start a lot of heavy lifting.
In your polymer company, do you have a process to answer the three questions?
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