Follow These Product Development “Rules”

Abstract

Company shareholders demand business growth that delivers increasing returns on their investment, in absolute terms. There are three initial routes can take to achieve that objective: * Reducing costs and increasing sales volume. * Expanding markets. * Making acquisitions. These strategies will deliver growth for some period of time but ultimately they come to a natural end. After all, you can only reduce costs . . . increase sales . . . expand geographically . . . acquire other companies . . . until at some point there is no more there, as a practical matter. On the other hand, new product development can serve as an infinite wellspring of profitable business growth. Genuine new product development is more than incremental improvements and additions to current product lines (which is a way of life, continually, routinely accomplished by all simply to sustain their current business). New product development, rightfully, means the development of innovative products that command higher margins. Successful new products must be right for the company's capabilities and right for the market's needs-a double win! But that can be difficult. When the company is a business unit of a family of companies, that can be doubly difficult. Growth By Acquisition Most large multi-divisional corporations have reached their present size by acquisition-some by acquiring a proliferation of diverse companies that make products bearing no apparent relationship to one another (e.g., Ingersoll-Rand, ITW, Tyco), and some by acquiring a portfolio of companies supplying products that possess some commonality. For example: * For Masco, it is plumbing. * ACCO Brands-office products * Avery-Dennison-paper-related products . . . and it's good if they're sticky. * Newell-Rubbermaid-home or office thermoplastic accessories. Left to their own devices, most multi-divisional corporations (in my experience) rarely develop a genuinely new product, that is, an addition to their product offerings that is simply an incremental variation to their current line. In too many instances, ROI seems to stand for Rejection of Innovation! There is tremendous pressure these days on top in U.S. corporations to manage by the bottom line-to perform well as measured by return-oninvestment over the short-term, immediate-past period. That pressure is applied to corporate executives by the tyranny of the stock market; the pressure is applied in turn by those executives on their own division managers. The reasons for this short-term orientation are well-known: financially-trained managers at the top . . . intolerance of error and even temporary setbacks . . . impatience with slow-growth new products (those that take a while to hit their stride and begin contributing to profits) . . . relatively short tenure in a given job, particularly for fast-track executives . . . and the necessity for top managers of multi-divisional corporations to rely heavily on financial controls and management by exception. For instance, I once met with the chief executive of a large manufacturer of corks for wine bottles, and we got to talking about the effect of productivity on profits. He reported that he had just authorized the expansion of their production capacity (to keep up with the growing demand for the product), by constructing an additional facility at a different location, with exactly the identical plant layout, machinery and equipment as their original factory. I asked the executive: Oh, I assume that was probably to ensure consistent quality and give you logistical flexibility? No, he replied, not really. I wanted to compare the performance of the two general managers, directly against each other, no excuses, everything else the same! Do you believe that either of these managers would venture to develop a new product? …