Strategic hierarchy is important to understand to grasp a bigger picture of how different strategies fit together. This module explains NPD strategy from a high-level to a low-level and depth in strategic creation is found through increasing depth of each level. The accompanying figure shows this visually.
Why does your company exist? What purpose does it serve? And, what area of the market does it occupy? These questions are fundamental to understanding your enterprise's direction and purpose for existing, and these inquiries need to be critically examined before a New Product Development (NPD) strategy can be formed. A mission statement should be a single sentence or two that explains what the company's purpose is for existing, as well as informing the reader of the statement about what your company offers to a market. The company's mission or purpose should also be related to its core values and it should be concise and instructive. When you create a mission statement, consider the following:
> What product does your company offer?
> What advantages does your company have over other similar companies?
> What does your company aim to achieve?
> Why does your company do what it does?
By thinking about these questions, you can start to think about what vision or mission you have for your company. This mission will act as a basis for more descriptive and planned new product development strategies that this will guide cover in more depth later on. Apple is a leading innovator in software and hardware products. Apple’s mission statement is “bringing the best user experience to its customers through its innovative hardware, software, and services.” This is a general, high-level statement that offers guidance and insight into what Apple sets out to do as a company.
Given the following mission statements for a hypothetical company ‘BetterBoxes’ that manufactures pizza boxes in New Zealand, evaluate the quality of the mission statements from ‘poor’, 'good ' and ‘great’.
At BetterBoxes, we sell recycled pizza boxes!
BetterBoxes offers a wide range of quality, recycled pizza boxes. BetterBoxes is committed to reducing cardboard waste by recycling pizza boxes. Our mission is to be the largest supplier of fully recycled pizza boxes in New Zealand.
BetterBoxes is committed to making New Zealand’s pizza boxes more sustainable and affordable.
Statement 1: Poor
This mission statement lacks purpose and does not provide much information to the reader.
Statement 2: Great
This mission offers clear goals by mentioning ‘fully recycled pizza boxes’. Moreover, it states the company's commitment to making a positive impact on sustainability without compromising quality.
Statement 3: Good
This mission statement offers more depth about the company's purpose, but does not offer any specific goals or targets.
Building on top of the company mission and purpose strategy, goals should set achievable targets that can help realise the mission statement set by the company. A company's goals should be set out to reflect the values and purpose of the company and the associated new product development endeavour. Let's consider our previous pizza box company that values sustainable packaging. They may have a mission statement that reflects some areas of sustainable packaging, such as “to be the largest supplier of recycled pizza boxes in New Zealand.” If this company wants to innovate on their current product line, it should have different goals or targets to aim for that will help set outcomes and desired results for an NPD project. Some goals of innovation may be:
> Improve the product quality
> Extend the product range to accommodate different market areas
> Reduce waste material in a manufacturing process
> Increase product sales and revenue
> Automate labour-intensive processes.
When it comes to setting goals for new product development, you need to consider how you can align your goals with your business strategy as well as the new product development task at hand. A goal that our theoretical pizza box company may have is “to extend our product line into fully-recycled pizza boxes”. This goal declares two things, the company aims to have a fully recycled product (business goal) that expands its current product range into a new market (innovation goal).
A business model canvas is a good resource for quickly and effectively highlighting and evaluating your business's core components and aspects. This is important to do before creating a strategic product development plan, as it acts as a foundation for setting direction against your enterprise's values and direction. It is recommended you fill out our example template found here:
> When performing this activity, some things to think about are:
>> What key resources does your business have?
>> Do you have any special equipment that allows you to make new technological developments?
> Start thinking about what the cost maybe if you need new resources for your new product development endeavour
> What are your core business revenue streams?
> How is revenue broken up between different areas of your organisation?
You can read more about business model canvas on the resources section of Innovate.org.nz
There are four areas of strategic focus that are important to consider before creating a powerful NPD attack strategy. These are:
Industry Analysis
> Are there opportunities within this industry to make money?
> Is your business or NPD idea novel?
Market Analysis
> Is the market saturated?
> Does your business have the required resources to bring a product to market?
Technical Capabilities
> Does your enterprise have R&D resources?
> Is new equipment required at all?
Product Feasibility
> Does the product have potential to preform well in the market?
Before exploring these, imagine you are hiking around some New Zealand backcountry. You find a split in a path where you could blindly choose a direction and adopt your strategy to traverse the complex terrain as you progress, or you could study a map to evaluate different environmental factors that can help you make an informed decision about the direction you want to take. One fork of our imaginary path is shown on a map as a complex, difficult terrain with lots of tree roots and steep hills, whereas another pathway is gentle incline. Now, you may be out hiking leisurely and a complex track is not an area of focus for you, or you may be looking for a challenge and a gentle incline will not help you improve your walking skills.
How one strategically approaches going on a hike in New Zealand by looking at the environment beforehand and evaluating different features and setting your focus accordingly is a powerful method that can be used to create strategic areas of focus for your NPD strategy. One technique that can be used to start analysing different market areas is to research the focus area based on certain metrics presented in Porter’s Five Forces. Porter’s Five Forces can be used to evaluate all four strategic focus area metrics and presents the following five metrics that act as a foundation for analysis of your focus area:
> Supplier Power (used for industry analysis)
> Buyer Power (used for industry analysis)
> Degree of Rivalry (used for market analysis)
> Barriers of Entry (used for technical and market analysis)
> Threats of Substitutes (used for market and product analysis)
More information can be found out about Porter’s Five Forces under the resources section of this website.
Of Porter’s Five Forces, match the subcategory and example to the appropriate parent category or ‘force’.
Apple Inc manufactures premium, long-lasting personal computers that perform to a high standard. However, the cost is significantly higher than other market and industry substitutes, where other players introduce cheaper options to market. Considering and managing this price-quality balance will ensure you are not restricting your potential market size or ability to grow within an industry.
In areas such as small production manufacturing with metals, there are plenty of local or national material suppliers who all compete to offer the best product at the most competitive price. In this scenario, a key resource is common amongst a range of suppliers thus preventing one or few from having significant power over a specific industry. Industries with widely available resources offered at competitive rates can help reduce the cost to manufacture a product.
Your company may offer buyers incentives to buy your product. These may be special pricing, product bundling, coupons, loyalty programs, birthday gifts, etc. These incentives help to build a brand identity, maintain strong company-buyer relationships and may help to keep buyers coming back to purchase more from your enterprise.
There is never just one player in a certain area, and overlap exists between companies and the product they sell. Competition is introduced when differences in product offerings exist, so finding a novel product or solutions can help your enterprise find a market edge.
Often, regulatory bodies will impose requirements or standards that products need to meet to ensure safety of new products being produced. This can be challenging for small enterprises due to time and cost and should be factored into decisions about setting any strategic focus for an NPD task.
Statement 1: Threat of Substitutes / Price-to-performance trade offs
Statement 2: Supplier Power / Supplier Concentration
Statement 3: Buyer Power / Buyers’ Incentives
Statement 4: Degree of Rivalry / Product Differences
Statement 5: Barriers to Entry / Government Policy
As discussed, every small to medium-sized enterprise in New Zealand will have a different structure, size, product offering, customer market, stakeholder requirements, business vision, goals and strategy. No one business is the same. All of these different factors play a role in successful innovation within a company, but the large number of variables makes studying each one a long and difficult process. These factors aside, if a business is doing the right product development, doing product development right, and finally measuring and evaluating these results to allow for continuous improvement, then the innovation strategies each business formulates may look different, but operate on a similar set of fundamental principles. Now we have considered values, mission and goals we can look at strategy for attacking a specific area of corporate focus.
Back to our hiking analogy, by performing strategic focus analysis, you have a map of your environment. Now, you need to assess your capabilities which will be different from the next person. Likewise, for a business, what capabilities you have will determine if your NPD strategic focus can be realised through attack and action.
Consider the following questions when you assess your capabilities against your desired strategic area of focus. As an enterprise…
> …can we take risks that will benefit us if successful, but recoverable if unsuccessful?
> …do we have the technical capabilities currently to perform NPD?
> …do we have IP protecting our product development efforts? If not, how important is being first to market when developing new-to-market or disruptive products?
With thousands of products being launched to markets each year, 95% of these fail. This statistic shows risk is evident in any new product development project, and strategic management to mitigate as much risk as possible can help drive product success. There are many strategies for assessing the risks of developing a new product. By evaluating the market and technology newness, you can develop a visual understanding of where your project sits in terms of risk and size of the project.
Consider the figure below. If too many projects fall into the high-risk category, then one can expect a much higher reward from the project if it is successful but at the cost of a higher chance of failure. When looking at your focus areas and new product development strategy, this tool can help you realise the risk associated with your attack or focus strategies. It is important to balance your projects well, but this will be discussed in more depth in later modules. The size of the bubble shows the largeness of the product, and based on the market and technical criteria, the NPD efforts can be relatively categorized to assess risk.
Given the scenarios 1 - 3, try and match them correctly in terms of risk and size on the risk bubble map diagram below. Use the image above as reference for what project needs to match what scenario.
BestBoxes want to make a minor improvement to their existing successful product line selling 50% recycled pizza boxes at a lower cost to their customers.
BestBoxes wants to expand into the market of fully recycled pizza boxes in New Zealand.Explanation: The technological capability can be inferred to be the same, but BestBoxes are looking to explore new markets that they have not sold in before.
BestBoxes want to increase their packaging offerings and manufacture fully recycled supermarket food packaging for frozen pizzas.
Scenario 1: The technology and market newness is very familiar to BestBoxes, and the risk associated with this project is low.
Scenario 2: BestBoxes are looking to moving into a new market. This is similar to what they have developed in the past, so the relative is higher than scenario 1, but lower than scenario 3.
Scenario 3: There is a lot of risk associated here, as BextBoxes are looking at new technological and market advancements.
In alliance with understanding what product you want to develop, and what strategies can be used to help with this process, your business should look at the surrounding innovation landscape, and how your NPD effort fits into this picture. NPD projects can fall into the following categories:
> Differentiated
> Low budget
> New Technology
> New to Market
Differentiated products have strong market focus and orientation, and these are quite complex products that tend to stand out within a market. Thinking about Porters Five Forces, this may be preferable as it adds values to your product that can help you compete against rivals or market threats. Low budget products tend to be copies of existing products and require low R&D costs. Although the development risks may the be lower, likely the market is more saturated and the chance of product failure would be higher. New technology products introduce complex products with minimal competition, but often require larger R&D budgets. Building off this, any new technology can be applied to different or new markets once the technology becomes more understand. This helps to sustain the growth and presence of a technology within a market, but not all markets will be suited for this technology. When creating an NPD strategy, consider these product segmentations and where your efforts fit best. By understanding these, you can help determine where your product falls and what sort of focus areas should be emphasized to ensure project success is met. Lastly, Intercellular Property or IP is another tool to help protect your enterprises trade secrets, new technology developments or 'market edge' where you offer a product that customers would greatly need. When conducting low budget NPD, IP may not be a problem, but for novel ideas and markets with large product gaps IP is encouraged to help maintain your competitive edge.
