was able to develop a new electrical control device in just two years, as opposed
to six years under its old system.■ Shorter product life cycles:When a new product is successful, rivals are quick to
copy it. Sony used to enjoy a three-year lead on its new products. Now Mat-
sushita will copy the product within six months, leaving hardly enough time for
Sony to recoup its investment.
Given these challenges, what can a company do to develop successful new products?
Cooper and Kleinschmidt found that the number-one success factor is a unique, su-
perior product. Products with a high product advantage succeed 98 percent of the
time, compared to products with a moderate advantage (58 percent success) or min-
imal advantage (18 percent success). Another key success factor is a well-defined prod-
uct concept prior to development. The company carefully defines and assesses the
target market, product requirements, and benefits before proceeding. Other success
factors are technological and marketing synergy, quality of execution in all stages, and
market attractiveness.^5
Madique and Zirger, in a study of successful product launches in the electronics
industry, found eight factors accounting for new-product success. New-product suc-
cess is greater the deeper the company’s understanding of customer needs, the higher
the performance-to-cost ratio, the earlier the product is introduced ahead of compe-
tition, the greater the expected contribution margin, the more spent on announcing
and launching the product, the greater the top management support, and the greater
the cross-functional teamwork.^6
New-product development is most effective when there is teamwork among R&D,
engineering, manufacturing, purchasing, marketing, and finance. The product idea
must be researched from a marketing point of view, and a specific cross-functional
team must guide the project throughout its development. Studies of Japanese com-
panies show that their new-product successes are due in large part to cross-functional
teamwork.
FFECTIVE ORGANIZATIONAL
ARRANGEMENTSTop management is ultimately accountable for the success of new products. New-
product development requires senior management to define business domains, prod-
uct categories, and specific criteria. For example, the Gould Corporation established
the following acceptance criteria:
■ The product can be introduced within five years.
■ The product has a market potential of at least $50 million and a 15 percent
growth rate.
■ The product would provide at least 30 percent return on sales and 40 percent on
investment.
■ The product would achieve technical or market leadership.
BUDGETING FOR NEW PRODUCT DEVELOPMENT
Senior management must decide how much to budget for new-product development.
R&D outcomes are so uncertain that it is difficult to use normal investment criteria.
Some companies solve this problem by financing as many projects as possible, hop-
ing to achieve a few winners. Other companies set their budget by applying a con-
ventional percentage of sales figures or by spending what the competition spends.
Still other companies decide how many successful new products they need and work
backward to estimate the required investment.
The U.S. company best known for its commitment to new-product research and
development is Minneapolis-based 3M Company:
Developing
New Market
Offerings^331E