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How Well Does Your Company Innovate and Bring New Products to Market?

by Doug Macdonald | SAPinsider

April 1, 2006

The traditional approach to new product development and innovation (NPDI) -- adding best-of-breed applications to an existing environment -- isolates workers, applications, and IT systems within functional silos. SAP’s capabilities within SAP xApps, which are built on the SAP NetWeaver platform, foster integration and flexible reconfiguration in the NPDI process.
 

Having optimized manufacturing and reduced supply chain costs, many CEOs are now turning to product innovation as a route to growth and profitability. Driven by customer demand and fueled by advances in technology, companies are bringing more and more new products to market. But many of these new products are destined for failure — in fact, new consumer product launches fail 75% of the time.1 What's more, competition is fierce and those innovative products that are successful can be quickly copied, meaning that any advantage may only be temporary.

Not surprisingly, recent studies show that companies that develop innovative new products to address well-defined opportunities and bring them to market at the right time, cost, and quality capture market share at the expense of their competitors.2 Market leaders assume that an idea or the technology for "the next big thing" already exists within their company. But having the idea is only the first step. Realizing the importance of the idea, investing in it, and bringing the resulting product to market effectively is where the real business advantage lies. In other words, the market-leading innovators have rebuilt their entire companies around the process of innovation.

In a perfect world, the process for bringing new products to market — new product development and introduction (NPDI) — would allow companies to respond quickly and effectively to market opportunities. NPDI starts as soon as a new opportunity is identified, and it is not complete until the product successfully reaches customers (see Figure 1). It embraces almost all functions in the company — and many of the company's external partners. And when closely managed, it ensures that both the needs of the customer and the business are met.

Figure 1

A Well-Managed NPDI Process Integrates Both Internal and External Stakeholders When Bringing New Products to Market

Still, despite all the benefits of a well-executed NPDI process, companies find widespread problems with NPDI. To overcome these NPDI obstacles and better support innovation, companies must invest in the IT infrastructure for NPDI.

This article will review the challenges that companies face when bringing new products to market and discuss how SAP is providing support for NPDI with tools that are integrated into the ERP backbone, ensuring the integrity of critical business data and providing the lowest TCO.

The Challenges of NPDI

Executing the NPDI process presents a number of challenges. New ways of working must be developed to facilitate better collaboration across different functional groups both within and outside the company walls, process ownership and metrics must be addressed, and management visibility and control must be improved. Recent studies by both Deloitte Research and AMR Research3 have confirmed a number of problems with the NPDI process:

  • Most companies manage NPDI from within functional silos with little or no overarching management of the entire process. The result is too many groups and individuals working in isolation, constructing their own view of the world. Compounding these issues is the way that IT support for the NPDI process tends to follow this functional approach: Each function in the company maintains its own IT systems for its part of the NPDI process and these systems rarely work well together.

  • There is only limited collaboration between both internal and external groups, with most work being handed off in a serial, "over-the-wall" fashion. Consequently, critical trade-offs between requirements, cost, performance, and time-to-market are not made properly, resulting in too many products that fail to delight the customer.

  • According to a recent report by Booz Allen Hamilton, "of all the core functions of most companies, innovation may be managed with the least consistency and discipline." 4 An astonishing 69% of management does not feel in control of the NPDI process, and more than half of executives feel that they did not get a good return on their investment in product innovation.5

  • "Ownership" of the NPDI process is also in doubt. According to AMR Research, fewer than 10% of companies surveyed had a C-level executive responsible for the NPDI process; more than 90% delegated this responsibility to the VP level or below. This lack of ownership at the senior level starkly contrasts the importance of innovation to a company's success.

What Are the Critical Attributes of the NPDI Process?

To quickly and effectively bring new products to market, companies must establish a new product development and introduction (NPDI) process that achieves:

Efficiency
The number of new products launched in the market continues to rise. In fact, the number of consumer products launched in the US increased over five-fold between 1980 and 1998.* In most cases, companies have to achieve an aggressive product-launch schedule with the same number or fewer employees — so efficient use of resources is critical.

Effectiveness
But efficiency is not enough. As product life cycles shorten, companies become increasingly dependent on new products to drive their top line. According to a Deloitte Research study, companies most dependent upon new products will soon be seeing 45% of revenues coming from this source.** Other studies show that many companies rely on their newer products to sustain profitability. The message here is that companies must increase the success rate of new products in order to sustain revenues and profits. And being successful means understanding customer needs — which is now the top concern for innovative companies — and ensuring that their products meet these needs.

Speed and Agility
Innovative companies understand the need for a fast response in order to capture the market before a competitor. They also understand the need to regularly validate customer needs during development and to change direction quickly if necessary.

* Federal Reserve Bank of Dallas Annual Report (1998).
** Deloitte Research Global Benchmarking Survey (2003).

How SAP Applications Help Companies Overcome These NPDI Challenges

The traditional approach to supporting NPDI is to add best-of-breed applications to an existing ERP environment. Many companies have taken this approach, adding specific capabilities for design or recipe management and, more recently, project and portfolio management. This approach is not without benefits, but they are limited. The resulting environment tends to enforce isolation, and the innovation process becomes rigid and fixed.

To help companies foster collaboration and improve the performance and responsiveness of their NPDI process, SAP provides a number of critical capabilities within SAP xApps and mySAP Business Suite applications. These capabilities are organized on three levels (see Figure 2).

Figure 2

Critical NPDI Capabilities

Innovation Management capabilities give management control over the innovation process by helping them align product innovation priorities with business strategy and manage the creation of new product proposals. Specific capabilities include idea management and integrated concept development, portfolio management and scenario modeling, and resource management. These functions allow companies to manage ideas, develop them into concepts, and select the most promising projects to pursue within the context of company strategy, portfolio balance, and resource constraints.

Project Management capabilities give management visibility into the innovation process and improve the management of the entire product development and introduction process, bringing products to market on time and within cost. Specific capabilities include project activity and phase review planning, resource management, and cost management. These capabilities help companies to plan and manage projects more effectively by providing access to resource availability, tracking the task completion status, and formalizing the phase review process.

Functional Execution capabilities help companies transform product concepts into fully defined products, integrate them into their supply chain and manufacturing activities, and execute the market launch. Specific capabilities include collaborative product development, recipe management, supplier selection, demand and supply network planning, prototype manufacture and ramp-up, sales configuration management, launch planning, and execution. These capabilities allow companies to efficiently execute all of the critical activities from concept through launch, maximizing collaboration in order to optimize the resulting product.

And knitting all of these functional layers together is an underlying technical infrastructure that integrates with a company's existing business processes.

SAP NetWeaver Provides an Integrated Infrastructure That Supports Innovation

SAP's support for NPDI is built on SAP NetWeaver, SAP's open integration and application platform, which lowers operating costs while allowing IT to leverage and sustain the value of existing infrastructure investments (see Figure 3).

Figure 3

The Architectural Platform for NPDI

SAP NetWeaver's portal technology, for example, allows users to access the applications they need to do their job. And innovative xApps such as SAP xApp Product Definition (SAP xPD) and SAP xApp Resource and Portfolio Management (SAP xRPM) deliver:

  • Idea, concept, portfolio, and strategic resource management capabilities

  • Phase review, project and resource management, product design, sourcing, supply chain, ERP, and market launch capabilities

  • Integration across mySAP Business Suite solutions, including mySAP ERP, mySAP SRM, mySAP SCM, mySAP PLM, and mySAP CRM

Unlike the traditional approach of adding best-of-breed applications to an existing ERP environment, a better approach to NPDI allows all capabilities to be provided by a service-oriented architecture that enables not only full integration, but flexible reconfiguration. Future developments for supporting NPDI will make use of SAP's Enterprise Services Architecture (ESA) to provide analytical data and a comprehensive NPDI dashboard to further improve management's visibility and control of the NPDI process.

SAP's ESA will also progressively transform the role of IT within the organization — from one focused on managing information to one providing process innovation. By taking advantage of and building on SAP-defined roles, events, and services, IT functions will be able to provide business process support that exactly aligns with the needs of the organization.

Case Studies: SAP Customers Propelling New Product Innovation

Many global companies operating across different industries are already reaping benefits from SAP's support for NPDI.

Kaeser Kompressoren, one of the world's leading suppliers of air compressors, understands that to keep growing it has to keep innovating. The company's challenge is to involve more and more of its globally dispersed 3,000 employees in the innovation process for all products and services. To add formal structure to the creative process without stifling innovation, the company decided to implement the SAP xApp Product Definition (SAP xPD) packaged composite application, which provides a front end to allow for rapidly culling ideas, creating concepts, maintaining a historical record of decisions, and improving team collaboration. SAP xPD also leverages SAP NetWeaver to integrate with other SAP and non-SAP systems the company has in house, including mySAP ERP, mySAP CRM, and mySAP PLM solutions. The result? Kaeser Kompressoren expects to bring more new products, features, and services to market on a monthly basis, and to reduce costs by speeding the idea-to-product launch process.

For Conair, one of America's leading suppliers of globally branded personal care and kitchen products, reducing the time-to-market for new products is an important goal. This will be enabled by improving collaboration across multiple global design centers and external manufacturers. In response, Conair has developed a consistent global process for managing product-development projects, supported by an integrated set of SAP systems customized for the needs of the business, including the NPDI front end for concept development, project management, and document management. Once fully implemented, Conair expects to reduce time-to-market for their new products, fueled by improved communication between their global innovation centers and a standardized workflow for NPDI that integrates end to end — from internal creative and development teams to external manufacturing vendors.

For additional case studies of customers that are taking advantage of SAP solutions for transforming their NPDI processes, please visit www.sap.com/solutions/npdi/customersuccess/index.epx.

Conclusion

The business age characterized by a relentless focus on execution is drawing to a close. Good execution, be it in manufacturing or supply chain, is still important, of course — but many aspects of it are commoditized and readily available, making market differentiation difficult. A new business era has begun, one that will be characterized by an increasingly sophisticated focus on the needs of the customer and the rapid development of products to meet these needs. Increasingly, the winning companies will be the ones that are most successful in harnessing the skills of knowledge workers and orchestrating and supporting the processes that result in great new products: not once, but time and again.

To learn more about SAP's support for the NPDI process, please visit www.sap.com/solutions/npdi. You can also garner product development best practices at www.pdma.org, the home page of the Product Development and Management Association, an independent, global advocate for product development and management professionals.


1 Kevin O'Marah, "Unmanaged R&D Spending Is the Leak That Shareholders Want Plugged," AMR Research (February 5, 2004).

2 "Mastering Innovation: Exploiting Ideas for Profitable Growth," Deloitte Research (March 2004).

3 "Mastering Innovation: Exploiting Ideas for Profitable Growth," Deloitte Research (March 2004); Kevin O'Marah, "Unmanaged R&D Spending Is the Leak That Shareholders Want Plugged," AMR Research (February 5, 2004).

4 "Money Isn't Everything," Booz Allen Hamilton Global Innovation 1000 (2005).

5 "Innovation 2005," Boston Consulting Group (2005).


Doug Macdonald is responsible for SAP's support for the new product development and introduction (NPDI) process, including strategy and coordination of go-to-market activities. During his career, he held a number of roles helping manufacturing companies invigorate their processes for bringing new products to market. These have included senior marketing and business development positions with PTC, Aspect Development, and Sherpa Corporation. Earlier in his career, he held positions with Coopers & Lybrand, Ford Motor Company, and Computervision. He is a frequent speaker at industry events, and he holds a BSc in Mechanical Engineering from Heriot-Watt University, Edinburgh.

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