Chapter 3 Opportunity identification and selection

This chapter detail the first phase. The PIC and product portfolio management are presented. The PIC
the product team’s new product strategy, and it can be thought of as a foundation for new products
management that serves as a loose harness for the integration of all people and resources used in
generating new products.

The group of people who lead the development of a new product act as a company within a
company. The are led by a group leader, a team manager.

A new products strategy does several things for these people

- It charts the groups direction

- It tells the group its goals and objectives and provides some rules of the road

We first explore the inputs to this new products strategy—which we will later define as the product
innovation charter (PIC) — then we detail the PIC’s components and explore ways in which it can be
built.

New Product Strategy Inputs and Identifying Opportunities

Mission statement: guides the whole firm

Product platform planning

A product platform is defined as a set of systems and interfaces that form a common structure. It is
from this common structure that a family, or stream, of products can be developed efficiently.

- a product platform can be thought of as a basis for all individual product projects within a
family of products
- corporate strategy affects product platforms as well as individual product projects.
- Product platform strategy will affect all projects related to the common platform.
- It can be anything that can be shared by one or more product families. It can be as well
bottom-up as top-down, depending on how it is organized.
- A PIC (defined, in these cases, at the product project level) will contain corporate mandates
as well as product platform-level mandates
- Honda used the same engine and transaxle combination in several vehicles
- Companies make use of modularization, decomposing complex systems into subsystems or
modules. A car for example can be decomposed into its engine-transaxle combinations etc.
- Platforms can also be used to gain competitive advantage globally
o If customer needs are not different, one can sell a global product
o If they differ, resort to platform strategy. Provides benefit of standardization and
scale economies while allowing for adaptation to particular market needs.
o Firm can offer a glocal product: one platform but several product variants adapted
to local needs.
o The products should be tested in their respective markets and not home market.
- Planning for product platforms clearly is difficult work. Excellent cross- functional
communication and serious top management involvement and support are needed to
ensure everyone agrees on the platform’s architecture and how it is to be adapted to market
segment needs

Brand platforms can be strategically important and widely used. Often driven by the CEO. Brands
can serve as the launching pads for scores of products, all having in common the brand and any
strategies applying that brand. It can be all derivatives of one version. Kellogg’s used the company
name as a brand platform and extended the Special K brand to a whole range of diet-related
products

- The value of an established brand is called its brand equity

Category platform: can be product type or customer.

Opportunity identification
Throughout the fi rm people in the course of doing their jobs discover new opportunities. They come
from different sources:

- underutilized or new resources, mandates originating external to the fi rm (e.g., new

regulatory restrictions), or internal mandates (e.g., from new corporate leadership)

Many futurists advocate studying the emerging trends in society and deriving product opportunities
from them. There are six important and modern trends -> see 89 for examples

- Just-in-time life: people like making spur-of-the-moment decisions based on real-time

information.
- Sensing consumers: People can sense their environment better now than ever before; what
is too much information for others essential information.
- The transparent self: there is more information available on consumers than ever before.
- In search of enoughness: Consumers are increasingly adopting simpler lifestyles marked by
fewer material possessions and an increasing concern about quality of life.
- Virtual made real: more people are accustomed to virtual spaces, the boundary between
real and virtual world become blurred.
- Co-creation: due to the increase in e-commerce and online communities; it is easier for
customers to communicate with each other, cooperate and share information.

Noncorporate strategic planning

Although the major thrust of strategic planning comes from the top down (i.e., corporate and
platform strategy development), much of it also comes from the heads of the functions ( silos or
chimneys) in the fi rm—marketing, technical, manufacturing etc. Such groups frequently have the
power to affect new product work.

Product-market matrix: Show variations in innovativeness

risk as a firm brings in new product types or technologies
or market products that require changes in how people
buy or use them.

It shows a variation on the traditional product-market

matrix. The cells show variations in innovativeness risk as
a fi rm brings in new product types or technologies
(operating mode change, across the top) or markets
products that require changes in how people buy or use
them (use mode down the left side).

Miscellaneous sources
In contrast to the corporate-platform downward pressure approach and the horizontal functional
pressure approach, some inputs can start at the lower level of activity and influence upward, as
when a new product is so successful it drives corporate strategy to change. Sometimes, a slow and
gradual restructuring of business practice can influence new product strategies almost without
anyone realizing it.

The product innovation charter

the PIC is a document prepared by senior management designed to provide guidance to the business
units on the role of innovation

- Number of inputs( corporate mission, platform planning, strategic fit, and so on) that are
potentially used in the development of a company’s new product strategy
- The term PIC reminds us that the strategy is for products , not processes and other
activities, it is for innovation , and it is indeed a charter (a document that gives the
conditions under which an organization will operate).
- The PIC can be thought of as a kind of mission statement, but applied at a more micro level
within the fi rm and adapted to new product activities
- The more specific the corporate mission is presented in the PIC, and the more clearly senior
management’s strategic directions are spelled out, the better the performance of new
products developed by the fi rm

Pic starts at the back ground: Key ideas from the situation analysis; special forces such as
managerial dicta; reasons for preparing a new PIC at this time  focus: At least one clear technology
dimension and one clear market dimension. They match and have good potential.  Goals-
objectives: what the project will accomplish either short-term as objectives or longer-term as goals.
Evaluation measurements  Guidelines: Any “rules of the road,” requirements imposed by the
situation or by upper management. Innovativeness, order of market entry, time/quality/cost,
miscellaneous.

Strategy statements tend to build around the structure above. They can be for

- An entire firm (if very small and narrowly conceived)

- Standing platform of activity within a larger firm
- Specific project

A PIC generally speaks to an opportunity (the focus), not to the specific product or products the
group is yet to create.

Why have a PIC?

Without a strategy, it is easy to lose focus and to spend time and resources chasing the wrong
opportunities. The PIC provides the direction, or directions, the team should concentrate on in new
product development—in other words, it defines what sandbox the team is in, or wants to be in, and
also where it does not want to be.

- Strategy’s purpose is to focus and integrate team effort and to permit delegation
- Lacking a focused and integrated effort, new products teams are likely to face the related
problems of scope creep and unstable product specifications
o Scope creep refers to the constant changing of a project’s definition
o Unstable product specifications refer to the product requirements or desired
performance level changing as the product goes through the development phase
- Both of these problems occur if the “sandbox” is not defined, or only poorly or vaguely
defined.
- A clear-cut PIC, designed to over-arch the entire new products process, helps to minimize
these costly and time- consuming problems
 - A good process fosters high levels of commitment from the participants, consensus on goals
and objectives, and agreement on the ways the goals will be achieved.

The sections of the PIC

The PIC is a plan for the fi rm’s initiatives in new product development. It provides clarification of
goals and a common language for all personnel involved in new products.

- The roles of all participants throughout the new products process are clearly specified
- An effective PIC communicates to the product team members exactly how their efforts fi t
into the big corporate picture
- Background section of the Pic
o answers the question: “Why did we develop this strategy, anyway?”
- The Arena (Area of Focus) Section of the PIC
o Focus is generally achieved by the use of four types of strengths or leverage
capabilities
 technology, product experience, customer franchise and end-use experience
o Licensing or acquisition to acquire technologies or market strengths are also fair
game for inclusion in strategies
o Dual drive strategy: exploring technology and market drivers separately, then see
their value when taken in combination
o Technology drivers
 The most common technological strengths are in the laboratories.
 Many times, a firm finds it has a valuable non-laboratory technology.
 For a fi rm with superior technical skills, applying the dual-drive idea means
turning technical specifications into product features that satisfy market
needs.
 T-P-M linkage: procedure of converting technical specifications to product
features and benefits to market needs.
o Market drivers
 The other half of the dual-drive strategy also comes from two market
sources: customer group and end-use .
 Coproducer: customer is involved as an integrated partner in the new
product development process
 Mass-customization: all customers are offered a product of their individual
choice
 A variation on market drivers is the distributor —when a producer develops
new products to meet the needs of, or capitalize on the franchise of,
resellers.
o Combination: dual-drive
 putting one technical driver together with a market driver yields a clear and
precise arena focus

Goals and objectives section of the PIC

- Goals are longer-range general directions of movement, whereas objectives are short-term,
specific measures of accomplishment. Thus a PIC may aim for market dominance (as a goal)
and 25 percent market share the first year (as an objective)
- Both goals and objectives are of three types:
o profit, stated in one or more of the many ways profit can be stated;
 o growth, usually controlled, though occasionally a charter is used defensively to help
the fi rm hold or retard a declining trend; and
o market status, usually increased market share.

Special guidelines section of the PIC

- Degree of innovativeness: How innovative does a management want a particular group to

be? The options range from first-to-market (whether a synthetic fiber or a Frisbee) to strict
imitation.
o First to market is a risky strategy (pioneering) 3 ways to get it
 The first is state-of-art breakthroughs, most first-to-market products do not
extend the state of the art, instead they tweak technology in a new way
 The second way, is called leveraged creativity. Finding special properties
and thinking of creative applications to arrive to new products
 The third way is applications engineering where the technology may not be
changed, but has a total new use.
o Far more common than pioneering is the strategy of developing an adaptive
product. which means taking your own or product from the competition and
improve it in some way
o Others follow what is called second but best; the improvement is to be major, and
the follower intends to take over the market, if possible
o The third level of innovativeness is imitation, or emulation
 Imitation has its risks, too: A fi rm cannot wait too long to enter the market,
by which time the earliest fi rms to enter have well-established, loyal
customer bases and ties to the supply networks and distribution channels
- Timing
o This category of guidelines variation has four options: first, quick second, slower,
and late.
 The decision to be first is pioneering
 Quick second tries to capture a good second-share position, perhaps making
no significant improvement, or just enough to promote
 Quick second is a very demanding strategy, because such firm has to
make the decision to enter the market before the innovator has
success or even has to come to market
 Striving for a slower entry is safer in the sense that a fi rm knows the
outcome of the pioneer’s efforts and has time to make a more meaningful
adaptation
 late entry, is usually a price entry keyed to manufacturing skills.
- Miscellaneous guidelines
A miscellaneous guideline is product integrity, meaning that all aspects of the products are
internally consistent.

How to Prepare a Product Innovation Charter

The process for developing a PIC lies in its contents.

- First, we are always looking for opportunities, inside the fi rm or outside it. Each strategy
can be traced to a strength of the company involved.
- Second , we have to evaluate, rate, and rank them
 - Third , we simply begin fillling out the PIC form—focus, goals, and guidelines. Usually there is
no shortage of suggestions for all the sections—not unlike any marketing situation analysis
- To get through these disputes and arrive at a mutually agreeable PIC, a fi rm needs to do an
honest assessment of itself, its goals, its strengths, its customers, and so on
- See 102 for PIC development example

Product Portfolio Analysis: The New Product’s Strategic Fit

Now that a new products manager has written a PIC, is that it? Not at all. Upper management must
approve it

- the newly chartered product must fi t as part of the fi rm’s overall business strategy.
- It should provide an appropriate balance to other products already being offered before any
scarce financial resources are allocated to it.
- virtually all fi rms consider financial criteria when selecting which products to add to their
portfolio. But the best-performing fi rms also include strategic criteria in their evaluations
- Strategic evaluation: some common strategic criteria
o Strategic goals (defending current base of products versus extending the base).
o Project types (balancing fundamental research, process improvements, and
maintenance projects).
o Short-term versus long-term projects.
o High-risk versus low-risk projects.
o Market familiarity (existing markets, extensions of current ones, or totally new
ones).
o Technology familiarity (existing platforms, extensions of current ones, or totally new
ones).
o Geographical markets (balancing sales or profits in North America, Europe, and
Asia).
- Whatever criteria are used, the objectives of developing the product portfolio remain the
same
o Strategic alignment: most importantly, the portfolio ensures that the mix of
products reflects the PIC. Any new projects should be “on strategy” (they support
the fi rm’s innovation strategy and/or are critical to the strategy).
o Assessing portfolio value: projects should be selected so that the commercial value
of products in the pipeline is maximized. NPV or ROI can be used
o Project balance: the portfolio should make it easy to select projects that
complement the existing product line
o Number of projects: one must also consider the number of products in the pipeline,
as resource commitments to too many projects inevitably leads to underfunding and
gridlock. Resources required by the portfolio should be in balance with the amount
of resources available.
- Number of ways in which product portfolio analysis can be graphed. One way is a table with
product and market newness (105).
- The second way is a diagram in which the extent of product change vs the extent of process
change are set up. (106)
- Third way is a portfolio evaluation model proposed by the strategic decision group. This
method uses expected commercial value (or ECV, measured as the net present value of the
future earnings stream) and probability of technical success.
Four categories emerge

o Oysters and pearls are projects with high

ECV.
o Pearls are projected to have high technical
success as well and are therefore highly
desirable
o Oysters are currently assessed to have a
lower likelihood of technical success but
potentially are highly profitable; with
additional investment, the fi rm can
“cultivate” some of these into Pearls.
o The Bread and Butter projects are low risk but low ECV, and typically include
incrementally new projects such as extensions and product modifications.
o White Elephants have low ECV and low probability of success and should be avoided
- This portfolio model stresses balance between the three desirable categories
- As with other portfolio models, the Strategic Decision Group model alerts the fi rm if it is
investing too heavily in incremental Bread and Butter projects, or if it has taken on too many
risky Oyster projects.
- Finally, a multiple-objective strategic portfolio model