There is a variety of different views on our product failure rates. According to some, the failure rate for new products launched for instance in the grocery sector is 70 to 80 percent in the US. For smaller US food businesses launching new products, the success rate is even lower around 11 percent. These are really high failure rates but is this a myth or reality? How does your organization evaluate product failures? Do you really want to talk about them?
Organizations continue to push for business growth by launching wave upon wave of new products, yet many end up as just hardly ripples. We seem to have this npd ‘bug’ of wanting to constantly innovate, it is required, expected and keeps our organization’s teams of developers and marketing groups gainfully employed. Yet we continue to have poor product rates of return. Why?
Researching new product failure is fairly hard to cut through fact and fiction
Recently I was asked to research into these failure rates, the part of the broader question was interesting, in trying to understand this continually high failure rate, as it is claimed we have advanced significantly with our innovation understanding, structures and research techniques to understand market and customer needs, yet we still have, it seems, the same ongoing failure rates. Why?
Firstly getting at definitive failure rates really can be one of those “it depends” reply. Not just which industry you are in but which market, which segment within the market, what are you trying to do, what are you trying to build, defend or advance etc., etc.. It gets incredibly complex to give a baseline to failure; apart from it does seem unacceptably high.
Four strands of insight seem to reflect some measurement ‘sense’ on failure
Firstly, I liked one view here provided through the PDMA: “often new product ideas are not developed and the majority of new products never make it to market. Consider these two interesting statistics: 1) New products have a failure rate of 25 percent to 45 percent; and 2) For every seven new product ideas, about four enter development, one and a half are launched, and only one succeeds”.
Secondly according to Booz & Company they report that 66 percent of new products fail within two years.
Thirdly, the Doblin Group reckons a startling 96 percent of all innovations fail to return their cost of capital.
Fourthly, this makes product development very sobering. Few product introductions, for instance, within the food and beverage categories, are blockbusters. Companies in mature industries often must find another way to make a splash. Only 1% of new product launches reached $100 million or more in sales revenues in their first year (Bain & Co in a report back in 2008). I doubt it has got any easier, most probably a lot harder since then!
Each of these failure rates speaks to me
Each of these four metrics has given a clear qualification to failure rates. Failure is qualified and framed.
Yet it grows in my mind so often our failure rates are not to do with the market or customer acceptance but the very poor ways we conduct new product development within many of our organizations. How we manage innovation internally can contribute to market success or failure.
Much of our failure might lie with us, not the market
We seem to have five really big internal failure points, let me call this the internal “magic five” that have hidden within them the common problems that might be stopping organizations improving their internal npd rates.1. Innovation Execution
The high level of products that miss launch dates is often due to a lack of dedicated time and resources assigned to execution. It simply leaves the product at the factory gate, not having the dedicated focus and gaining the attention it needs in the market place. You hit the rocky road of execution as Innovation execution is not a smooth process, it is full of surprises, Innovation is serendipitous, full of fortunate discoveries, often you stumble across something that takes it further forward and these need dedicated attention.
How often does your innovation execution lacks momentum, as suddenly all that necessary energy dissipates and falls away, what started as a bang ended with a whimper as resources get pulled due to the mistake that “job done” was when the product rolled off the production line. You really need to have as much leadership and attention immersed in the deployment zone of execution but we often fail to recognize this.2. Too Few Good Impactful Ideas
How many times have you got caught up in that ongoing debate on ideas, the quest for many required by a (stupid) metric, clashing with top managers who need to find and fund those higher-value projects that have real value impact. The hyping up in tensions this can have internally, staking the future on some personal bets, padding out others to meet yet another metric, of products launched in the year.
Also some organizations get caught up in that underlying ‘push’ to introduce increasingly more incremental products to offset under-performance. The lack of clear criteria on what will be supported and why, or those that work the idea so as to ‘massage’ the numbers up to get it into the next stage of the pipeline. Idea Management needs clear, concise governance and well thought-through metrics to deliver against and that is NOT ideas, for ideas sake!
3. Lack of Alignment
The alignment of product innovations to areas of strategic focus is one issue but then even if they are aligned, the organization fails to allocate and connect the need to make the appropriate resource allocation to deliver. This gap of alignment between strategy and product development activity is one of the real gaps as they are internally driven and not customer alignment driven.
To get closer to achieving alignment of strategic need and our innovation outcomes, we need an overarching strategic design, to reduce the ‘disconnects’. Innovation needs constant alignment. One essential need is to provide a well-designed strategic plan that will allow the connections needed. We need to seek out alignment through clarification, through talking to each other, to working explicitly from the ‘same page.’ Putting together alignment and objectives needs a specific design.
4. Portfolio “Placing Bad Bets
The feelings, instincts, personal favourites often get the favoured resources but are they are ‘grounded’ on exact customer need? No, more personal beliefs, and in the end precious resources are wasted on unsuccessful products.
Do we actually do product profitability evaluations one or two years later to encourage the culling and learning from our product launches? How can you promote a more careful evaluation of innovation practices, striving to eliminate variances yet guard against that relentless pursuit to reduce the failures.
We need to guard against acquiring that prevailing risk mitigation mindset with the idea of standardising and simplifying, validating through increased data verification and mining, striving for benchmarking and searching for best practices.
These ‘good practice intentions’ seems to go nicely with placing the innovation bets on increasing the incremental activities, all to the detriment of seeking out more radical innovation. If one type of innovation prevails and begins to dominate, the risks of not providing for a healthy future increases. We begin to lose our abilities to be responsive and flexible.
We lose our agility to respond to changes in our markets, we are beginning to ossify our innovation, and ending up with ‘no good bets’ means you are placing no decent bets for your future health. Managing the innovation portfolio well can be the difference between success and failure.
5. Product development remains often ego-driven
Many responsible for new product development seem to suffer a selective perception, full of wishful thinking and optimism which can lead to biases in the direction of their wants. There is this growing internal trait to become predisposed and think of ‘our’ ideas in terms of product success, not product failure.
We overestimate, we interpret evidence to meet our wants and forget to keep going back to focus on the needs of our customers. A much harder place to focus upon and stay determined to deliver too. I repeat “are we internally driven and not customer alignment driven and do our ego’s get in the way?”
Product failure might lie far more internally than we are prepared to admit
Uncomfortable as it is there is a time to call into question the lack of a decent set of values that our innovation governance should be tackling. I’d argue we are failing ourselves as much as we are failing our customers, when products don’t live up to the promise that was originally intended, as identified and needed, that somehow got lost in internal compromise and product development failure.