There are a variety of different views on product failure rates. According to some, the failure rate for new products launched in the grocery sector, for instance, is between 70 and 80 percent in the US. For smaller US food businesses launching new products, the success rate is at an even lower 11 percent. These are high failure rates, but is this a myth or reality? How is failure defined? 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 ripples. We seem to have this NPD "bug" of constantly wanting to innovate, feeling that it's required, expected, and keeps our teams of developers and marketing groups gainfully employed. Yet we continue to have poor product rates of return. Why?
I was recently asked to research these failure rates. The part of the broader question was interesting, trying to understand these continually high failure rates. It is claimed we have advanced significantly with our understanding of innovation and 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 with 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. It gets incredibly complex to give a baseline to failure; apart from that, it does seem unacceptably high.
Yet it grows in my mind so often our failure rates are not related to market or customer acceptance, but the very poor ways we conduct new product development within 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 from improving their internal New Product Development 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 attention it needs in the market place. You hit the rocky road of execution as innovation execution is not a smooth process, it's full of surprises. Innovation is serendipitous, full of fortunate discoveries, and often you stumble across something that takes it forward.
How often does your innovation execution lack momentum? 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 gotten caught up in the ongoing debate on ideas? The answer is a quest for many, required by a metric, which often clashes with top managers who need to find and fund those higher-value projects that have real value impact. Some organizations get caught up in that underlying "push" to introduce increasingly more incremental products to offset underperformance. There is a lack of clear criteria on what will be supported and why, in addition to those that frame the numbers differently 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 idea's sake!
3. Lack of Alignment
The alignment of product innovations to areas of strategic focus is one issue. Then there's the issue that even if they are aligned, organizations fail to allocate and connect the need to make the appropriate resource allocation for delivery. 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 needs and our innovation outcomes, we need an overarching strategic design to reduce the "disconnects." Innovation needs a 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, and working explicitly on "same page." Putting together alignment and objectives need a specific design.
4. Placing Bad Bets
Personal feelings, instincts, favorites often get the favored resources but are they are "grounded" on exact customer need? No, more personal beliefs, and in the end, resources are wasted on unsuccessful products.
Do we actually evaluate product profitability one or two years after to encourage 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 standardizing 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 increase. We begin to lose our abilities to be responsive and flexible. We lose our agility to respond to changes in our markets, and we begin to ossify our innovation. 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. Ego-driven Product Development
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 a product failure.
We overestimate, experience confirmation bias, and forget to focus on the needs of our customers. A much harder place to focus on and stay determined to deliver to. 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.