Begin With Goals and Objectives
Strategy begins with the goals for the business’s product innovation effort and a clear understanding of how these product innovation goals tie into the broader business goals. Many businesses lack product innovation goals, or the goals are not articulated and communicated well. In Corning’s case, the goals were ambitious: to innovate their way out of a business crisis and to double the rate of creation of new businesses per decade. These goals were supported by specific sales and profit objectives for product innovation. Note that goals are broad and give general intentions, whereas objectives are narrow, concrete, and precise.
Like Corning’s, your business’s product innovation strategy should specify the goals and objectives of the business’s total product innovation effort and indicate the role that product innovation will play in helping the business achieve its objectives (3). Your product innovation strategy must answer the question: How do new products and product innovation fit into the business’s overall plan?
The most popular objective (and metric) is percentage of the business’s annual sales generated from new products. Here a “new product” is usually defined as one that
has been on the market three years or less and that is visibly different to the customer from previous offerings, for example a product with new features, functionality, or performance characteristics. Some firms include only additional sales from products launched in order to discount replacement and extension products.
Another key best practice is to ensure that the role of new products in achieving the business’s overall goals is clearly communicated to all. The whole point of having goals is so that everyone involved in the activity has a common purpose, something to work towards. What we observe here are typically very mediocre practices, with less than half of all businesses defining and communicating the role of product development in achieving their business goals (see Figure 1).
Define Strategic Thrust: Identify Arenas of Focus for R&D Efforts
Focus is the key to an effective product innovation strategy. Your product innovation strategy specifies where you’ll attack, or perhaps more importantly, where you won’t attack. Thus, the concept of strategic arenas—the markets, industry sectors, applications, product types, or technologies on which your business will focus its new product efforts—is at the heart of a new product strategy. For example, Corning’s decision to focus on flat screens for LCD TVs was a bold move at the time, yet in hindsight, it was a brilliant maneuver, marrying the company’s technological competencies with an emerging, albeit adjacent, market opportunity.
The specification of strategic arenas—what’s “in bounds” and “out of bounds” for product innovation—is fundamental to spelling out the direction or strategic thrust of the business’s product development effort. It is the result of identifying and assessing product innovation opportunities at the strategic level. Without defined strategic arenas, the search for specific new product ideas or opportunities is unfocused. Over time, the project portfolio for new product is likely to accumulate a lot of unrelated projects, in many different markets, technologies, or product types. The result of such a scattershot effort is predicable: a not- so-profitable new product effort.
The first task, then, is identifying possible arenas, areas that offer the business some new and profitable opportunities. Many firms use the product-market matrix (Figure 3) as they try to define new but adjacent areas in which they can operate profitably. Each cell in the matrix represents a potential strategic arena that offers a number of new product opportunities.