Innovation is not synonymous with new product releases. There is certainly an overlap, but innovation is not just about making new stuff. Otherwise, we would be in the perpetual cycle of: think ⇒ make ⇒ waste. Wait, we are… But, that is a topic for another post.

Many firms use the percentage of revenue from new products or number of new products launched as a metric to gauge the success rate of a firm’s innovation capability. Measuring innovation is certainly challenging. Inherent with any metrics program, there could be unintended, negative side effects. There is an article on Freakonomics blog regarding this complexity that is worth checking out: How Can We Measure Innovation? A Freakonomics Quorum.

Should the New Product Development (NPD) process be adopted as a framework for innovation management? In organizations where innovation is managed in an ad-hoc fashion, that certainly seem to be the case. Here is an hypothetical scenario on how innovations can be managed using the NPD process. Does this seem familiar?

1. Something sparks the need to investigate new opportunities. Most likely the initiative came from top leadership due to either eroding revenues (crisis!) or through feedback from the hired consulting firm on market trends due to increased competition.
2. Organization launches Strategic Business Team consisting of diverse group of top leaders from the organization. Team comes back with recommendations on strategy, focus, product and maybe technology roadmaps for competitive differentiation along with profitability and market leadership projections.
3. Obtaining approval and funding, the program team is launched using the Stage-Gate® process as the guiding methodology for New Product Development. As such, program team gathers requirements, handles scoping and business case analysis, updates existing roadmaps, eventually leading to commercialization.
4. If business is good, organization goes to step #3 and repeats the process. If there is a crisis, organization is back at step #1.

As it is the case with many situations, it is not the tools, i.e. NPD process, fault; but rather how the tool is used and applied is the problem. There are numerous knowledge-base articles on Stage-Gate® International that highlight how to implement a Stage-Gate® Product Innovation Process. Lets take a look at potential implications of using new products as a measure of innovation capability.

• organization will naturally lean towards innovating in the areas that they are most comfortable with (such as technology development or operations), neglecting other aspects of the business, market and customers.
• focus will quickly change from failure and learning to speed to market. With that, critical steps will be skipped (such as market validation) or analyzed only briefly.
• driven by a set roadmap, products will eventually shift to incremental improvements, or at best, extending to adjacent markets through repackaging and performance enhancements.
• development team will loose its edge as the rewards will shift from creativity and innovation to process and operations.
• organization will miss market and technology trends, as they execute on the set roadmap. Eventually customers will catch on and defect, resulting in declining revenue and profits.
• as the organization looses its competitive edge, number of features and price become the key differentiation. Not being able to keep up with the ever increasing requirements, projects start to slip while development costs increase.
• unless organizations have idea champions/innovators, great ideas never make it to the proper chain of command. Ideas will be captured in the form of arbitrary patents without any further considerations. And, as new ideas are explored through strategic business teams, the rest of the organization is left out in the cold leaving nothing but resentment and fear.
• in the meantime, the firm will have too many SKUs to support, since they can generate new products faster than they can kill/replace them.

Did I leave out anything? How about this for a quick recap: your energy flows where your attention goes. If you want innovations, you need to go beyond new products and look at how to spark and capture new ideas for the purpose of creating value. As I mentioned before, innovations come in different shapes and forms: Innovation and the Degree of Innovativeness. Just as the definition implies, innovation:

• can be large or small;
• is not absolute, but multidimensional;
• can include anything that the firm and its customers find useful and valuable;
• can be evolutionary, but not duplicative;

Given that, innovation management is about ideas, and how to ignite, manage and direct a firm’s resources and energy to turn selected few into successful economic and competitive rewards. The table below captures the differences between innovation management and the new product development process.

What do you think? Does this reflect your own experience, especially in established firms? As I mentioned before, innovation management and NPD share common process steps. However, as the table illustrates, the main focus of innovation management is on ideas, regardless of boundaries, and how to best select and implement those ideas, while empowering a culture that supports this process.

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