Best practices in new product development: what separates the Best from the Rest?

“Observing and learning are integral to innovation. Neglecting these leads to aging, with all its consequences,” warns Max von Zedtwitz, co-author of the PDMA survey and professor at the Kaunas University of Technology’s School of Economics and Business.

PDMA’s BP5 survey, the fifth edition of their Best Practice studies, is the latest iteration of their research on product development and management. While the first survey was done in 1990, BP4 was conducted in 2012. BP5 boasts the largest global sample size to date, with 62% of the 651 respondents hailing from Europe and the UK, and only 6% (39) coming from North America.

The Best invest in innovation even in times of crises

In 1997, the criteria that distinguish the Best companies from the Rest were established. While the criteria primarily center around new product development and market success, the researchers contend that the definition of the Best companies is comprehensive and applies to all types of businesses, measuring success in broader terms.

Von Zedtwitz explains that the PDMA survey takes a broad approach to product development, encompassing various industries such as consulting, banking, travel agencies, and technology companies. The survey assesses whether these companies achieve their financial, revenue, and product development targets, and how they perform in comparison to others in their respective industries. Thus, a company deemed the Best by PDMA criteria is both financially successful and competitive, meeting expectations for their products and programs. In short, they are simply the best companies.

Benchmark studies, such as the PDMA’s, are utilized by practitioners across industries to enhance their own practices. One of the key insights for practitioners is the recommendation that companies must continuously develop their new product development capabilities to remain competitive as circumstances and environments change. This is essential for any company that wants to stay relevant and maintain their position in the market.

As the fifth edition of the PDMA’s global survey was conducted during the pandemic, the researchers included questions regarding how companies responded to the challenges posed by Covid-19. Specifically, the survey sought to determine if companies were maintaining the status quo, increasing or decreasing their efforts, or adopting a different approach altogether. The findings revealed that, even during times of crisis, the Best companies continued to invest in new product development, increasing their staff, budgets, and overall investments. In contrast, the Rest of the companies took a more defensive approach.

Von Zedtwitz notes that the Best companies were all resolute in their decision to invest more in product development, taking a more aggressive approach during the pandemic. In contrast, the Rest of the companies either maintained their current level of investment or planned to decrease it, aiming to build up financial reserves in case their markets disappeared or their revenues drastically decreased.

Develop new products significantly faster

In BP5, out of the 651 companies surveyed, 213 were identified as the Best (32.3%) while 416 were classified as the Rest (67.7%). However, like previous editions of PDMA Best Practice studies, the researchers were unable to pinpoint a single, unique practice that distinguished the Best from the Rest.

According to von Zedtwitz, the researchers were also somewhat disappointed that they couldn’t identify a single, unique practice that distinguished the Best companies from the Rest. However, they did find that the Best companies were significantly faster at developing new products, which was surprising. This was not necessarily due to a specific skill, but rather the result of being proficient in managing multiple aspects well at the same time.

The researchers highlight several new product development capabilities and practices that Best companies excel at in their paper discussing the survey results. One such capability is the ability to focus on radical versus incremental innovation, with companies where radical innovations make up 21%–50% of their total innovation projects being more likely to be among the Best. Additionally, the Best companies place greater emphasis on entering new markets, applying new technologies, taking more risks, and having a more long-term outlook when it comes to portfolio execution compared to the Rest.

“In comparison with previous studies, this time it became more evident that Best companies manage their portfolios of new products better,” says von Zedtwitz.

Indeed, the Best companies tend to apply more innovation-oriented strategies, which includes a greater emphasis on pursuing a higher proportion of radical innovation projects. However, this is not the only area where the Best outperform the Rest. The Best companies also tend to spend more on all types of innovation projects, not just radical ones. This suggests that the Best are more willing to invest in innovation and take risks to drive their businesses forward.

Innovation is the DNA of growth

In contemporary times, innovation is a term that signifies progress, competitiveness, and economic advancement. Nevertheless, to gain a deeper comprehension of a company’s approach to developing new products and services, it is crucial to differentiate between radical and incremental innovation.

As per von Zedtwitz, who also serves as the Director of GLORAD Center for Global R&D and Innovation, the differentiation between radical and incremental innovation, in the context of product development, is perceived from the customer’s standpoint. Incremental innovation is when there is not much change noticeable for the customer: the product or service appears and feels the same, it does not cost significantly different but is somewhat improved. An instance of this could be upgrading from one smartphone model to the next one. The new model may be slightly bigger, possess more memory and perform a little better. However, radical innovation usually involves a fundamental shift in product-customer interaction.

According to von Zedtwitz, who also serves as the Director of GLORAD Center for Global R&D and Innovation, the distinction between radical and incremental innovation, resulting from product development, is based on the customer’s perspective. Incremental innovation occurs when there is not much change in the customer’s point of view: the product or service looks and feels the same, costs are not much different, but is somewhat better. For example, upgrading from one model of smartphone to the next. The new model may be slightly larger, have more memory, and function slightly better. However, radical innovation typically involves a fundamental change in product-customer interaction.

Von Zedtwitz believes that in a free market, companies will always feel the need to innovate to stay competitive. If the environment around them is constantly changing, companies will need to adapt and avoid becoming too complacent.

According to von Zedtwitz, companies will always feel compelled to innovate in a free market, trying to do things differently to be more competitive. They must also adapt to changes in their surroundings to avoid becoming too complacent. Climate change is an example of a slow change that companies are adapting to, and nowadays, it’s hard to imagine a company that would not take any action to address it. The COVID-19 pandemic also highlighted the importance of companies’ ability to react quickly to urgent changes. In the survey, von Zedtwitz emphasizes that this ability is crucial in distinguishing the Best from the Rest companies.

https://en.ktu.edu/news/best-practices-in-new-product-development-what-separates-the-best-from-the-rest/