Insight into how well a firms new product planning and product portfolio management activities might be doing is hard to come by.  Quarterly or annual revenue and profit reports provide post-performance results but that can be a little late to adjust to competitive and environmental changes.  This can be compared to the proverbial case of driving by watching the rear-view mirror.  Benchmarking your own processes, activities, and new product development (NPD) functions against others that have a proven success record can often help your organization to understand your strengths and anticipate problems so that corrections can be made before too much damage is done by poor execution. 

The Product Development and Management Association Foundation has periodically been gathering data on firms and their NPD processes since 1990 and has developed one of the largest databases on NPD performance indicators anywhere.  The most recent study, initiated in 2004, included 416 firms and produced a large enough data set to be able to determine what differentiates the best from the rest in many cases, by specific industry.

Before presenting some of the characteristics of high performers, let me define how the "best" were differentiated from the "rest" in the study.  The best business units were defined as those that were in the top 33% in their industry, were above the mean in self-reported NPD success, and were above the mean in sales and profit success.  In the latest analysis of the 416 firms in the database, 96 were identified in this top quartile.  Further analysis was done to determine what organizational characteristics, supporting tools, and NPD operating methodologies were common to those defined as the best that was not common to the rest.  Examining these differences could allow a firm to benchmark themselves against this data and determine which group, best vs. rest, they had most in common with, thus projecting probable outcomes in their own NPD performance.

Some early results from the study show marked differences in performance.  It is a widely-held belief among NPD professionals that only one out of ten products produces a success.  By contrast, the PDMA Foundation study of trends and drivers of success in NPD demonstrated that in fact, the less effective NPD processes produced one successful product for approximately every nine ideas pushed through a firms NPD process.  Conversely, the best performers get a success out of every four ideas attempted. 

One result of this is that the best performers average 48% of sales from new products vs. 21% for those classified as the rest in the study.  Profits show a similar result: The best attributed 49% of their profits to growth from new products, while the rest attributed only 21% of their profits to growth from new products.  The study also determined that only 57% of firms participating in the study set specific targets for revenue growth from new products; these targets ranged from a one-year goal of 18% (sales from products commercialized in the past year) up to 32% of revenue over the preceding five-year period. 

The mix of products in a firms NPD portfolio can also differentiate the best from the rest. The best put more effort in new-to-the-world type products 11% vs. 7.3% for the rest.  Conversely, the rest are doing 11.7% of their projects as cost reductions, whereas the best companies have only categorized 8.9% of their product portfolio as cost reductions projects

One of the benefits of the PDMA Foundation study is the ability to determine trends over time as to what kind of processes, projects, and strategies the best engage in vs. the rest.  The results show that the best have had no change in the volume of their new-to-the-world projects, while the rest have focused more on line extensions.  The rest also declined in the percentage that used a first-to-market strategy vs. an increase for the best.

When it comes to types of tools used, it is also possible to differentiate between the best and the rest.  One result of the study showed that the best will use a strategic bucket portfolio management tool in 51% of their projects vs. 39% for the rest.  Tools like payback period and discounted cash flow analysis are frequently used by both categories and thus offer no operating advantage.

If you would like to learn more about the results of the 2004 study of trends and drivers for NPD success, or how you can participate in the on-going benchmarking phase of the project, please contact the PDMA Foundation.  You will receive a copy of the Visions article on the study, as well as an abridged version of the full report that was developed this year.  Send your request and contact information (name and phone number) in an email to CPAS.PDMA@comcast.net.