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The success or failure at the corporate or portfolio level is simply a roll-up of the successes and failures at the product launch level. Getting the right product to market at the right time and delivering on financial targets will lead to ultimate success.
According to recent research conducted by Consumer Goods Technology and Sopheon, nearly 40% of new products failed to meet profit objectives. But how do we measure or define success in consumer packaged goods (CPG) new product development (NPD)? Ultimately, it comes back to achieving financial goals.
We need to ask: Did this product deliver on the financial targets as defined by the business case?
Of course, the success of the individual product launches rolls up and contributes to the success of the portfolio(s) to which they belong (Brand, Category, Business Unit, etc.). Strategic plans, growth targets and the initiatives to put in place to achieve these targets are typically defined at the corporate level and then cascaded to these individual portfolios. They’re typically a statement of value goals, defined by financial targets such as revenue and volume, and captured in a multi-year plan.
As these growth plans are defined, they’re often digitized to enable companies to measure the actual performance of these portfolios against the targets. Often, as companies evaluate their performance and find they have failed to meet it, they will replan, remeasure and replan and remeasure — it becomes a vicious cycle when a success formula isn’t in place.
So, how can you deliver on these growth plans? First of all, we do need to acknowledge that it’s not easy in today's world with global digitization, fast-changing consumers and small company disruptors. And, of course, the global pandemic has created challenges.
The success or failure at the corporate or portfolio level is simply a roll-up of the successes and failures at the product launch level. Getting the right product to market at the right time and delivering on financial targets will lead to ultimate success at the corporate level.
Download this CPG and Sopheon research infographic to find out why and how your new product strategy ranks against your peers.
Let’s take a closer look at three CPG innovation best practices that companies should focus on to meet profit expectations.
Flexible decision-making in the new product development process
Most companies have some level of standardization in their decision-making processes, but we're finding that 54% somewhat or rarely adhere to the process. Even though it’s understood how to get a product to market, some aren't following the necessary steps to get from Point A to Point B.
Traditionally, large CPG companies relied on decision-making methods like Stage-Gate®, which involves assigning and tracking specific tasks and deliverables. These tasks focus on capturing and collaborating on the information required to make a data-driven investment decision at each gate. While thorough, many action items fail to account for the unique nature of individual products and aren’t always necessary to move to the next stage. As a result, advancing products forward takes more time and work than necessary, ultimately delaying time-to-market.
Agile is a buzzword we hear a lot of these days. You have to get the product in front of clients or prospects early in the process, iterate on it and build that into the NPD process. But again, there’s a disconnect as 40% of companies aren’t using any form of Agile today in new product development. And for large CPGs, Agile doesn’t have the thoroughness to ensure the myriad details that will pop up during the NPD process. So the questions become, “How can I adopt agile concepts into my product development process while still maintaining the appropriate governance to ensure investment decisions are supported with data?” and, “How can I drive standardization while maintaining a flexible process creating more of a fit for purpose process?”
The CGT study highlighted the struggle between decision-making processes—60% of companies have not found the right balance between structure and flexibility.
Many CPGs find that balance in what’s commonly referred to as a zero-based approach, which incorporates comprehensive processes that big companies need while retrofitting agility for each stage of the new product development process. This is accomplished by only incorporating tasks that align with the team’s function and the type of innovation they focus on. In short, the tasks must make sense and will vary from company to company, or even product-to-product, project-to-project.
The reality is that every project may be different, and there should be flexible when making decisions at different points in the process. Governance is a must, and important questions need to be asked. However, it has to be the right question, and it has to be fit for form. It needs to be the right process for the right projects and the right company. Out-of-the-box does not work, and that’s been seen over and over again.
Resource planning to support portfolio impact
Another common barrier to CPG innovation is finding the resources to meet deadlines. In fact, in the CGT study, resource planning ranked as the top two issues. The kinds of projects a company can take on are directly tied to the resources available. Ironically, many companies fail to use their strategic planning to drive their resource planning. They simply look at how many of the projects in the plan they could do, instead of which projects they should do. Effective resource planning involves maximizing the return on your resource investment by ensuring you’re focused on the highest value products/projects.
You want to scrutinize your priorities by answering the following questions:
- What are the corporate objectives?
- What are the strategies?
- What is the company trying to accomplish?
- Do the products fit into those strategies?
Once those questions are answered, it becomes much easier to determine if a project, based on the resources available, makes sense. From a broader perspective, this view makes portfolio impact analysis more precise.
It’s important to know if this is a high-value, high-cost project that could displace some of these other projects. It's not based on whether the resources are available, but rather a comprehensive impact analysis of the portfolio. Can this be taken on and, if so, what should be cancelled based on the prioritization? Performing those what-if resource planning scenarios and impact analyses are essential resource costs.
Incorporating the right kinds of risk in portfolio planning
Many CPGs have tried and true product performers in their portfolio, while others are trying to capitalize more heavily on high-risk, high-reward products. For long-term success, there must be the right balance of both. Doing so means optimizing the company’s vitality index—the percentage of revenue from new products. Is there enough risk in my portfolio? Are there enough highly innovative projects versus lower risk line extensions and those types of projects?
According to the survey, a surprising 28% of revenue comes from products launched within the last three years. These are companies that are taking risks, and this number is growing. Companies recognize that they need to take that risk and balance their portfolio with higher-value, higher-risk projects. But having a portfolio planning process in place that determines if the reward is worth the risk is critical - adhering to that process to manage the risk in those higher levels of innovations.
Are your CPG innovation processes set up to fail? Learn how to make every product a success with this research guide. Download it now.