PDMA Foundation CPAS Study reveals new trends- While the "Best-Rest" gap in NPD widens

by Marjorie Adams, CPAS Project Director, and Doug Boike, Treasurer, PDMA Foundation

The PDMA Foundation’s Comparative Performance Assessment Study (CPAS) on trends in New Product Development, reveals some surprising new trends, plus a wealth in insights into what separates "the best’" performers from "the rest." This article-Visions CPAS Highlights -written by CPAS Project Director Marjorie Adams and PDMA Foundation Treasurer Doug Boike provides initial highlights of the study results.

Study Overview

PDMA Foundation’s Comparative Performance Assessment Study (CPAS)

CPAS Study Sponsors:
Abbott Laboratories. Alticor. Avery Dennison. Baker Hughes. Black & Decker. COBE Cardiovascular. Harris. Herman Miller. Johnson & Johnson. J. M. Huber. International Truck. Lubrizol. McCormick & Co. PTC. Sargento Foods. The Timken Co. Unilever. Valvoline.
Lead Sponsor: The Performance Measurement Group, LLC

The New Product Development field is changing in some surprising ways. That can be seen in these highlights compiled from the results of the Comparative Performance Assessment Study (CPAS) just completed by the PDMA Foundation, the research arm of PDMA. The study was conducted in 2003 and early 2004 aided by grants from major organizations. (See box on this page).The PDMA Foundation study gathered and integrated information from 416 practitioners in a broad cross section of companies in North America. As the third major study conducted by PDMA or its affiliates, this study has created one of the largest databases in product development available anywhere. 1, 2 Selected findings from the study are contained in this article, Visions CPAS Highlights, the first publication of results from the study.

The "best/rest" gap
Some of these findings come as no surprise. For instance, the study revealed that "the best" performers in new product development generate 47.6 percent of sales and 49.1 in profits from new products-more than twice as much as "the rest."

They also need only four ideas- compared to 9.2 ideas for the "the rest" to generate one winner. (Exhibit 1 on page 27.) Further examination of their processes shows that "the best" weed out ideas early in the process and then have very high success rates in the later stages of product development.

In the study, "the best" performers were defined as those business units that were the best or top third in their industry, and that rated their processes and performance above the mean.

Examination of their trends over time show that "the best" continue to be aggressive in their behavior and these actions have widened the gap between "the best" and "the rest."

For instance, the percentage of new-to-the world projects for "the best" has remained at 11 percent, as shown in Exhibit 2A on page 27. Meanwhile, new-to-the world projects for "the rest" of the business units have declined from 10 percent in 1995 to 7.3 percent in 2004-a drop of 27 percent from the 10 percent figure.

Also, in the current study, 49.5 percent of "the best" versus 44 percent in 1995 chose a first-to-market strategy, while first-to-market strategies for "the rest" of the business units have declined by 12 percent. (See Exhibit 2B on page 27.)

Tools and techniques
This research shows that "the best" performers continue to outperform "the rest" in NPD profitability. The study highlights the dramatic correlation between certain practices of "the best" performers, such as the use of advanced market research , design/engineering, technology, and team support tools. Exhibit 3 on this page shows the four categories of tools included in the survey. "The best" use more of all 45 of the tools in these four categories, and use 34 of the tools significantly more.

Organizational processes
Equally dramatic are the findings for "the best" performers in organizational processes. Previous surveys have shown little difference in the use of organizational structures for "the best" performers and "the rest." This study dug deeper to find out who was using what organizational processes.

The main hypothesis was that given the widespread use of and knowledge of the importance of cross-functional processes, the most successful business units were using these processes more effectively. Today, business units must manage multiple projects so teams benefit from the learnings of other teams and from the support they get from other departments and/or functions. As with the tools, the study found that "the best" use more of all the organizational processes included in the survey, and they use all of the processes significantly more.

Overall, the study shows that "the best" performers have integrated leading tools, techniques, and organizational processes into their product development efforts and have a much greater output of new products. Clearly, a formal crossfunctional development process is no longer sufficient.

Overall performance declined
Surprisingly, sales from new product profits has dropped by 14 percent over the 14-year period- 1990 to 2004-perhaps due to intensified competition and a challenging economic climate. (See Exhibit 4 on page 28.) The percentage of sales from new products in all categories fell from 32.6 percent in 1990 to 28 percent in 2004. The percentage of profits from new products has gone from 33.2 percent in 1990 to 28.3 percent in 2004.

Shift in portfolio mix and strategy
This trend may be the result of management changes-and conservatism during a poor economic period. It is evident in two other key findings in the study: A strategy shift, as well as a shift in the types of projects in the NPD portfolio.

In terms of strategy, for instance, North American business units seem to be shifting to "fast follower" strategies. "Fast follower" strategy business units increased to 36 percent in 2003 from only 27 percent in 1995, as shown in Exhibit 5 on page 28. At the same time the number of business units adopting "first to market" strategies remained relatively constant.

A shift in the mix of types of projects in NPD portfolios also took place during this time period. As Exhibit 6 on page 28 shows, the number of projects motivated by cost reduction, repositioning and incremental improvements has grown, while the percentage of major revisions, product line additions, new-to-the-firm and new-to-the- world projects has dropped.

Possible reasons for these changes
Factors contributing to these trends may be the tough economy of the past few years, changing philosophies or practices, a focus on cycle time, and/or resource constraints. These factors may have resulted in the growing focus of business units on certain strategies-cost reduction, repositioning, and incremental improvements-when business units believe they need to achieve specific levels of performance with a higher degree of certainty. The lower number of new-to-the-firm and new-to-the-world products may suggest a more short-term view of profitability and growth.

Overall success rates
Meanwhile, the overall success rates for new product development have barely changed, as is clear in Exhibit 7 on this page. In 1990, 58 percent of NPD projects were considered winners, versus 59 percent in 1995 and 2004. The flatness in product success rates may be driven by ever-increasing competitive challenges and marketplace needs-in other words, the continual increase in standards of success.

Efficiency improvements
Despite this flat success rate, the study paints a picture of increasing sophistication among virtually all leading business units in the use and application of best practice product development tools and organizational processes. In the past nine years, business units have made major strides in the efficiency of their NPD processes. In fact, today most business units are doing much more in NPD work with far fewer resources.

Here are three of the most significant advances, suggesting that many business units have a much more professional NPD process today than they did eight years ago:

Professionalism has increased
In summary, the standards of performance for new product development processes have increased dramatically in the past nine years. Cross-functional processes are now the norm. Cycle times and process efficiencies have improved dramatically.

Yet, despite these process improvements, overall success rates and sales/profit impacts have not improved. Competition and increasing market demands continue to level the playing field. Business units may have become increasingly focused and risk-averse in their product development project portfolios, and strategies.

Nonetheless, certain business units have overcome these obstacles. That is evident when analyzing results of "the best" versus "the rest." "The best" performers are clearly differentiated by their use of a broad range of best-practice tools and techniques, and organizational processes. They show demonstrable advantages in sales/profit impact and new product success and "raise the bar" in all industries. The rewards associated with best-practice applications are credibly significant, quantifiable, and worthy of continuing study.

Earlier PDMA studies
The CPAS study represents the third comprehensive study of NPD practices done by PDMA or one of its entities. Business and academic leaders have recognized the two earlier studies as the most encompassing surveys of product development practice in North America.

The first study was conducted in 1990 and appeared in several publications including a summary published in the Journal of Product Innovation Management (JPIM) in 1993 (Page, 1993).1 The second study was conducted in 1995, and appeared in several publications. The summary results were presented in "Drivers of NPD Success: The 1997 PDMA Report" (Griffin, 1997).2 Methodology of this study The PDMA Foundation, the research arm of PDMA, conducted the most recent study in 2003 and 2004, aided by grant funding from many leading organizations. Over 400 respondents took part in the survey. The respondents represent multiple industries, technology levels, product types, and business-unit sizes. (See box on page 27.) Each participant filled out a comprehensive 16-page survey form. Core questions from previous studies were included to track trends in practice and performance over time. The survey added new questions spanning several areas of growing interest. New questions included topics such as collaboration, portfolio management, the front end, the use of new market research and technology based tools, and organizational processes. Open-ended questions about key product development practices provided a rich source of new information.

The data was analyzed at the business-unit level. The size of the sample database allows for easy extraction of statistically significant industry segments. Such data will be part of future reports. (See box on page 26.)

Research next steps
This article captures only a small fraction of the overall findings and insights from this study of comparative performance in NPD. An indepth report of the detailed findings is in the final stages of preparation and will be available for purchase from the PDMA Foundation in fall 2004. In addition, the PDMA Foundation is still accepting sponsor grants from companies interested in the benefits of a confidential comparison of their performance with that of their industry peers. Finally, more research papers and in-depth industry and/or segment studies will be commissioned as interest is generated in the new product development community.

About the Authors
Marjorie Adams, formerly with Booz, Allen, Hamilton and the University of Virginia, is Project Director of this study. Doug Boike, Treasurer of the PDMA Foundation, is President of Triad Consulting, Inc.

Further Information
For further information contact Marjorie Adams, Project Director, for research questions; George Castellion (203-323-5778), V.P., Development for questions on sponsors’ benefits; and Stephen Uban, V.P., Publications , for inquiries on publications and reprints.

References
1. Page, Albert L., “Assessing new product development practices and performance: Establishing crucial norms,” The Journal of Product Innovation Management, 10:4; 273-291, July, 1993.

2. Griffin, Abbie, “Drivers of NPD Success: The 1997 PDMA Report, “September, 1997.

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