Linking New Product Development to Strategy

Published in The Leader’s Edge (American Management Association) February 2008

Linking New Product Development to Strategy
By Gary Getz and Pedro do Carmo Costa
Many companies implement Stage-Gate or other forms of new product development processes that promise to accelerate growth while managing risk. Few, however, are satisfied with the output of their efforts. One potential reason for their dissatisfaction is the disconnection between their organization’s new product development (NPD) and strategy development processes. Without this connection, product development pipelines become stuffed with incremental extensions of existing products but void of breakthrough concepts. Is this your company? Ask yourself: • Is it easy for your colleagues to justify the strategic alignment of their new product concepts? between Apple’s new product pipeline for iPods and its overall strategy. Gary Getz is a California-based Managing Director and Pedro do Carmo Costa is the Iberian office Managing Director of Strategos, a strategy and innovation firm. Gary works with clients in industries from orange juice to computers, and from wireless communications to insurance on resolving their most significant business strategy, corporate growth, and customer and channel management issues. Pedro helps clients architecting and deploying industry revolutions that challenge the status quo and create opportunities for growth. For more information visit www.strategos.com or email them at [e-mail] and [e-mail]. Imagine that you were a top executive at Apple at the turn of the millennium and that you were presented with the opportunity of developing a Macintosh-only digital music player. Would you have devoted your company’s top engineers and designers to this roject? If you say no, you are not alone. On the surface, a Mac-only anything was going to be a small opportunity, and MP3 players were simply not core to computer makers. Therefore, most seasoned managers would also have said no.

• Does your organization consistently fail to provide adequate funding for longer-term opportunities? • Does your organization reject many ideas because they are too risky (no one in the industry is doing anything like it) while at the same time rejecting scores of others because they are not different enough (the field is already crowded)?

By now there is no doubt the iPod family of products resurrected Apple’s fortunes by transforming the company from a niche player in personal computers to a market maker in consumer electronics. Today, no one would question the brilliance of the strategy. But when Apple unveiled the first generation iPod in 2001, few could foresee iPod’s revolutionary impact on consumer electronics, music and the cell-phone industries. This was evident by looking at the postings of a Mac online community on the date of the iPod unveiling (October 23, 2001). The reactions were universally negative. Here are some of the comments: • “iPod? iPoop... iCry. I was so hoping for something more.” • “No! Just what the world needs, another freaking MP3 player. Go Steve! Where's the Newton?!”

If you answer yes to any of these questions, the linkage between your NPD and strategy development processes is probably broken. Before we talk about how to fix the broken linkage, let’s first review what success looks like. Take, for example, the tight connection

• “What a load of tripe! Gee! An mp3 player with a HD! How original! Kinda reminds me of a JUKEBOX I once knew...”

• “This isn't revolutionary! I still can't believe this! All this hype for something so ridiculous! Who cares about an MP3 player? I want something new! I want them to think differently! Why oh why would they do this?! It's so wrong! It's so stupid!”

Fortunately for Apple, that’s not the whole story. The initial iPod and iTunes were just the first step in its ambitious “Digital Hub” strategy, where the ultimate goal was to allow

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users to have all of the entertainment content they want accessible to them whenever and wherever they want it (see Figure 1 for a hypothetical illustration of the Digital Hub strategy). With this strategic perspective, the Macintosh-only digital music player was therefore a low risk and logical entry into this robust new business space where Apple had limited knowledge.

The first few generations of iPod and iTunes were learning opportunities for Apple. From there Apple extended into the array of products we know today. Retrospectively, the product roadmap probably looked something like the chart below (Figure 2 – Retrospective Illustration of Apple’s Digital Hub Product Roadmap). Obviously, with the benefit of hindsight, the reconstructed product roadmap is quite robust, and the 2001 version would not have been this complete, as the specificities of later products were based on the lessons learned from their ancestors and older siblings.

Figure 1 – Hypothetical Illustration of Apple’s Digital Hub Strategy

Specifically, while great design and ease of use have always been a core value and a key competence of Apple, early lessons from the first few generations of iPod and iTunes helped Apple refine its overall strategy. One of the other key lessons Apple learned was how to generate consumer buzz. When launching the first three generations of iPods, Apple’s marketing efforts were centered on touting the expanded array of functions and features (or WHAT it could do). Instead, the buzz came from the slick click wheel (or HOW it’s done), as early owners were busily showing off their cool devices to their friends. Apple learned that the collision of sophisticated technologies with coolness generated consumer buzz. So it painstakingly built nifty ways for performing ordinary tasks in later editions of everything, from scrolling

Figure 2 – Retrospective Illustration of Apple’s Digital Hub Product Roadmap

Another key lesson learned was the need to integrate content distribution into the overall offering. The early version of iTunes leveraged a third party provider for Internet radio services, and the iPods used Musicmatch for connecting Windows-based computers. Then, iTunes 4.0 introduced a seamlessly integrated offering from shopping to content management to listening,

miniature pictures of album covers for browsing the music library to “jiggling” icons when customizing the home-screen on an iPhone.

and this helped launched Apple into a music industry powerhouse. So, how do you fix the broken linkage between your new product pipeline and strategy?

Step One: Make sure your strategy is discriminating and informed by actionable opportunities. One manufacturing company’s management team returned from a weekend strategy retreat and proudly announced its revised strategy as, “we will be the nimble gorilla of our industry!” However, the strategy had no discriminating

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Step Two: Start from the future and understand what success looks like. While even Steve Jobs couldn’t have predicted the specific details of iPod Touch or iPhone back in 2001, most could have a notional idea of the scope of products and services that would “allow users to have all of the entertainment content they want accessible to them whenever and wherever they want.” From there, it’s possible to envision a logical roadmap to reach the endstate from the current starting point.

power since nearly everything can be justified as aligned with it, and on Monday, no one knew what new opportunities they should pursue.

Step Three: Build a roadmap that will incorporate a thorough review of the key capability and knowledge gaps for reaching the desired endstate. With this information, early opportunities then can be structured to overcome these gaps as well as fit into the total portfolio of products/services for getting to the end-state. For example, the Photo iPod provided a great amount of learning for managing and integrating third-party content, and that knowledge was then used for email, address book and other content integration.

iPod and iTunes are wonderful products that have inspired countless copycats. However, the imitators could improve their business performance substantially by not duplicating the “form” of Apple’s products but, instead, replicating the core essence that made these products possible—the tight integration between NPD and strategy development processes.

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