Product failures: why are we implementing wrong solutions?

Electronic News, June 12, 1995 by Christopher O. Clugston

Most segments of the electronics industry are characterized by increasing competition and contracting product life cycles. Within this environment, the continuous introduction of successful new products is essential to sustaining a company's ongoing viability.

Industry leading organizations have always relied heavily upon new products as a source of growth in revenues and profits.

Academic research into the role played by new products in the long-term success of U.S. industrial companies has concluded that at least 25 percent of surveyed companies' revenues--and in some cases close to 80 percent of revenues--were derived from products which did not exist five years prior to the study (OECD Report, Pegram and Baily Study).

Research also indicates most companies' dependence upon new products as a source of revenue and profit growth will increase in the future, especially in technology-based industries such as electronics (Hopkins, McDonald and Eastlack Studies).

"New products will account for 31 percent of profits over the next five years, compared with 22 percent over the past five. These new products will account for 37 percent of total sales growth, compared with 28 percent in the earlier period" (Booz, Allen, and Hamilton Study).

Given the irrefutable evidence regarding the importance of new products to the future earnings streams of both established and emerging organizations, why has the rate of new product failures remained at an unacceptably high level?

Definitions of the phrase "Product Failurefall" into two categories--qualitative and quantitative. The author proposes a simple, yet rather stringent definition of a failed product: a product which does not meet or exceed management's investment return criteria.

This definition offers the benefit of being verifiable in an objective (financial) sense. It also provides a quantifiable yardstick, by which many products, judged successful on various qualitive scales, would not fare as well.

Had this strict definition of product failure been applied in the following research studies, the track record for new product failures would appear even worse than actual research results indicate. Academic studies conducted to determine the failure rate of formally introduced new products, reveal alarmingly consistent results.

The cost of these product failures in terms of wasted R&D dollars is also staggering. A conservative estimate places the cost of failed product R&D in the electronics industry at more than $20 billion per year (Clugston, et al).

The conclusions to be drawn from these studies is that the existing rate of new product failures is unacceptable, and tremendous upside potential exists if currently wasted R&D dollars can be reallocated to the development of successful new products.

Management's challenge is to understand the underlying reasons and causes associated with product failures, in order to effectively address the problem.

Research into the reasons behind the high level of product failures has also produced eye-opening results.

The conclusion reached from the work of these and other researchers of corporate behavior, is that technical flaws account for only 20 percent of all product failures--marketing-related and management-related deficiencies account for over 75 percent of all product failures!

A majority of new product failures can be attributed to one of three factors:

* Lack of corporate focus: a company has not assessed its existing strengths and weaknesses relative to the factors critical to success in its target market. Because no planning framework exists, within which to differentiate between appropriate and inappropriate product development opportunities, opportunity selection becomes a random process driven by whim.

* Poor product development opportunity selection: an organization adopts a well-defined area of focus, but, lacking adequate opportunity identification capabilities, selects product development opportunities inconsistent with the chosen area of focus. The result is a mismatch between corporate capabilities and target market requirements.

* Lack of thorough upfront product development opportunity evaluation: a company adopts a well-defined area of focus, and selects product development opportunities consistent with the chosen area of focus. However, in an effort to save time and money, management initiates product design/development activities prior to 1) assessing the size and nature of the market requirement, 2) defining a product solution which meets both the market requirement and internal cost constraints, and 3) determining the economic viability of the opportunity.

It seems almost inconceivable, given the advanced state of management science, that an overwhelming majority of new product failures can be attributed to such fundemental deficiencies and oversights--until the root causes (excuses), which underlie most product failures, are understood. These include the following:

* No time--"I have not chosen to expend the time or effort required to focus my organization, seek product development opportunities which are consistent with our chosen corporate direction, or thoroughly evaluate product development opportunities prior to initiating design/development activities."