Product development benchmarked: new product development is a key to growth for the top food companies. However, the food industry lags behind other industries in the maturity of its product development process. This article examines the deficiencies, how are they measured and what can be done

Prepared Foods, June, 2004 by Todd Bargman, Renata Pomponi

Take a walk through any grocery store and one of the first things you'll notice is the proliferation of new products. In order for these items to scream "New!" and "Improved!" and entice the consumer to make a purchase, food manufacturers must first bring unique products of value to market. Toward this goal, companies have introduced products that address virtually every conceivable combination of consumer trends such as low-carb, low-fat, high-energy, organic and herbal. The aggressiveness of the new product arena can be seen in Prepared Foods' March 2004 New Products Annual issue.

To achieve profitable growth in this escalating new products race, companies must have strong innovation and new product development capabilities. Yet, despite this competitive imperative, global management consultancy PRTM's (with worldwide offices) industry research and experience indicates the majority of food product companies are not getting the most out of their new product development investment. Today, there is a golden opportunity for aggressive companies to step ahead of the pack and take the lead--by building world-class development capabilities.

PRTM's most recent research study, conducted in collaboration with Prepared Foods, explores the specific capabilities that truly drive new product success under today's challenging conditions. PRTM found that product development capability is a largely untapped opportunity for competitive advantage, but one that the leading food product firms are beginning to use as a recipe for profitable growth.

PRTM's research results show the food product industry, as a whole, has less mature development capabilities when compared to other industries PRTM has studied. Through its benchmarking work in many industries for the past two decades, the firm has developed a Product Development Maturity Model to measure the level of sophistication of innovation and development capability. This is represented as five stages of process maturity (see "Product Development Process Capability Model") that can, in turn, be correlated to development efficiency, productivity and profitability.

A Decade Behind

The food product industry is at least a decade behind leading industries in efficient and effective development, based on benchmarking data. Diving more deeply into specific development practices, PRTM has found the industry to be lagging more significantly in the areas of opportunity identification and exploration, priority setting, resource allocation and risk assessment--all critical to the ability to use innovation and new product development as a source of competitive advantage.

There are obvious historical reasons for the food product industry's lower maturity level (generally at Stage 1), when compared to other innovation-driven industries. First, development budgets within food product companies are typically dwarfed by advertising, promotion and other marketing expenditures. R&D spending typically represents only 1% to 2% of revenues, compared to 8% to 15% of revenues in the high-tech sectors. However, while an aggressive advertising and promotion campaign can invigorate even poorly developed products, the results are typically short-lived, with little positive impact on company growth and long-term profitability.

The marketing focus of most food product companies also puts them at a disadvantage. They view product development as a cross-functional management process when compared to industries where the need to closely link engineering and R&D activities to customer requirements is more obvious. As a result, many food product companies have never optimized their product development capabilities in a concerted, cross-functional fashion.

As the changing food product industry environment demonstrates, however, the time is right for leading firms to look to innovation and product development capabilities as an untapped source of profitable growth. In fact, this shift is already taking place, as evidenced by the leading firms: those who are the industry best in class, or the top 20% of performers. They already are embracing innovation and product development capability as a competitive advantage and performing at the same level (high Stage 2/low Stage 3) as those companies in technology-driven industries.

Five Metrics of Performance

The first step toward capitalizing on the gap between the average food product company's level of process maturity and improved capability lies in understanding more detailed metrics of product development performance and their impact on overall business profitability. PRTM's benchmarking analysis identifies five key metrics of new product development capability:

* Development time to market,

* Average profit per new product,

* New product revenue per development headcount,

* Pipeline throughput and

* New product introduction rate.

The metrics are important because they focus on effectiveness and efficiency of development activities. However, it also is important to recognize up front that this in no way implies that food product companies have an inherent need to increase R&D spending itself. Rather, they need to focus on getting more out of the investment they put into new product development. While consumer preferences and brand equity will always drive the success of new products in this industry, product development capability can be treated as an important resource to be managed alongside marketing and advertising and promotion (A&P) spending, to deliver maximum value and profit contribution.