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

New Product Revenue per Development Headcount

Through interviews and project case studies, PRTM also investigated which metrics food product companies are using to monitor and improve their development efficiency. Apart from the typical financial stand-bys of margin and market share, PRTM found that the top performers also were measuring the amount of new product revenue generated on a per-headcount basis. These companies treat their development staff (encompassing R&D, marketing and product testing personnel) as a resource to be managed and optimized, just as a product-cost reduction focus puts emphasis on supply chain efficiency.

The study shows the top 20% of performers also are able to generate nearly twice the new product revenue per person than average, lending them an effective development capacity equivalent to a company spending twice as much on R&D. Strong development capabilities in resource management, project management, decision-making and priority setting are typically behind this performance.

New Product Pipeline

Finally, researchers examined the link between development capability and the overall rate at which companies are able to generate new products, as measured by the number of new products launched per R&D investment (pipeline throughput) and per total revenue (new product introduction rate). Here, results revealed striking gaps between best in class and average, with the top performers able to pump out a significantly higher volume of new products (see "New Products Generation Rate"). Strong capabilities in portfolio, project, and resource management are typically the key behind successful "'innovation engines." giving such companies the ability to consistently maintain a high level of development activity year after year.

As the benchmarking maturity analysis shows, the average food product organization still has much to gain in achieving a reliable and profitable competitive advantage from new product development capability. Even those that perform well on one metric often show gaps along other dimensions of performance. How do companies make the leap? Improving overall development capability requires a change in the role of innovation and product development within the organization. Specifically, companies that are serious about generating profitable growth through organic innovation need to focus in three areas:

* Think of product development as a system to be optimized--R&D spending cannot be considered or managed in a vacuum. Instead, development investment and productivity must be harmonized with A&P spending and supply chain/product cost expenditures in order to optimize the overall profitability of the organization. Strong execution of core development processes will enable trade-offs across these different dimensions of performance for individual new product launches, as well as across brands and categories.

* Recognize and promote the value of a cross-functional development environment--Time after time, PRTM's interviews and analysis uncover weaknesses in how new products are executed and managed across the major functions involved in the development process. Handoffs and standoffs between functions are at the root of many struggling projects, leading to underperforming products and markedly lower profitability. The traditional approach of placing innovative activity within the realm of marketing is often at the center of these conflicts and inefficiencies.