In Pursuit of Cost Savings

Topics: Management Issues | Product Development System

In pursuit of cost savings, two major Chicagoland Fortune 500 companies have recently disbanded their innovation/new product development (NPD) groups. On a national level, companies are hunkering down to wait out the economic downturn, eliminating expenditures perceived as less than immediate contributors towards revenue generation. Unfortunately, because the impacts on revenue typically lag behind most NPD efforts, the abandonment of those NPD investments, even on a temporary basis, is often premature.

Is this wise?

Cutting out the NPD function is short-sighted and will have long-term impacts for your company. In the short term, it communicates to your workforce and the business community that innovation is not important. In the longer term, the impacts of ceasing NPD activities are more serious. These include the substantial costs and effort associated with re- implementing an innovation system. As a case in point, it took Whirlpool seven years to fully implement their innovation program, from start-up to value extraction. As and when economic conditions turn around, companies must face the challenge of quickly rehiring an equivalent group of talented and trained individuals. Of even greater concern though, is the challenge of reinstituting the culture of innovation that has been lost.

Everyone knows cost-cutting is necessary in this environment, but the question is how and where do you cut the costs associated with innovation and NPD, without losing what you have worked so hard to establish? To help you protect your company’s long term NPD goals, we suggest the following three step NPD-proofing plan:

3 Steps to NPD-Proofing:

Firstly, revisit your new product development strategy. Start by re-evaluating the competition, current market forces, and customer needs. If there have been changes, then determine if and how they will affect your strategic intent. You must also ensure that your product and investment commitments properly align with your strategic intent.

During this strategic evaluation be sure to understand where the money is coming from. Concentrate on products that respond to market needs that command a higher price-particularly your unique and innovative products. Ask yourself: Where have I had success in the past? What do my customers value, and what are they willing to pay for? How can I help my customers reduce costs and waste? Your chances of market success increase greatly when you focus your efforts on developing products that meet an important need- one that the customer recognizes and is eager to pay for.

Secondly, ensure that you know where the money is going. Eliminate waste within your innovation/NPD department, and use the many lean tools available that can drive efficiencies (think of freeze-gates, and 15-minute stand-up meetings). You should also evaluate your existing NPD process to determine where you can save expenses, including any efficiencies that reduce your time-to-market.

Thirdly, understand the risks attached to your innovation efforts. When you take on a new market or technology, you’re adding risk to your project. Specific sources of risk could include: inadequate market acceptance of you new product; problems with technology; or the release of inferior products that results from inexperience. So, when you ask yourself whether you can afford to take on high risk projects at this time, don’t leave it to chance. Take the time to understand the risks and resources needed to execute a new project.

By committing to the above three steps, you should find yourself better placed to re-evaluate and streamline your NPD function, while still providing value and maintaining the hard-won capabilities that you’ve built up.

On an inspirational note, I leave you with the quote: “I’m working to improve my methods, and every hour that I save is an hour added to my life” Ann Rand.

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Strategy 2 Market, Inc.


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