Process Benchmarks Performance Metrics

New Product Development
P R OCE SS BE NCHMARK S AND PER F OR MANC E ME TRI CS
NEW PRODUCT DEVELOPMENT

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Copyright © 2011 by Product Development Institute and APQC
New Product Development:

Process Benchmarks and Performance Metrics
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission.
Stage-Gate is a registered trademark of the Product Development Institute
ISBN 978-0-9732827-3-3
ISBN 978-1-60197-171-5
Publishers: Product Development Institute and APQC
Author: Dr. Scott J. Edgett
Contributors: Rachel Brill, Marisa Brown, Rebecca Colley, and Erin Williams
For more information please contact:
Product Development Institute APQC
Product Development Institute APQC

1425 Osprey Drive, Suite 201 123 North Post Oak Ln, Third Floor
Ancaster • Ontario • L9G 4V5 Houston, TX 77024-7797
Canada +1-713-681-4020 • 800-776-9676
+1-905-304-8798 apqcinfo@apqc.org
www.prod-dev.com www.apqc.org
For information regarding other publications by the author, seminars, and Stage-Gate solutions
please visit www.stage-gate.com.
For information regarding other publications and research conducted by the APQC please visit
www.apqc.org.

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Table of Contents
1. Introduction 7
1.1 The Quest for Best Practices in Product Innovation 7
1.2 The Key Research Questions 8
1.3 Topic Areas Studied 8
1.4 How the Benchmarking Research Was Undertaken 9
1.5 Organization of the Results 12
2. New Product Performance Metrics 13

2.1 Percentage of Revenues and Profits from New Products 13
2.2 Success, Fail and Kill Rates 14
2.3 Time to Market 16
2.4 On Time and On Budget 17
2.5 New Product Development (NPD) Projects Meeting Objectives 18
2.6 Business Entity Performance 20
2.7 Performance Metrics Used to Measure Project and NPD Program 21
2.8 Defining and Identifying the Top Performers 24
2.9 How the Best Versus Worst Businesses Fare in Terms of Performance Metrics 25
2.10 Types of New Products Developed 27
3. The Idea-to-Launch New Product Process and Practices 30

3.1 A Systematic New Product Process 30
3.2 Key Upfront Activities that are Built into the NPD Process 36
3.3 Gatekeeper Governance Practices 37
3.4 Quality of Your Gate Deliverables 40
3.5 Improving Your Gate Practices 42
4. The Impact of People 44

4.1 The Way NPD Project Teams are Organized and Lead 44
4.2 How to Handle Project Team Management 46
4.3 Senior Leadership Support 49
4.4 The Role of the Process Manager 50
5. Portfolio Management—A Special Insert 52

5.1 Portfolio Management 52
6. Conclusions and Recommendations 57

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Appendices
A. In-Depth Case Studies
1. Air Products and Chemicals, Inc. 61
2. Ashland, Inc. 77
3. Becton, Dickinson and Company (BD) 90
4. Electro Scientific Industries, Inc. (ESI) 103
5. EXFO 114
B. Selected Data Charts

Section 1: Organizational Characteristics 138
Section 2: Governance 147
Section 3: Culture and People 150
Section 4: The NPD Process 153
Section 5: New Product Performance 168
Section 6: Tools and Systems to Support NPD 175
References and Endnotes 177
About the Author 179
About the Product Development Institute and APQC 180

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Exhibits
1.1 The Sample—Industry Breakdown 11
1.2 Selected Characteristics of Businesses in the Sample 12
2.1 Percentage of Revenues & Profits from New Products 14
2.2 Success, Fail and Kill Rates—The Average Business 15
2.3 Success, Fail and Kill Rates—Top 25% vs. Bottom 25% 15
2.4 Time to Market (Idea to Launch Months) 16
2.5 Percent of Projects On Time, On Budget—Average Business 17
2.6 Projects On Time, On Budget—Top 25% vs. Bottom 25% 18
2.7 Percent of Projects Meeting Objectives 19
2.8 Additional Performance Metrics—The Average Business 20
2.9 How Businesses Fare in Terms of Performance Metrics 21
2.10 Key Measures Used to Define New Product Success or Failure 23
2.11 Key Indicators Used to Measure the Total New Product Program 24
2.12 Performance Metrics Results—The Best vs. Worst Performers 26
2.13 Performance Metrics—The Best vs. Worst Performers 27
2.14 Breakdown of Projects by Project Type for the Average Business 28
2.15 Breakdown of Projects by Project Type: Best 25% vs. Worst 25% of Performers 29
3.1 Whether Businesses Have a Systematic NPD Process in Place 32
3.2 Impact of Having a Systematic New Product Process in Place 34
3.3 How Business Performs on Critical Pre-Development Activities 37
3.4 Gatekeeping/Governance Approaches 38
3.5 How Effective are the Gates 40
3.6 Gate Deliverables 41
4.1 Primary Approach to Establishing Project Teams 45
4.2 NPD Project Team support—Best vs. Worst 46
4.3 Who Leads the New Product Development Teams 47
4.4 Senior Leadership Support—Best vs. Worst 49
4.5 Types of NPD Training Offered 50
5.1 How Businesses Fare on Portfolio Management 54
5.2 Impact of Portfolio Management—Best vs. Worst 54

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P R OCE SS BE NC HMARK S AND PER F OR MANC E ME TRI CS
1. Introduction
1.1 THE QUE ST F OR BE ST PR ACTI CE S I N PR OD U CT INNOV AT I ON
As organizations try to move forward through what will likely be a long and bumpy economic
recovery, two key imperatives are emerging for those of us with an eye on creating future value for
our organizations.
1. We cannot manage the past.
2. In every industry, innovation is moving forward whether or not your organization is moving
with it.
As we know, the nature of the recovery, or the “new normal”, differs depending upon your industry
and the different parts of the world in which your customers are based. Still, the above principles
apply.
So, given the need to keep innovating despite resource restraints, what are other companies doing to
keep moving ahead? And what does it mean for new product development (NPD) efforts?
In this study, we benchmarked what organizations are currently doing, what best practices are, and
provide a baseline that you can use to compare against your organization’s capabilities. A number of
key themes are benchmarked including performance measures and metrics, NPD process standards
and activities, governance (gatekeeping), and culture.
For example, a complete evaluation of the performance measures that companies are using and the
typical results achieved provide a solid baseline to compare to your organization’s performance. We
gathered numerous NPD-related performance metrics including sales, profit, speed to market, and
performance versus budget. Hence, this report provides metrics that compare company or business
unit level product innovation performance and also evaluates performance at the project level.
Similarly, a detailed examination was undertaken of NPD activities at both an organizational level
(process standards) and at the project execution level (the type of activities occurring, the quality, and
their impact). Finally, we measured some aspects of culture to learn how organizations leverage
teams and support them to improve organizational capability as well as the role of the NPD process
manager.
The key challenge, of course, is how to do all of this effectively and repeatedly. In this report, we
share how best-practice organizations support product innovation processes that deliver results. The
findings present an interesting picture of what these organizations do and how they developed and
continue to manage their processes. We hope these best practices will help your organization
improve its performance in this important endeavor of managing your new product development
efforts.
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1.2 T HE KEY RE SEARCH QUE STI ONS

This investigation addresses four main questions in new product development:
1. Metrics: How are businesses performing in terms of their new product development efforts?
For example: How successful are they? Are they profitable? What percentage of sales and
profits comes from new products? What types of innovation are undertaken? And, at the
project level: what metrics are used to gauge how project teams are performing against
budgets and timelines?
2. NPD process: How are businesses faring on a number of practices that have been identified
over the years as positive drivers of performance? For example: Do businesses really have a
new product development process in place? Is it working? Do the early pre-development
activities impact the ultimate success of the project?
3. Gatekeeping and governance: What practices are used? How effective are gatekeeping practices?
What is the impact on success?
4. Best vs. worst companies: What are the best- or top-performing businesses doing differently
from the rest? What are some of the details and examples of best practices? How have
companies sought to leverage the people side of innovation? And additional questions.
1.3 T OPI C ARE AS ST UD IE D

Previous research has identified a number of factors that are proposed to drive new product
performance1. These factors provide the conceptual framework and basis for the current study. The
ten main topic areas studied include:
Performance Metrics:
1. Product innovation metrics at the business unit level
2. The type of projects undertaken—the portfolio breakdown
3. Metrics used to gauge NPD performance at the project level
4. Differences in performance between top performing companies (top 25 percent), and the
poor performing companies (bottom 25 percent)
The Idea-to-Launch New Product Process and Practices:

5. The business’s NPD process—the idea-to-launch or stage-gate process—and its elements
6. Best practices embedded within the NPD process
7. Quality of execution of key activities in typical new product development projects/programs
8. The quality of up-front activities (before development begins)

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9. The effectiveness of Gatekeeping and Governance practices including the quality of gate
deliverables and their quality
10. The impact of teams, leadership, and process management.
Each of these 10 key topic areas has a number of sub-items, so that a total of 68 practices, methods,
and approaches were researched.
NPD performance metrics are always a question of interest as organizations strive to benchmark
themselves against others to determine if their performance standards are acceptable or not. In this
study the performance of businesses’ new product development efforts—their total NPD
programs—was also measured. Note that NPD performance is a multi-dimensional concept, so
multiple measures of performance are used in this study. These performance measures include:
 Percentage of new products meeting sales, profit, and market share objectives (3 measures)
 Success, failure, and kill rates of NPD projects (3 measures)
 Proportion of NPD projects on budget and on schedule (2 measures)
 Average slip rates for projects behind schedule
 Percentage of the business’s sales and profits generated from new products (2 measures)
 Overall profitability of the business’s total new product efforts relative to spending
 Time to market
 Whether the business’s total NPD program has met or exceeded its sales and profit
objectives (over the last three years)
 The success and profitability of the business’s total NPD program (over the last three years)
 Whether the business has been able to reduce product development cycle time—
development-to-launch time—significantly over the last three years
 Other key indicators used to measure performance.
From these multiple performance metrics, top performing performance dimensions were created
which enable us to identify the Best Performers in NPD.
1.4 H OW THE BENCHMARKI NG RE SE AR CH W AS U NDER TAKE N

The research was undertaken jointly by the American Productivity & Quality Center (APQC) and the
Product Development Institute (PDI) with the author as subject matter expert. The study used
APQC’s standard and proven benchmarking methodology, including both qualitative and
quantitative methods.
Qualitative: Site visits were organized with five companies previously identified as having best
practices in new product development in place. The APQC research team consisted of the subject
matter expert, a number of representatives from the sponsor companies, and APQC personnel who
conducted the meetings. These on-sites visits were based on a detailed interview guide or
questionnaire, which covers essentially the same 10 topics as listed in Section 1.3.

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The following five companies were visited.
 Air Products and Chemicals, Inc. (Performance Materials Division) is engaged in high-
end, performance-specific applications, primarily in a business-to-business model and is
comprised of six business lines: specialty additives, functional additives, personal care,
reactive intermediates, polyurethane additives, and epoxy additives. The PMD group
generated about $700 million in sales in 2009.
 Ashland, Inc. (Performance Materials Business Unit) has a business-to-business focus

within two main markets: transportation and building/construction. This business unit sells
the resins that are eventually used by its customers for composites and high-performance
adhesives composites. This business unit contributes approximately $1 billion in sales
annually.
 Becton, Dickinson and Company (BD) is a global medical technology company,

comprised of three divisions: Biosciences, Diagnostics and Medical, that develops,
manufactures, and sells medical supplies, devices, laboratory instruments, antibodies,
reagents, and diagnostic product. Annual sales were about $7.3 billion in 2010 of which
Diagnostics comprised approximately 30 percent.
 Electro Scientific Industries, Inc. (ESI) is a leading supplier of innovative, laser-based

manufacturing solutions for the microtechnology industry. Its systems enable precise
structuring and testing of micron to submicron features in semiconductors, LEDs and other
high-value components.
 EXFO is a leading provider of optical testing solutions and wireless protocol analyzers and
network simulators, and portable test sets for the telecommunications industry.
Quantitative: A detailed quantitative questionnaire was also constructed, focusing on the 10 topics
in Section 1.3. A total of 68 variables or measures were used to capture the existence and proficiency
of practices, approaches, and methods in the questionnaire. Additionally, some general descriptive
questions to characterize the businesses were included.
Many questions were measured on Likert-type anchored 0-10 scales—for example, questions that
sought the degree to which certain practices or methods were employed and how well, or how
successful NPD Gatekeeping practices are. Other questions were direct, seeking a quantitative
answer, such as percentage of projects that were commercial successes or failures or percentage of
projects meeting sales targets. Finally, a number of open-ended questions that sought text responses
were included.
The quantitative sample: A total of 257 business entities responded to the detailed quantitative
questionnaire. Refinement of the data sample plus the removal of small organizations led to a useable
sample of 211 respondents. Selected sample statistics are:

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 Businesses are in a number of different industries, with about half in the manufacturing
sector (Exhibit 1.1)
 The businesses have median sales of $1 billion and the median number of employees is
2,500 (Exhibit 1.2)
 Median R&D spending data is $10 million per business or 4.0 percent of sales. The mean
values are also shown in Exhibit 1.2, but are skewed by a number of very large businesses.
Exhibit 1.1: The Sample – Industry Breakdown
Industry Percentage of Participants
Industrial Products 20.4%
Consumer Goods 18.5%
Service 15.6%
Chemical 7.1%
Other Business-Business 7.1%
Health Care 6.6%
Telecommunication 5.7%
Electronics/computers 4.3%
Software 4.3%
Other 10.4%

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Exhibit 1.2: Selected Characteristics of Businesses in the Sample
Average Value Across Median Value (50th

Characteristic
Businesses percentile) Across Businesses
Number of employees 15,423 2,500
Annual sales revenue $8.4 billion $1 billion
Spending on R&D
8.2% 4.0%
(as a percent of sales)
Annual spending on R&D $1.1 billion $10 million
1.5 ORG ANI ZATI ON OF THE RE SUL T S

Next comes the reporting of the results. With so many practices, methods, and performance metrics
gauged, a roadmap of the report may be useful:
 The next section, Chapter 2, provides NPD performance results of the businesses on the
many performance metrics measured. Here, these performance metrics are also combined to
identify the Best and Worst Performers.
 Chapters 3 and 4 outline how the businesses rate or fare on the different practices and
methods in each of the first 10 topic areas outlined. Additionally, each practice is measured
against performance metrics to assess how the top and bottom performers score on each.
 Chapter 5 looks at portfolio management and its impact on success.
 Chapter 6 outlines the Conclusions and Recommendations.
 Appendix A provides detailed case descriptions from the site visits undertaken with the five
best practice companies which are presented as individual case studies.
 Appendix B provides the survey data results in chart form to provide the reader with
additional points for reference and information.

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2. New Product Performance Metrics
Determining how your organization is performing and how it compares to other organizations is
always an interesting question. Without clear metrics and a way to compare them, it can be very hard
to know whether you are doing well or poorly at product innovation, if your investment in R&D is
producing the desired results, and what areas of your performance might need to be improved or
strengthened. In this chapter, how the businesses fare on a number of the top performance metrics is
highlighted, along with the distribution of results—the top and bottom 25 percent of businesses.
Also, based on these performance results, a subset of best performing businesses are identified,
which then help to identify best practices in subsequent chapters.
2.1 PER CE NT AGE OF REVE NUE S AND PR OFI TS F R OM NEW PR ODUC T S

The most popular performance metrics used at the business unit level are the percentage of sales
(revenue) and the percentage of profits derived from new products. But how do businesses perform
on these popular metrics? Exhibit 2.1 reveals the results:
Average Business Top 25% Bottom 25%
% revenue from new products 27.3% 36.3% 10.0%
% of profits from new products 25.2% 30.5% 10.0%
These percentages of sales revenues and profits are defined as follows: the percentage of the business
entity’s annual sales revenues (or the business’s profits) that is derived from new products launched
within the last three years.
Overall, the average percentages are impressive for new products launched within the past three
years. But most impressive are the results of performers in the top 25 percent on these two metrics:
36 percent of sales and 30.5 percent of profits coming from new products.
But words of caution: Although these are popular metrics, be aware that they are not necessarily the
right metrics to gauge performance or the only metrics to use. Here are the comments of an astute
and experienced CTO:
“Percentage of sales is a ‘good news, bad news’ metric. One of our business units has a very
high percentage of sales from new products. But this is due to a combination of negative
factors: high and costly product obsolesce in their market; new products that did not
perform—either technically or financially—and needed to be fixed and replaced; and over-
reaction to every single customer request. The result is a lot of ‘churn’ in the product line,
which is very costly to the business. So a high percentage of sales is not always a good
thing.”

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PROCE SS BE NC HMARK S AND PERFOR MANCE ME TRICS
Exhibit 2.1: Percentage of Revenues & Profits from New Products
Bottom 25% of
10.0% Businesses
% of revenue coming Average

27.3% Business
from NPs
36.3%
Top 25% of
Businesses
10.0%
% of profits coming
25.2%
from NPs
30.5%
0% 10% 20% 30% 40%
Percentage of the Business’s Sales Revenues & Profi ts

Comi ng from New Products La unched in Last 3 Years
2 . 2 S UC CE SS , F AI L A ND K IL L R ATE S
Another key metric is the NPD success rate: what proportion of projects entering development
become commercial successes? Or become commercial failures? Or are killed along the way?
The average values are shown in Exhibit 2.2, while the top 25 percent and bottom 25 percent of
businesses on this metric are shown in Exhibit 2.3:
Success Rate 53.2% 70.0% 35.0%
Failure Rate 26.5% 10.0% 35.0%
Kill Rate 20.3% 5.0% 30.0%

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Exhibit 2.2: Success, Fail and Kill Rates – The Average Business
Killed Prior to Launch
Commercial
Successes
Commercial Failures
Exhibit 2.3: Success, Fail and Kill Rates – Top 25% vs. Bottom 25%
Bottom 25% of
% of projects 35.0% Businesses
commercially Top 25% of
successful 70.0%
Businesses
% of projects 35.0%
commercial failures 10.0%
% of projects killed 30.0%

prior to launch 5.0%
0% 20% 40% 60% 80% 100%
Percentage of Business’s New Product

Projects that are Successes, Failures, or Killed

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The result is a respectable success rate on average of 53 percent. But note the huge difference
between the top 25 percent of businesses and the bottom 25 percent on this Success Rate metric: the
top 25 percent have double the success rate of the bottom 25 percent. And the bottom 25 percent
have more than three times the failure rate of the top 25 percent. These are not small differences—
these performance differences are of great magnitude, and raise the questions: what separates the
best from the worst; and why do the top businesses do so exceptionally well?
2.3 T I ME TO MARKET
Time to market is a very typical performance metric, given the heavy emphasis placed on speed-to-
market and cycle time reduction in product innovation. The median product development time from
Idea Generation through to Product Launch is slightly less than 18 months. However, the
breakdown, by businesses, shows that a wide range in cycle times exists (see Exhibit 2.4). Note that:
 55.1 percent of businesses take less than 18 months, on average; and

 30.7 percent take at least two years or more to get new products from idea to market.
Exhibit 2.4: Time to Market (Idea to Launch Months)
More than five years 3.1%
Three to five years 8.2%
Two to three years 19.4%
Nineteen to 24 months 14.3%
Thirteen to 18 months 24.0%
Seven to 12 months 22.4%
Three to six months 8.2%
Two months or less 0.5%
0% 10% 20% 30%
Percentage of Businesses – Average Time to Market

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2.4 ON TI ME AND ON B U DGET

Another performance perspective is the proportion of projects that meet their targeted launch dates
on time and on budget. Exhibit 2.5 provides the results for the average business, and Exhibit 2.6
shows the results for the top 25 percent and bottom 25 percent on this metric:
Percent of projects on time 44.4% 70.0% 20.0%
Percent of projects on budget 56.5% 81.0% 40.0%
The fact that, on average, more projects are behind schedule (missing their scheduled launch date)
and that a considerable percentage (43.5 percent) are over budget raises serious concerns about
scheduling, resource management, project management, and commitments to timelines. Admittedly,
there is a small group of businesses doing much better than these average businesses: 70.0 percent on
schedule and 81.0 percent on budget. But the other extreme is the bottom 25 percent, whose
performance is 3.5 times lower than the top 25 percent. The significant difference between the top
25 percent and bottom 25 percent indicates that many firms have yet to achieve acceptable on-time
and on-budget results, although a handful of firms prove that this goal can be achieved.

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Exhibit 2.6: Projects On Time, On Budget – Top 25% vs. Bottom 25%
Bottom 25% of
% of projects launched
20.0% Businesses
on schedule
70.0% Top 25% of
Businesses
Time late (as % of

40.0%
schedule)
19.0%
% of projects on budget 40.0%

81.0%
0% 20% 40% 60% 80% 100%
Percentage of Business’s New Product Projects

On Time, On Budget
But how late is late? The “slip rate” measures how late a project is as a percentage of its total
scheduled time to market. On average, when a project is late to market, it is behind schedule (the
“slip rate”) by 31.4 percent, as noted in Exhibit 2.5. That is, if a project is scheduled for 18 months
time-to-market, the typical “late project” gets there in 23.6 months, i.e. 5.6 months late.
That is the data for the average business. The worst performers (bottom 25 percent on this metric)
see their “late projects” miss the scheduled launch by 40 percent, while the best drive their slip rates
down to 19 percent.
2.5 NPD PROJE CT S MEET ING OBJE CTI VE S

What portion of NPD projects meet their objectives? Management measures the performance of
NPD projects on a number of objectives, for example profits, sales, and market share. But just how
do businesses rate on these metrics? Exhibit 2.7 shows the proportion of projects meeting profit,
sales, and market share objectives. It also shows the results for the top 25 percent and bottom 25
percent of businesses on these three metrics:

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Average Bottom
Top 25%
Business 25%
% meeting profit objectives 51.1% 70.0% 29.9%
% meeting sales objectives 52.2% 70.0% 33.5%
% meeting market-share objectives 48.8% 70.1% 30.0%
The performance metric results are a cause for concern. First, the fact that the mean values are
averaging about 50 percent for all three metrics means that a sizable proportion of projects (almost
half) are failing to meet objectives. This result should be unacceptable for most senior management
teams. Next, consider the distribution of results: the top 25 percent of businesses on these metrics
are achieving almost 2.5 times the performance of the bottom 25 percent, suggesting that many
businesses have a lot of room for improvement.
Exhibit 2.7: Percent of Projects Meeting Objectives
29.9% Bottom 25% of Businesses

% of projects meeting profit
51.1% Average Business
objectives
70.0% Top 25% of
Businesses
33.5%
% of projects meeting sales
52.2%
objectives
70.0%
30.0%
% of projects meeting market
48.8%
share objectives
70.1%
0% 20% 40% 60% 80% 100%
Percentage of Business’s New Product Projects

Meeting Objectives

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2.6 BUSINESS E NTITY PERFOR MANCE

There are many ways to measure a business’s performance at product innovation. These include a
number of qualitative metrics and comparative measures that are best captured on 0 to 10 scales.
Exhibit 2.8 shows the average results on six such scaled metrics, while Exhibit 2.9 shows results for
those with very positive results (scoring 8, 9, or 10 out of 10) and those with poor results (scoring 0,
1, 2, or 3 out of 10) on each performance metric. The results:
1. Most businesses actually do keep score and measure their overall NPD performance (mean
rating: 5.4 out of 10). A surprising 11.7 percent do not, however.
2. Businesses see their NPD efforts or programs as moderately profitable relative to how much
they spend on them (mean rating: 5.8 out of 10). Only 19.2 percent see their programs as
very profitable.
3. The ability to meet profit objectives is more weakly rated on average (mean rating: 5.2 out of
10). Only 12.9 percent of businesses were very satisfied with their ability to exceed profit
objectives.
4. Meeting sales objectives was rated weakly as well (mean rating: 5.3 out of 10) and only 13.0
percent of businesses were very satisfied with their ability to exceed sales objectives.
5. Cycle time reduction is the goal in many businesses’ product innovation efforts. And so, the
ability to reduce cycle time over the last three years is a key metric. Businesses rate poorly on
this metric (mean rating: 5.2 out of 10), with only 11.6 percent of business claiming very
good results.
Exhibit 2.8: Additional Performance Metrics – The Average Business
Product performance is measured 5.4
Product performance tracked centrally 5.4
Profitability vs. spending 5.8
Met/exceeded profit objectives 5.2
Met/exceeded sales objectives 5.3
Reduction of cycle time 5.2
0 1 2 3 4 5 6 7 8 9 10
0=Not 10=Excellent,
at all The Degree that Each to a great
Performance Metric is extent
Measured

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A quick glance at Exhibit 2.8 shows that mean scores fall almost entirely down the middle of the
chart, with the average business achieving a moderate-to-weak 5 to 6 out of 10 on just about every
performance metric. These depressed scores are a definite concern. The worst performance is on the
cycle reduction metric. The strongest performance metric was the business’ profitability relative to
spending over the past three years.
2.7 PER F ORMANCE MET RI C S U SED T O MEASU RE PR OJEC T AND NP D PR OG RAM

What gets measured usually gets done! Metrics that are regularly measured and reported also tend to
shape what people try to improve upon. So, what types of performance metrics are commonly
employed in NPD? We investigated the specific metrics employed in NPD management, not so
much as a best practice (there are no ratings or scores reported here), but as a way to gain insights
into which metrics are the most popular.
Two types of metrics are investigated:

1. Metrics used to gauge how successful an individual new product project was. For example,
was project X a success or a failure?
2. Metrics used to gauge how well the business’s total new product effort performs (its NPD
program). For example, the percentage of new products launched that were commercial
successes.
Thus, one set of metrics is at the project level (Exhibit 2.10); the other is at the business or business unit
level (Exhibit 2.11). The results are self-evident.

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Individual NP project performance metrics:

Most companies use multiple project performance metrics (on average, the companies used 4.2
different metrics per business). The most popular metrics are, in order of popularity:
Metric Percentage of Businesses Using

Revenue versus forecasted revenue (meets revenue goals) 68.9%
Customer satisfaction measures 60.5
Profitability of the new product (NPV, operating profit, EVA, etc.) 56.3
Time to market 48.4
Profitability versus forecasted profits 47.4
Performance to schedule (on-time launch) 41.4
Market share 37.4
Performance to budget 35.3
Time to profit/breakeven time 29.5
Cost of NPD as a percent of revenue produced 25.8
Percent of repeat customers 16.8
Program (overall NPD efforts) performance metrics:

Most businesses use multiple metrics here (on average, the companies used 2.6 different program
metrics). The most popular metrics used to gauge the entire NPD efforts of the business are:
Metric Percentage of Businesses Using

Percentage of revenue from new products 68.8%
Percentage of growth in sales coming from new products 44.1
Percent of profit generated by new products 39.8
Success rate of launched products 37.1
Number of major launches per year 37.1
Return on investment of R&D dollars 29.0
Overall profits (annual) generated by new products 29.0
In all cases, a time frame had been defined: new products launched over the last two, three, or five
years. Often the definition of “what is a new product” proved difficult or problematic, but in better
practice firms this term had been precisely defined to enable the use of these metrics.
But words of caution: Although these are popular metrics, be aware that they are not necessarily the
right or universal metrics to gauge NPD performance. Nor will a single metric necessarily capture all
facets of new product performance. Recall the comments of the experienced CTO (Section 2.1) who
noted that “percentage of revenue” can reward or induce the wrong kind of behavior. He was not
alone. We heard a number of knowledgeable people suggesting caution in that NPD metrics, as with
all metrics, can cause or incent the wrong kind of management actions. For example, NPD
performance measured strictly by “percentage of sales from new products” will logically lead to a
page 22
number of short-term, fast projects (and few longer term ones); projects that generate sales but not
necessarily profits; new products that could cannibalize existing products and create a lot of
unnecessary churn in the product line; and so on.
Exhibit 2.10: Key Measures Used to Define New Product Success or Failure
Revenue vs. forecasted revenue 68.9%

Customer satisfaction 60.5%
Profitability 56.3%
Time to market 48.4%
Profitability vs. forecasted profits 47.4%
Performance to schedule 41.1%
Market share 37.4%
Performance to budget 35.3%
Time to profit/breakeven time 29.5%
Cost of NPD as a % of revenue produced 25.8%
% of repeat customers 16.8%
Other 2.2%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Percent that Use the Measure
Note: Most companies use multiple measures

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Exhibit 2.11: Key Indicators Used to Measure the Total New Product Program
% of revenue from new products 68.8%
% growth in sales from new products 44.1%
Success rate of launched products 37.1%
Number of major launches per year 37.1%
% of profit generated by new products 39.8%
Return on investment of R&D dollars spent 29.0%
Overall profits generated by new products 29.0%
Other 5.9%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Percent that Use the

Indicator
Note: Most companies use multiple measures
2.8 DE FI NING AND ID E NTI FY ING THE T OP P ER F OR MER S

Which businesses are the best or top performers? And which are the worst? These are important
questions, and they lie at the basis of a valid benchmarking study. By comparing the practices used in
Best versus Worst Performers, one can zero in on the best practices. For example, while many of the
practices and methods we observe and report in this study may seem intuitively obvious as “best
practices”—such as building in the voice-of-customer, or adopting a solid new product development
system. Unless these practices have a significant impact on performance, they cannot be considered
as best practices. Moreover, just because someone in the company claims that some method or
approach is a best practice, does not necessarily make it so. Unless it can be shown to positively
impact on performance, it probably is not a best practice. Thus, identifying the top performing
businesses in product development, and then comparing what they do versus the poor performers, is
an important step to identifying and validating best practices. Note also that poor performers must
be identified, because it’s only by comparing and contrasting practices in the Best versus the Worst
Performers that best practices can be proven.
Numerous performance metrics were identified and investigated in this study. Previous sections in
this chapter have reported how businesses perform on these metrics. Trying to identify which
businesses are the best versus the worst on each and every metric becomes a cumbersome task;
moreover, some of these metrics are themselves inter-correlated.

page 24
As a result, a composite variable was created using responses to three key performance metrics
focusing on profits and sales. The “top” performers for this composite had consistently strong
performance across all questions, and the “bottom” performers for this composite had consistently
weak performance in the three areas. The “middle” group had any other combination of scores. The
three key measures are:
 Profitability of the NPD program over the past three years relative to spending on it,
 Ability to meet or exceed profit objectives over the last three years, and
 Ability to meet or exceeded its sales objectives over the last three years.
Hence, a new composite variable was created that reflects the three groups’ strength on these three
metrics. Group one was very strong on achieving profit and sales results; the second group was very
poor or fell far short of profit and/or sales objectives; and a third, middle group that comprises the
rest of the respondents.
2.9 H OW THE BE ST VER SU S W ORST BU SI NE SSE S FARE IN TER MS OF PE R F OR MANCE

METR IC S
How well or poorly did the Best and Worst Performers do in terms of the many performance metrics
that were measured? And are they really the Best and Worst businesses according to these metrics?
Let’s look now at how well and poorly they really did in NPD—a validation (see Exhibits 2.12 and
2.13).
The results are overwhelming: clearly a powerful set of Best Performers that can readily compare to a
weak set of Poor Performers have been identified. There are 16 performance metrics in total
(Exhibits 2.12 and 2.13). Here we see that on all 16 metrics, the Best Performers score significantly
higher and stronger than the Worst.
For example, the Best versus the Worst Performing businesses in Exhibit 2.12:
 Have much higher new product success rates (62.0 percent vs. 44.9 percent) and lower
failure rates
 Have higher proportions of projects on time (60.4 percent vs. 25.5 percent) and on budget
(66.7 percent versus 40.0 percent)
 Have more projects that meet their sales objectives (74.7 percent vs. 36.7 percent) and profit
objectives (about 71.8 percent vs. 36.7 percent)
 See a much higher proportion of their business’s sales revenues and profits coming from
new products (about 45 percent vs. 14 percent).

page 25
Exhibit 2.12: Performance Metrics Results – The Best vs. Worst Performers
44.9% 52.2%
% of developments successful (success rate)
62.0%
34.2%
% of developments that fail (failure rate %) 27.7%
13.8%
20.9%
% of projects killed (prior to launch) 20.1%
24.3%
40.0%
% of projects on budget 61.4%
66.7%
25.5%
% of projects on schedule 46.9%
60.4%
36.7%
% of projects that met profit objectives 50.1%
71.8%
36.7%
% of projects that met sales objectives 50.1%
74.7%
43.2%
% of projects that met mkt share targets 46.7%
66.1%
16.9% 28.2%
% of revenue coming from NPs Worst Performers
46.6%
Middle Business
10.5%
% of profits coming from NPs 26.2% Best Performers
43.8%
0% 20% 40% 60% 80% 100%
Mean Rating Percentage

Note: Statistically significant at a confidence level of 0.05 or better
And in Exhibit 2.13
 Measure and track performance (mean rating on a 1-10 scale: 6.6 vs. 3.1)
 Have more profitable NPD programs versus spending (mean rating on a 1-10 scale: 8.4 vs.
3.2)
 Have NPD programs that meet the business’s profit objectives (mean rating a 1-10 scale: 8.1
vs. 1.9).

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Exhibit 2.13: Performance Metrics – The Best vs. Worst Performers
3.2
Product performance is measured 5.7
6.7
3.0
Product performance tracked centrally 5.7
6.5
3.2
Profitability vs. spending 6.0
8.4
1.9
Met/exceed profit objectives 5.6
8.1
2.3
Met/exceed sales objectives 5.5
8.2
2.2 Worst Performers
Reduction of cycle time 4.6 Middle Business
5.6 Best Performers
1 2 3 4 5 6 7 8 9 10
% of Businesses that are “Very Good” vs. “Very Poor”

On Performance Metrics
2.10 TYPE S OF NE W PRODUCT DEVE LOPE D

What is the right portfolio mix in terms of projects? This is always a question that we are asked and
one that executive teams are always debating. Other common questions are: What is the right mix of
project types to have in the portfolio? How do we optimize the portfolio mix? Or, what is the right
split between high and low risk projects? The answers to these questions should be reflected in the
breakdown of product development or project types undertaken—where the funds are invested. By
default the projects that are currently active and funded is your current and active portfolio and a
reflection of current managements’ view of their innovation strategy and a reflection of their risk
profile. Additionally, breakdowns of new products and projects by innovation type should give a
predictor of the business’s NPD performance and act as an indicator of what types of results we
should be able to expect in the future. For example, too much emphasis on short term, low risk small
projects might point to an under-achieving business or a business where the actual spending reflects
a very risk adverse culture. Exhibit 2.14 shows the breakdown for the average business. Note that the
dominant categories are:
 Incremental product improvements/changes (34.8 percent); followed by

 Major product revisions (22.5 percent); and then
 New products to the firm (20.0 percent).

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This is a fairly reasonable balance among projects in these three main categories. By contrast, new-to-
the-world products—true innovations—and minor development—such as promotional and package
changes—represent a minority of new products (6.7 percent and 13.4 percent, respectively).
Do the Best Performers adopt a different mix of project types—is there an optimal portfolio of
project types? Consider how the Middle businesses compare to the Best and Worst Performing
businesses—see Exhibit 2.15.
What is noteworthy is the shift towards much more innovative and/or riskier and bolder projects as
one migrates from Worst to Best businesses. For example:
 More than half (57.1 percent) of Worst businesses’ projects are the small, incremental
ones—promotional/package changes or incremental product improvements and changes.
 By contrast, only 40 percent of Best Performers’ projects are these small, incremental ones.
 Best Performers take on a higher proportion of larger, more innovative projects: 38.2
percent of Best Performers’ projects are either new-to-the-business or true innovations—
new-to-the-world.
Exhibit 2.14: Breakdown of Projects by Project Type for the Average Business
Promotional
New product to Other development/package
world
change
2.6%
6.7% 13.4%
New product to
business 20.0%
Incremental product
34.8%
improvement/change
22.5%
Major product
revision

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Exhibit 2.15: Breakdown of Projects by Project Type: Best 25% vs.

Worst 25% of Performers
Bottom 25% Middle Top 25% of

of Businesses Businesses Businesses
Promotional Developments, Price

17.1% 13.0% 10.8%
Changes & Packaging Changes
Incremental Product Improvements &
40.0% 34.5% 29.5%
Changes
Major Product Revisions 21.4% 23.1% 20.5%
New to the Business Products 14.0% 20.3% 26.7%
New to the World Products 4.1% 6.4 11.5%
~40% ~50% ~59%

Note: Does not add to 100% down a column due to a
small percentage of “other” projects.
Point Steps
 By contrast, only 18.1 percent of Worst Performers’ projects are these bolder projects.
 Consider the last category on its own in Exhibit 2.15: Best Performers do almost three times
the number of true innovations (new-to-the-world products) projects than do Worst
Performers: 11.5 percent versus 4.1 percent.
 As you progress from the worst to middle to best performers, there is a full 10 percent step
change in the project mix towards the more innovate types of projects reflecting an increase
in risk as you move from each of the three categories.
Conclusions: We cannot prove cause-and-effect here—that doing more venturesome projects will
lead to better performance results. But if you wish to benchmark the Best Performers in terms of
project types, Exhibit 2.15 is a good guide. And note the tendencies when comparing Worst versus
Best Performers—the heavy shift from small and incremental projects to bolder and more innovative
projects.

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3. The Idea-to-Launch New Product Process and

Practices
This section deals with the process that businesses use to drive new product projects from the Idea
Stage through to Launch. Specific topics in this section include:
1. The nature of the business’s new product process,

2. Practices embedded within this process, and
3. The role of governance (gatekeeping).
3.1 A SY STE MATI C NEW PR ODUC T PR OCE SS

A new product process—a game plan or playbook to guide NPD projects from idea to launch—is a
key to NPD success. The term “new product process” means more than just a flow-chart; the term
includes all process elements—the stages, stage activities, gates, deliverables and gate criteria that
constitute a well-defined new product process. For more than twenty years, organizations have been
urged to design and implement such a new product process, and they appear to have heeded the
experts. Indeed, having a well-defined new product process is the strongest practice observed in the
sample of businesses. Consider now some of the details and practices associated with this best
practice (Exhibits 3.1 and 3.2):
1. A clearly defined idea-to-launch new product process: As noted, businesses rate very
high here, with 88.2 percent of businesses having such a NPD process, and only 11.9
percent scoring weakly (Exhibit 3.1). The Best Performers score 9.2 out of 10 here
compared to only 5.7 for the worst performers.
2. A visible, documented process: Some firms claim to have a NPD process; but on closer
inspection, it’s more of a high level and conceptual process—a few flow diagrams with
boxes and diamonds and little more. To be operational, an effective new product process
should be well mapped-out, visible and well-documented. Again, the sample of businesses
does fairly well, with best performers having a mean rating of 8.4 out of 10. 84.6 percent of
businesses indicate that they have a reasonably well-documented and visible NPD process;
only 15.2 percent scored poorly.
3. An adaptable and scalable process: Is the NPD process a flexible one, adapted to the
needs, size and risk of the project? Or is it a rigid, one-size-fits-all process, failing to
recognize the difference between high risk and low risk projects? Two thirds of the
businesses in this study (80.6 percent) view their process as somewhat flexible, adaptable and
scalable. (The Best Performers score of 8.0 out of 10 compared to only 4.7 for worst
performers).

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4. Whether the NPD is really used: The true test of a process is whether or not it is really
used; or is it merely window-dressing in the business (i.e. a paper process only). There is
clear evidence that some businesses have a process that is consistently used and understood
by the organization with 78.7 percent indicating a moderate or strong use of their NPD
process. Somewhat disturbing is that although the great majority does claim to have some
type of NPD process in place (only 11.9 percent claimed not to have a process at all), 21.4
percent claim that their process is not really used.
5. An enabling process for the project team: Another test of one’s NPD process is whether
or not it is a facilitating process that helps project teams get their products to market (rather
than a bureaucratic process that stands in the way). This is one of the weakest elements of
the NPD process, with a moderate mean rating score of 5.9 out of 10, and with 56.8 percent
reporting that the process is only moderately enabling (22.0 percent of businesses reporting
that it is strongly enabling). (However, best performers outscore the worst performers 7.2 vs.
4.1 out of 10.)
6. Defined Go/No Go criteria at gates: Go/Kill criteria are considered important to better
evaluate the merits of NPD projects, and to assist management in making the critical
Go/No Go decision. In spite of the logic of having such consistent gate criteria, the lack of
such criteria is fairly widespread (22.5 percent of businesses lack these criteria; only 43.1
percent claim to have very well-defined gate criteria). Indeed this is a somewhat weaker facet
of business’s NPD processes (a mediocre mean rating score of 6.6 out of 10). Without clear
decision criteria it is hard to separate the winning projects from the less attractive ones.
Interestingly, the best performers score twice as strong as the worst performers (8.6 vs. 4.3).
7. Deliverables defined for each gate: A menu of what the project team is expected to
deliver to each gate in the NPD process—their “deliverables”—is a positive feature of best-
in-class new product processes that is also common amongst the sample of businesses.
Overall, having well-defined deliverables is rated fairly strongly, with 84.6 percent of
businesses having such an explicit menu of deliverables to guide project teams.
8. Checks to monitor if the process is followed: Monitoring to see how well the process is
followed is a good way to determine if project teams are actually using the process. If too
many teams are not following the process, the checks can act as an early warning signal.
Unfortunately, the overall mean score reported here was 5.6 out of 10 with only 23.5 percent
of companies reporting that they are very good at monitoring the process.
Merely having a NPD process in place, however, is a good start but it is not enough to maintain the
position of a top performing company. Instead having a good process in place is really just the
starting point. The Best Performers go on to further enhance their process to ensure it is working
effectively and delivering the desired results. Unfortunately, the poorer performers still have not
adapted this best practice as the results in Figure 3.2 clearly demonstrate.

page 31
Some examples: As would be expected of best practice firms, companies that took part in the site visits
(the case studies) had in place a well designed stage-gate new product development process (e.g., Air
Products, Ashland, BD, ESI, and EXFO). A detailed profile of each company’s process is provided
in Appendix A. Each company indicated that a solid, well-defined process with clearly defined
activities in each stage and a well-defined decision framework for the gates (decision points) was a
critical best practice for them.
 Air Products and Chemicals, Inc.: “The organization uses a consistent, organization-wide
process called offering development and introduction (ODI) that is modeled on the Stage-
Gate® process. This process, a company-wide stage-gate framework, has become
institutionalized and is ingrained in the language and culture of the company.”
 Ashland, Inc.: “We have been able to successfully combine our product development
process [Stage-Gate] with our Six Sigma program. This combined approach allows us to
produce high-quality products in a disciplined manner.”
 Becton, Dickinson and Company (BD): “BD’s global new product development system
serves as an effective baseline for planning and managing NPD projects and provides a basis
for functional transparency and accountability.”
page 32
 Electro Scientific Industries, Inc. (ESI): “The improved consistency of the process is
helping to improve the quality of content, accelerate learning for new participants, and
enable objective status reporting.”
 EXFO: “We have a well-defined stage-gate process that over the years has evolved as we
have adapted to changing market needs. Our process is a considered an asset.”
The results from these and other firms have been impressive. For example, Michael Popule, Group
Manager, Reaction Engineering, Air Products when asked about the impact of their process, said “It
allows us to fail fast and move on rather than not try risky projects that could have a large reward.”
A closer look at the ingredients of such a process confirms the conclusion above: that having a new
product process is the starting point to separate the Best from the Worst Performers. Having all of
the elements of this process is very evident in top performing businesses. Note how high Best
Performing businesses rate on almost all the elements of a systematic NPD process in Exhibit 3.2
compared to the Worst Performers.
 Best Performers’ NPD processes are enablers—they make it easier for project teams to drive
their NPD projects to market (rather than being a burden on them)
 Best Performers’ NPD processes are adaptable and scalable—they are flexible processes,
adapted to the needs, size and risk of the project (rather than being a rigid one-size-fits-all
process, failing to recognize the differences between major and minor projects).

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Exhibit 3.2: Impact of Having a Systematic New Product Process in Place
5.7
Use formal NPD process 8.1
9.2
5.7
Visible, documented process 7.6
8.4
4.7
Adaptable, scalable process 6.9
8.0
3.8
NPD process is really used 6.1 Worst Performers
6.8 Middle Business
4.1 Best Performers
Process enables project teams 5.9
7.2
4.3
Go/No Go criteria defined 6.6
8.6
5.1
Deliverables defined per gate 7.5
8.8
3.3
Checks to monitor process is followed 5.6
6.0
2 3 4 5 6 7 8 9 10
0=Not 10=Very
at all Impact of Each NPD Process Element much so
Conclusions: Overall, the majority of businesses fare very well in terms of their new product
processes. For the majority of businesses, the NPD process is in moderately good shape.
Best Performers overwhelmingly have a NPD process in place, along with most of its elements. Thus
having a NPD process, along with the items or ingredients listed in Exhibit 3.1, is highlighted as a
best practice in this study. So, if your business lacks a solid NPD process, or it’s only a high-level
process, it’s time to install a best-in-class process, complete with these eight items observed in our
Best businesses:
1. A clearly defined idea-to-launch new product process. This includes clearly designated
stages—a series of defined stages, for example: ideation, scoping, build the business case,
development, testing and launch; with activities defined for each stage (i.e. outlines of what
happens in each stage and includes guidelines on the “how tos”).
2. A visible documented process—well mapped-out, visible and well-documented, much like a

playbook—that provides genuine guidance to project leaders and teams).

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3. An adaptable and scalable process—a flexible process, adapted to the needs, size and risk of
the project.
4. A process that is really used. An effective implementation and ability to sustain the process is
essential: getting senior management buy-in and commitment (i.e. they really are walking the
talk); user-friendly documentation; training of all players—teams, team leaders, and
gatekeepers; ensuring all projects are in the process; a Process Manager in place; a process
database, IT support and performance metrics all contribute to ensuring the process is
enabling people and that they actually use it.
5. An enabling process for project teams—a facilitating process, helping project teams get their
products to market.
6. Defined Go/No Go criteria at gates—the criteria that projects will be judged on to make
Go/Kill and prioritization decisions.
7. Deliverables defined for each gate—a menu of what the project team is expected to deliver
to each gate meeting. This is often in the form of templates.
8. Monitoring the process to ensure it is really working. By ensuring that teams are actually
using the process and identifying where and or why they are not provides the continual
feedback needed to continue improving the process and making it “the way we do business”.
Note that merely having a formal and documented NPD process is only the first step. It is how the
process, its activities and recommended practices are implemented that makes the difference. We will
see some of these impacts later in this chapter.
Bureaucracy: It is also important to ensure that your process is constantly improving over time to
leverage internal learnings and to ensure if it is meeting both internal and external needs. Hence,
there is a need to be consistently on the alert for non-valued work or outdated documentation. You
need to get rid of any bureaucracy that may have entered into your process over time. Your NPD
process should be designed to facilitate project teams in getting their new products to market,
securing resources and senior management commitment, and removing roadblocks. Instead, too
many NPD processes, implemented with the best of intentions, appear to create bureaucracy and
much non-value-added work. One way to prevent this from occurring is to periodically review your
process to make any needed improvements. Most companies in the survey have revamped or
restructured their process:
 73.2 percent within the past three years

 10.6 percent within the past three-five years.
If you have not revamped or modernized your process within the past few years it is probably time
to do so.

page 35
Flexibility: Next, make sure that the process is flexible and scalable, perhaps having different versions
of the process—a full five-stage, five-gate process for major NPD projects, and perhaps a shorter
three-stage process or “Stage-Gate Express” for lower risk projects, such as enhancements,
modifications and extensions. One size does not fit all!
3.2 KEY U PF R ONT ACT IVI TIE S TH AT ARE BU IL T I NT O THE NP D PR OCE SS

A handful of best practices are often cited that should be built into companies’ NPD processes
before the Development Stage begins. This emphasis on pre-development work has also been
historically identified as the most problematic phase. It’s here where the new product idea is fleshed
out into a clear product definition; where the magnitude of the opportunity is assessed and the
business case constructed; and the action plan for the rest of the project is mapped out. All these
activities are supposed to occur before serious development work begins—at least, that’s the theory!
But is there really this emphasis on up-front work in typical businesses?
Most companies acknowledged that they do attempt to do these activities but there are significant
differences in how well each activity is actually conducted. These include:
1. Initial screening—the first decision to move ahead on a new product project. Often this idea
screen is handled by a mid-management group, and relies on criteria for making the Go/No
Go decision to allocate funds or people to the proposed new product idea.
2. Preliminary technical assessment—the first technical assessment of the project, identifying

potential technical risks, probable solutions, and technical challenges.
3. Preliminary operations (or manufacturing) assessment—an initial assessment of the manufacturing or

operations process before development begins, including process design, source of supply,
operating costs and equipment requirements.
4. Customer value assessment—determining the value of the product (or value-in-use) of the
proposed new product in the customer’s eyes.
5. Business/financial analysis—a financial or business analysis leading to a Go/No Go decision

prior to the Development Stage. This often includes a strategic assessment, along with a
spreadsheet analysis (e.g. NPV, EBIT, sensitivity analysis).
Although no one group excelled at these key activities the best performing companies were
consistently able to do better quality work for each activity (see Exhibit 3.3). In other words these
organizations were able to conduct better quality of execution to derive better quality information on
the merits of undertaking a project before the actual development work began. There is a clear
emphasis on up-front homework: Up-front homework takes place—both customer and technical
assessments—before projects move into the Development Stage. This is probably one of the key
reasons why these better performing companies achieved the performance results highlighted in the
previous chapter.

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Exhibit 3.3: How Business Performs on Critical Pre-Development Activities
4.6
Initial screening 5.8
6.8
5.0
Technical assessment 6.5
7.3
4.3
Manufacturing assessment 6.0
6.9
4.1
Customer value assessment 5.8
Middle Business
5.0 Best Performers
Business analysis 6.6
7.4
3 4 5 6 7 8 9 10
0=Very What is the Quality of Each 10=Excellent
poor NPD Process Element
3.3 G ATEKEE PI NG G OVE RNANCE P R AC TI CES

The Gates in a well-defined idea-to-launch process are the Go/Kill decision points where the latest
information on a project is reviewed to ensure that only the right projects move forward in the
process. Effective gates are central to the success of a fast-paced, product innovation process—“as
the gates go so goes the process”. So how well are gatekeeping best practices applied and what is the
impact on project success?
First let’s look at the use of gatekeepers in general. Sometimes it is unclear just who should undertake
project reviews and whose signatures are needed for a project to proceed. The locus of decision-
making—the people who make the Go/No Go decisions at gates—is also an important feature of
many firms’ NPD processes. In Exhibit 3.4 most companies clearly have identified gatekeepers or
decision makers. In some organizations these decision makers remain the same throughout the
process while others use more senior or higher level decision makers for later Gates that require
more resources and use the lower level gatekeepers for the earlier Gates. Best performing companies
tend to use the later approach more often, indicating that they reserve senior management time by
using mid-level decision makers for the early Gates (usually Gate 1 and 2) where fewer resources are
allocated. However some companies argue that it was better to keep a consistent set of gatekeepers
throughout the process.

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Exhibit 3.4: Gatekeeping/Governance Approaches
6.0
Have designated Gatekeepers 7.6
8.1
2.8
Gatekeepers change as risk changes 4.2 Worst Performers
5.5 Middle Business
Best Performers
4.3
Go/No Go criteria 6.6
8.6
5.1
Defined Gate deliverables 7.5
8.8
2 3 4 5 6 7 8 9 10
10=Very
0=Not Presence of Each NPD much so
at all Process Element
Next, defined Go/Kill criteria are considered important to better evaluate the merits of projects, and
to assist management in making the Go/No Go decision. In spite of the logic of having such gate
criteria that are spelled out for each gate (written down and visible to everyone), the lack of such
criteria is fairly widespread amongst the poorer performing organizations (4.3 out of 10 compared to
8.6 for best performers). Thus, best performers were twice as likely to have clear Go/Kill criteria as
worst performers.
Finally, for gatekeepers to be able to make good decisions and apply decision criteria, it is helpful to
have the right information available to aid in making these decisions. Top performers tended to have
deliverables clearly defined for each gate. A standard list of items that the project team is expected to
deliver to each gate in the process—their “deliverables”.
In summary, best-in-class new product processes have clearly designated gatekeepers with clear
Go/No Go decision criteria and predefined deliverables identified. Interestingly, when probed about
global gatekeepers that have oversight for projects spanning multiple geographic locations the results
were mixed with 46.9 percent of companies indicating that they were moving in this direction but
53.1 percent did not use this approach.

page 38
Having the gate structure in place is, in itself, not enough however. It is also important to ensure that
these meetings are effective: that the meetings are held; that the right people attend; that the
discussion and decisions are of high quality and even that the decisions are actually made. If the
meetings are well run and are producing good quality decisions, then the people will see these
meetings as a productive and efficient way to handle this type of decision-making. So how does our
sample of companies measure up? Interestingly most organizations indicate that this was an area that
could be improved upon. However both the moderate and best performers were well ahead of the
poor performers in how they practice the Gate principles (the results are illustrated in Exhibit 3.5):
1. Gatekeepers attend the meetings: All of the key decision makers invited to participate as
gatekeepers attend the gate meeting. There are no cancellations, if at all possible, and when a
cancellation does occur by one individual the meeting still goes ahead.
2. Effective Gate meetings: The meetings themselves are managed effectively. Agendas are
distributed in advance, meetings start and end on time, the agenda is followed and a record
of all decisions is kept. In other words good meeting protocols are developed and followed.
3. High quality contribution: Each gatekeeper makes good quality contributions. In order
for this to occur, each gatekeeper comes prepared for the meeting and has pre-read the
project materials. The questions are insightful and helpful to understanding the risk
associated with the project. (Note this was the weakest area for the poor performers).
4. Quality/Objective decisions: A high quality approach to decision-making is used.

Decisions are fact-based and objective in nature.
5. Decisions are actually made: Decisions are made at each gate meeting. Either a
Go/Kill/Hold/Recycle decision, including approval of the action plan for the next stage of
work and approval of the resources and date for the next meeting.
6. Gatekeepers support the decision: Each gatekeeper visibly supports the decision made at
the gate meeting (including resources) in the weeks or months after the meeting. This was
the highest score of this category by the best performers (7.1 out of 10).

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Exhibit 3.5: How Effective are the Gates
4.7
Gatekeepers attend meetings 6.1
6.2
4.9
Effective gate meetings 6.4
6.9
3.0
High quality contribution 5.6
5.9
3.6
Quality/objective decisions 5.8
6.7
3.9
Decisions are actually made 6.5
Middle Business
3.7 Best Performers
Gatekeepers support decision 6.0
7.1
3 4 5 6 7 8 9 10
0=Not How Effective is Each Gate Principal 10=Very
at all much so
3.4 QUALI TY OF Y OUR G ATE DELIVE RABLE S

To support effective gatekeeping practices, the quality of deliverables needs to be of high enough
quality that the decision makers can, in fact, make the decisions that are being asked of them. So, best
practices companies also have standards and expectations around the gate deliverables. Similar to our
discussion above on gate principles the moderate and best performers tended to both score
adequately here although it was acknowledged that this was an area that they are constantly trying to
improve. Not surprising, the poor performers however are struggling with Gate deliverables. In
Exhibit 3.6 four key practices are profiled.
1. Gate deliverables are complete: The agreed-upon deliverables are completed by the team.
The plan that was approved at the previous gate and the corresponding activities and
deliverables in that plan has been completed. This was the best score in this category for the
best performers (7.0 out of 10).
2. Deliverables are distributed on time: All agreed-upon deliverables are distributed to the
gatekeepers on time. Hence the deliverables are received on time, reviewed for completeness

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and distributed to the gatekeepers per the guidelines in the NPD process. Note that this was
the weakest score for the poor performers (4.1 out of 10).
3. Business case is of high quality: The business case and/or executive summary that are
submitted to the gatekeepers are of high quality. That is, they are complete, include accurate
information, add value, and focus on the critical issues.
4. Gate presentation is of high quality: The presentation made at the gate meeting is of high
quality. It is concise, within the allotted time period, includes a clear recommendation with
options/alternatives, action plan for the next stage of work, and has a clear request for
resources.
Exhibit 3.6: Gate Deliverables
Deliverables are 5.4

6.7
complete 7.0
Deliverables are 4.1

6.2
distributed on time 6.9
Business case is 4.4

6.2
high quality 6.9
Gate presentation 4.9 Worst Performers

6.4
is high quality 6.9
Middle Business
Best Performers
3 4 5 6 7 8 9 10
0=Not 10=Very
at all Quality of Gate Deliverables much so
In summary, an important part of a well-constructed NPD process is the gates or Go/No Go

decision points. At gates, management meets with the project team to review the project, evaluate its
merits, and make Go/No Go and resourcing decisions. What seems to separate the best performers
is the ability to have, on a repeated bases, these demanding Go/No Go decision points in the
process where the hard choices are made, and projects really do get killed. They have the protocols
and best practices built into their process and have the discipline to follow it. Some businesses claim
to have gates in their NPD processes, but a closer inspection reveals that these are largely “project
review points” or “milestone reviews” with no tough decisions—projects rarely are killed and a lot of
time is spent on discussing how to “fix” the project.
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3.5 I MPR OVI NG Y OUR G ATE PR AC TI CE S

If your company needs to improve its gate practices with respect to product innovation, a number of
easily identifiable symptoms will be evident. Generally, lack of alignment, poor cooperation across
functions, meetings that do not seem to be productive and unhealthy competition across groups
and/or business units are early warning signals. The most tell-tale sign is a lack of clarity and
transparency about the direction of your business’s R&D program or total new product efforts.2
Other common warning signs that you may have poor governance practices are:
1. Inefficiencies occur due to duplication of effort. Without good co-ordination and approval, your
projects and project teams from around the world are very often working on similar projects,
or even worse, the same project, without realizing it. Oversight of the innovation pipeline
helps to ensure that different parts of your company—often with good intentions—are not
duplicating each other’s efforts.
2. Decision making is not clear and is lacking in accountability. Who is responsible for a project and
how an approval is gained should not be guesswork or the result of hallway lobbying efforts.
As good projects surface in your business, a clear path should exist to secure timely
approvals. For this to happen, clear accountability and a clear specification of who should be
making these types of decisions are needed.
3. The right decisions are not being made. The information to make effective investment or Go/Kill
decisions is often missing or not available. A common symptom here is the uneasy feeling
that your development pipeline contains too many projects that should be killed, and that it
lacks the type of projects needed to meet your business goals.
4. Resource deployment is not clearly aligned with your business’s strategy. Although your people are
working hard and have a full plate of projects to work on, there is no assurance that these
efforts support the strategic direction of your business. This is likely the result of weak
guidelines that lack clear decision criteria.
5. Frustration over the value of the innovation pipeline. Here a common symptom is the feeling that, if
all projects in your pipeline were completed, they would not meet desired targets. It is
probably full of time-consuming, yet low value projects. Or, worse yet, there are no realistic
valuations on projects. Hence there is no real control and prioritization.
6. Business units are not following a governance process to manage innovation. The problem here is that
each business unit spends R&D resources or consumes corporate R&D budgets, but does
not utilize a proper and standard approach to selecting and funding projects; or they have no
clearly defined innovation strategy. Without this type of oversight, it is very hard to have
confidence in the business unit’s ability to deliver results against their strategic plans.
7. Decisions are not timely. Your competitors always seem to be ahead of you and, as a result, your
project teams always seem to be racing to catch up. With a poorly managed innovation
strategy, organizations do not fund their strategic buckets properly. Instead, they are busy
supporting short-term market requests from the sales teams. Hence, no balance exists

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between incremental product development projects and longer term, more strategic, major
projects.
8. Internal politics play too large of a role. We have all been there. More time is spent lobbying than
actually doing real work. With no clear definition of roles and responsibilities, your people
learn how to work the system to get things done. So a large amount of their time is spent
lobbying to get or keep their budgets and people.
9. A lack of visibility regarding decision making. No one can really explain how to get approvals or
how past projects were approved. Good projects lie fallow, while others seem to have a life
of their own.
10. Frustration around the level of bureaucracy. Your people’s frustration with the level and degree of
bureaucracy is often a warning sign that existing polices and supporting documentation
requirements are actually counterproductive. Stifling innovation with too much bureaucracy
is very easy, particularly in a large organization. While some policies and procedures are
needed, companies today are too lean to support unnecessary work.

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4. The Importance of People

This section, the last of those that review the study results shifts away from process and addresses
the “people” issues. After all, product innovation—its success or failure—seems to be very much
within the hands of the people who work on or lead projects teams, and on their management. The
four key areas investigated here include:
1. The nature of project teams and how they are organized
2. Different approaches to project team management
3. The role of senior management
4. The role of the Stage-Gate process manager.
4.1 T HE WAY NPD PROJE CT TE AMS ARE ORG ANIZE D AND LE AD

The way project teams are structured, organized and leverage functional representation is
fundamental to new product success. This success factor has been highlighted in a number of studies
and books over the years, and it seems that many businesses have heeded the message: project teams
appear to be in fairly good shape, on average.3 In general, team structure, organization and function
is fairly positive as most organizations recognize the importance of this in successful product
innovation. Typically, each significant NPD project has a clearly assigned team—people who are part
of the project and work on it. The primary approach to establishing these teams is assignment by
management based on resource availability (see Exhibit 4.1 and Exhibit 4.2).
 The team composition is cross-functional from different functional areas such as R&D,
Marketing, Operations, Supply Chain, etc. as needed.
 These teams work to resolve specific problems and to perform tasks related to the project.
Top performers are much better at this than poorer performing companies (8.5 vs. 5.9 out
of 10).
 There is a clearly identified team leader—a person who is in charge and responsible for
driving the project.
The in-depth case studies that were conducted highlight a number of best practices that these
companies use to leverage their teams for more successful outcomes. Here is a summary of the key
findings from these case studies that are presented in more detail in Appendix A:
 All major projects have a clearly identified project team leader

 Project team leaders tend to remain the same throughout the life of the project versus
changing leaders as the project progresses

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 Each project is assigned team members that represent the cross-functional needs of the
project
 Key team members tend to remain with the project from start to finish
 Cross-functional cooperation and communication is good
 The assigned project team is accountable for the performance of the project
 Teams are able to handle outside-the-team inputs and decisions effectively and have an
executive sponsor to help when necessary
 The team leader can be from any functional area however it is more common to see these
team leaders as professional project leaders with the proper training
 Technology is leveraged so the team members can communicate effectively. This is more
important when teams are not co-located such as in regional or global project teams.
Exhibit 4.1: Primary Approach to Establishing Project Teams
Formal teams based on availability of

37.1%
resources
Management determines project team
membership and reallocates resources as 36.2%
needed
Informal teams based on availability of
13.3%
resources
Team leaders determine project team

11.4%
membership
Other 1.9%
0% 10% 20% 30% 40% 50%
Percent that Use as Primary Approach to

Establish Team

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Exhibit 4.2: Impact of Way NPD Project Teams are Organized – Best vs. Worst
5.9
Team is cross-
7.4
functional
8.5
4.5
Skills identified to
6.1
manage NPD projects
6.9
Planned career 2.1

development for 4.7 Worst Performers
team leaders 5.8 Middle Business
Best Performers
1 3 5 7 9
0=Not 10=Always/
at all Existence of Each Element Very much
so/Extensively
4.2 H OW TO H AND LE P R OJE CT TE AM MANAGE MEN T

How do organizations that have achieved product development excellence handle project
management? This is one topic that seems to create a lot of discussion. This study was no exception
and it was therefore probed a bit deeper to see what companies are doing and if one approach seems
to be more effective than another. One of the best practices is to implement professional, objective
project management. Regardless of their background, whether business or technical, project
managers should be trained and skilled in objective decision-making. That is, even if the project
manager comes from a technical background, he or she should be able to view projects from a
broader perspective.4 Ensure the project manager has the ability to make objective decisions,
regardless of personal, emotional, or technical attachment to the project.
The research study found that companies used a variety of different approaches to project leadership
(see Exhibit 4.3). The most popular approaches were to have Research and Development (32.1
percent) or professional project leaders (28.6 percent) lead development teams. However, the
tendency to employ professional project leaders was much greater at the best-practice organizations
which were the focus of case study research—60 percent (this included both full and part-time
development team leaders).
How did the best practice organizations handle project management? The following case examples
provide a good insight in the different approaches organizations can use. The common theme in

page 46
these companies is that project management is considered a critical success criteria and it is
supported, accordingly, with professional and experienced project leaders.
Case 1: Electro Scientific Industries, Inc. (ESI)
At ESI, a full-time, experienced program manager leads each NPD project. By driving all functions
involved to meet the project’s objectives, the program manager is responsible for the integrity of the
NPD process at the team level. This job requires a unique set of skills: tough, fearless, and comfort
delivering both good and bad news to management.
One important distinction that ESI emphasizes is that the program manager is not the technical
decision maker. By removing any technical stake for the program manager in the project, that
individual can focus on the broader cross-functional deliverables needed to bring the product
successfully to market—less on the design and engineering aspect of the project. At any one time,
ESI’s program managers are usually working on two to three projects.
Exhibit 4.3: Who Leads the New Product Development Teams
Research and development 32.1%
Professional project leader 26.3%
Marketing 28.2%
Supply chain 0.5%
Other 12.9%
0% 10% 20% 30% 40%
Percent who lead NPD Teams
Case 2: EXFO
At EXFO, a project manager (considered an important strategic position) leads each NPD team.
EXFO employees in R&D follow one of two tracks: technical or managerial. The project manager
position ranks high on the latter track. Project managers usually have a technical background but do
not specialize in a particular technology in this role. They must provide objective guidance and
maintain a disciplined distance from technical details during each stage of the project so that they can
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keep the project moving efficiently. The project manager, responsible for approximately five projects
at a given time, helps determine which deliverables are appropriate and how to apply process rules.
By leading the logistics of the project and staying out of the more technical elements, the project
manager can guide the team objectively and make decisions that are best for the project and its ability
to support business objectives.
Case 3: Becton, Dickinson and Company (BD)
The core team leader at BD is seen as the general manager and chief architect of the project and is
ultimately responsible for its success. Although most core team leaders come from technical
backgrounds, the organization increasingly emphasizes filling this role with strong project managers.
These project managers are given extensive training and must:
 have project management skills

 be business-savvy and adept at interpersonal interactions
 handle resourcing and other team issues, and
 create and manage schedules and budgets.
Core team leaders also reinforce the business perspective throughout the NPD process. Core team
leaders continuously coordinate with leadership to provide project status, schedule appropriate
project reviews, and provide input into the other team members’ performance evaluation. Core team
leaders report to the program management office and are considered the equivalent to functional
managers in terms of grouping and compensation. Depending on a project’s complexity, core team
leaders might focus on one project full-time or work on several projects simultaneously.
Case 4: Ashland, Inc.
Unique among the best-practice partners in this study, Ashland allows two types of project
management depending on the business unit: management by a technical lead and management by a
dedicated project manager. The typical NPD project team at Ashland’s Performance Materials
Division is headed by a lead chemist. Ideally, a lead chemist is only in charge of one project at a time
to allow for full dedication and ownership of the project. The lead chemist on a particular project is
responsible for managing all the team members and delegating tasks. The lead chemist is mentored
by a Six Sigma Master Black Belt or Black Belt and is sponsored by the technology group leader.
Ashland’s Performance Materials Division emphasizes having project leaders from science or
engineering backgrounds responsible for the technical execution of projects.
Like the other best-practice organizations in this study, one of Ashland’s other business units,
Valvoline, has project team leaders who are not technical experts; they are project management
experts. These general project managers support a content leader specialist and take on more
administrative tasks. These project managers typically work on 10 to 20 projects at one time. These
project managers are typically being groomed for leadership positions and must delegate tasks,
facilitate groups, communicate with sales and marketing, and be customer-oriented.

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4.3 SE NI OR LE ADER SHI P SUP P ORT

The role of senior leadership in the successful management of new product development is similar to
other areas in the company. If it is important to them and, probably more importantly perceived by
others that it is important to them, then the new product results do improve. The complexity of the
innovation projects, the need for cross-functional resources, and the technical and market risk
associated with NPD all support the notion that senior management must visibly support NPD. We
discussed this earlier in the section on gatekeeping and the powerful impact it had on separating the
best performers from the worst performing companies. This is one way they demonstrate their
commitment.
Two other best practices that demonstrated support to the process was first the degree to which they
supported the NPD process by encouraging projects to be in the process and did not support work-
around solutions. Secondly that senior leadership was able to articulate the importance of the NPD
process—they walked the talk versus just giving it lip service. See Exhibit 4.4 for a contrast between
the best and worst performers.
Exhibit 4.4: Senior Leadership Support – Best vs. Worst
Senior leaders 4.2

encourage
6.2
adherence to
process 7.3
Senior Leadership 4.5

can articulate
6.4
importance of Worst Performers
process 7.2 Middle Business
Best Performers
3 4 5 6 7 8 9 10
0=Not Existence of Each Element
at all 10=Very
much so/
Note: Statistically significant at a confidence level of 0.05 or better Completely
4.4 T HE R OLE OF T HE P R OCE SS MANAGE R

The role of Process Manager is a critical role to ensure your new product development (Stage-Gate)
process is working within the organization. This Process Manager is the company’s expert in the new
product development process who is available to coach project teams and gatekeepers on process

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related issues. The Process Manager is a respected, results-oriented person. Typically this person has
the knowledge, scope and experience needed to implement the Stage-Gate process effectively
throughout the organization and to ensure that once implemented it is continually gaining traction
with the company and remains up-to-date with the organizational needs. They are usually also
responsible to monitor external best practices on Stage-Gate and product innovation that might be
brought internal to the organization.
Given the importance of the role it was not surprising to find that 72.2 percent of companies do
have a process manager in place within their organization. This was a full-time position in 78.9
percent of these organizations and part-time in 17.7 percent. This is an impressive commitment of
resources to the process indicating its importance. But then if innovation is a key strategic driver then
it would be expected that management should support it accordingly.
Exhibit 4.5: Types of NPD Process Training Offered
Leadership training 36.0%
Gatekeeper training 22.6%
Existing employees moving into new roles 35.5%
Refresher courses 26.9%
Training for new hires 54.3%
Training when the process changes 57.0%
On demand training anytime 48.9%
0% 10% 20% 30% 40% 50% 60% 70%
Percent that Offer Type of Training
Training: Another common role of the Process Manager is to fulfill the ongoing training needs for
your organization by ensuring that there are regular training opportunities available. As profiled in
Exhibit 4.5 this would include a variety of training needs options. For example, training for: existing
employees that are in new roles, new employees (on-boarding) and new executives, as well as
refresher training courses when needed.
In summary, this Chapter has introduced some of the aspects that reflect the importance of our
people and the impact they have on NPD performance. We are, after all, only as good as the people
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in our organization and how well they work together. This is true for all levels in the organization. It
starts with how we organize our project teams and how these teams are lead and how they are
managed. But for teams to be successful they need leadership support and direction as well. We saw
the importance of Gatekeeping and the impact it had on the best versus worst performers. But it is
more than just effective Gatekeeping. It is really about how the senior leadership demonstrates their
support for product innovation on a day-to-day basis.

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5. Portfolio Management—A Special Insert

This section is an edited reprint of a previous study that was conducted on best practices, Portfolio Management:
Optimizing for Success.* Although not part of this current study, this section is reprinted here due to the strong
interest in the topic. Throughout this current research project the topic of portfolio management was a reoccurring theme.
Hence, it is included in this report for the benefit of the reader.
5.1 P ORT FOL IO MANAGE MENT

Portfolio management views each NPD project as an investment, and attempts to apply portfolio
management techniques to manage these investments. Key issues include strategic alignment of
resources, the selection and prioritization of high value projects (and killing the poor ones), ensuring
that there is the right balance and mix of projects in the portfolio, and balancing the limited resources
available against the demand to do even more projects5.
Portfolio management as a management topic continues to be of interest in the context of NPD.

Exhibit 5.1 provides a list of the best practices in portfolio management observed in some previous
studies6. How do businesses fare?
Overall, portfolio management practices tend to score poorly and are often the weakest area in an
organization’s innovation program. Here are the details from Exhibits 5.1 and 5.2:
1. A formal and systematic portfolio management system is in place to select the right
projects and to allocate development resources to projects or types of projects: A large
proportion of businesses (44.2 percent) report no such system at all, and only 21.2 percent
of businesses claim to have a proficient portfolio management system in operation.
2. A good balance between the number of new projects undertaken at any one time and
the resources available (people and money): Ideally, the business tries to balance resource
availability (usually people and time) with resource demand (the number of projects), and
strives not to do more projects at a time than can be handled effectively. Without question,
most businesses undertake far too many projects for the limited resources available. A total
of 44.2 percent of businesses confessed to serious deficiencies here, while only 24 percent
indicated that they achieve a good balance between the number of projects and resources
available.
3. Proficient ranking and prioritization of new product projects: Here management strives
to focus its NPD efforts, and indeed does kill projects. Again, this is rated as a weak area
* This report, a joint research project undertaken by the authors (Product Development Institute and APQC), was also
published as Best Practices in Product Innovation: What Distinguishes Top Performers by R. G. Cooper, S. J. Edgett and E. J.
Kleinschmidt.
page 52
with 30.8 percent of businesses indicating very poor project prioritization and a great
reluctance to kill projects in order to achieve focus.
4. A portfolio that contains high value NPD projects for the business—profitable, high
return projects with solid commercial prospects: Picking the winners—the high value-
to-the-business projects—is no easy task. And only a small minority of businesses claims to
have achieved this ability to load their portfolios with high value projects. But many more
businesses—38.5 percent—indicate that their portfolios contain low value projects. Picking
the winners and high value projects is a very weak area.
5. A portfolio that has an excellent balance in terms of long versus short term, high
versus low risk, across markets and technologies, etc.: Here too businesses are weak,
confessing to unbalanced portfolios of projects. A total of 36.9 percent of businesses
indicate a very poorly balanced portfolio; only 19.4 percent have a well balanced portfolio.
6. A portfolio of projects that are aligned with the business’s objectives and strategy:
This practice is the one strength of the seven portfolio practices considered. A significant
proportion of businesses do indeed achieve strategic alignment, with only a small minority
(4.8 percent) indicating a lack of alignment.
7. The breakdown of spending (resources) in the portfolio truly reflects the business’s
strategy: This is another practice designed to achieve strategic alignment—ensuring that
spending splits across project types, markets, business areas, etc. mirror the strategic
priorities of the business. If there are disconnects between stated business strategy and
where resources are spent, the portfolio is in trouble and strategic alignment is missing. This
facet of strategic alignment is a weak area with only 30.7 percent of businesses claiming good
alignment between business strategy and resource splits.

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Exhibit 5.1: How Businesses Fare on Portfolio Management
Formal & systematic portfolio management

44.2%
process in place 21.2%
Good balance between number of projects &
44.2%
resources 24.0%
Good job of ranking/prioritizing projects 30.8%

25.0%
Portfolio contains high value-to-the-business
38.5%
projects 21.2%
Portfolio has excellent balance in project types 36.9%

19.4%
Projects are aligned with Business's strategy 4.8%

35.2% Businesses without
portfolio practices
Resource breakdown reflects Business's strategy 16.9% Businesses with

30.7% portfolio practices
0% 10% 20% 30% 40% 50% 60% 70% 80%
Percent of Businesses That Have Each Portfolio

Management Practice in Place
Exhibit 5.2: Impact of Portfolio Management – Best vs. Worst
Formal & systematic portfolio management 3.8

4.6
process in place 5.9
Good balance between number of projects & 3.6 4.6
resources 6.1
4.0
Good job of ranking/prioritizing projects 5.1
6.5
Portfolio contains high value-to-the-business 3.5
4.9
projects 6.1 Worst Performers
Middle Business
3.5 Best Performers
Portfolio has excellent balance in project types 5.0
6.1
6.3
Projects are aligned with Business's strategy 7.4
7.9
Resource breakdown reflects Business's 4.3 5.9
strategy 7.0
3 4 5 6 7 8 9 10
0=Not 10=Very
at all Whether Each Portfolio much so
Management Practice is in Place
Note: All best and worst performers are statistically significantly different at 0.01 confidence level

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Having solid portfolio management practices in place is a strong discriminator between the Best and
Worst Performers. The general topic of portfolio management comprises a number of important
best practices. Consider now the specific practices within portfolio management that really have an
impact:
The top best practices are:

1. Seeking a portfolio that contains high value projects for the business—profitable, high
return projects with solid commercial prospects. This is a very weak area for most
businesses, and most have not determined how to achieve this; but some businesses do
model the way.
2. Seeking a portfolio that has an excellent balance in terms of long versus short term, high
versus low risk, across markets and technologies, etc.
3. Having a good balance between the number of new projects undertaken at any one time and
the resources available (people and money). Most businesses undertake far too many
projects for the limited resources available. Undertaking periodic portfolio reviews several
times per year is one way to ensure the right balance between resource availability and
demand. Rank your projects—best to worst—noting resource demands (person-days) for
each one. When the resource demand exceeds the supply, draw a line: all projects below the
line are put on hold.
4. Ensuring that the breakdown of spending (resources) in the portfolio truly reflects the
business’s strategy: This practice is designed to achieve strategic alignment—ensuring that
spending splits across project types, markets, business areas, etc. mirror the strategic
priorities of the business. The use of Strategic Buckets is employed here by some businesses
to achieve this goal.
5. Proficient ranking and prioritizing of new product projects: One way to achieve this goal is
the use of periodic portfolio reviews along with the application of a systematic ranking
scheme (complete with quantifiable metrics or a balanced scorecard for projects) to yield a
prioritized list of development projects.
6. Having a formal and systematic portfolio management system in place to select the right
projects and to allocate development resources to projects or types of projects: Best
Performers have attempted to install a systematic portfolio management process.
7. Ensuring that the portfolio of projects is aligned with the business’s objectives and strategy.
Conclusions: In spite of the recent emphasis on NPD portfolio management, benchmarking

evidence suggests that most businesses have a long way to go in terms of implementing best practices
and achieving the desired results from portfolio management. Strategic alignment is a good first step,
but there are other practices as well that must be built into a world-class portfolio management

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system: balancing resource demands and supply; ensuring good project prioritization; and seeking a
portfolio of high-value projects. Seeking the right balance of projects and a project mix that mirrors
strategic priorities are also important practices.
Note: The Case studies presented in the Appendix of this report also provide additional insight in
how organizations are approaching the critical topic of portfolio management.

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6. Conclusions and Recommendations

Identifying best practices in new product development is a very complex undertaking. There are
many different aspects that influence the ultimate success or failure of an organization’s product
innovation efforts. After all, if it was easy there would be no competitive advantage here.
This study has looked at three key aspects that must be in place in order to achieve top performance.
1. Metrics: Measuring how we are doing is a first step. Without objective measurements of our
performance it is hard to judge whether we are improving or not. It is also interesting to
compare individual company results with Best and Worst Performers. What metrics are
being used, both to gauge the performance of individual new product projects as well as the
business’s overall or total new product innovation program, is identified and explored in
depth in Chapter 2.
2. The idea-to-launch new product development process: In large organizations a well-defined

process is critical to being able to repeatedly execute projects successfully. Do the right
activities for the right reasons and make the right decisions. In Chapter 3, the components of
the process and the results of having a solid process combined with good gatekeeping were
explored.
3. People: The impact of people on new product development is another critical factor that
impacts success. The way we organize and lead projects, as well as make decisions and
resource projects contributes strongly to whether your company will be a top performer or
not. Chapter 4 provided benchmarks around this theme.
For each of these three categories a number of variables or traits were measured and also analyzed to
see how strongly each variable discriminates between the Best and Worst Performers and how
dominant this practice is among the Best Performing businesses. All of the results presented in this
report are statistically significant.
What did we learn in this study? First there is clearly a difference between best, average and poor
performing companies in how they approach new product development. The proof of this is that the
best performing companies are achieving better results. The benchmark data clearly demonstrates
that best performers are getting results—both at the company performance level and at the project
specific level. What is perhaps most interesting here is that the performance gap between the top
performers and the rest is getting larger. Better performers are getting better while the poorer
performers seem to be getting worse. The performance gap has also been increasing between these
two groups over the years.

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Second, companies that are performing better do have a well-defined, systematic new product
development process in place that is really followed and is supported by a solid front-end.
Gatekeeping or the decision making practices are also working well and supporting the process and
the portfolio needs. The separation between top and bottom performers is again very strong with the
top performers being able to deliver, on a repeated basis, better, more efficient and effective results
from their process.
Third, the impact of people is clear. Better performers do have strong team management and
leadership. They have adopted and effectively implemented strong project management practices and
invested in project leaders. These organizations have also clear senior leadership and executive
support for product innovation.
Compare your organization and plan improvements: Perhaps a useful first step is to access where
your organization stands today on its product innovation capabilities. For example, how do you score
on the business and project metrics? How strong is your process? Do you have effective gatekeeping
practices? By taking the various results presented throughout this report and measuring your
performance levels you will be able to determine where you are strong and where you may be able to
improve.
Here is also a number of questions that might help you identify themes that could be developed into
action items to improve your product innovation results.
1. What measures could your leadership team take to improve its support of the NPD
program?
2. How might your NPD process be better communicated and displayed at your organization?
3. Does your organization have a process manger in place who is the clear owner and
champion of the NPD process?
4. What steps could your organization take to better manage/govern NPD?
5. Does your organization use consistent metrics to measure and communicate new product
project performance?
6. Does your organization use consistent metrics to measure and communicate new product
business performance results?
7. Is the role of the project manager well understood by the project managers, project team
members and your overall organization?
8. Does your organization apply a standard NPD process as a baseline for all NPD projects?
Have you built in the appropriate levels of flexibility (a scalable process) or are you using a
‘one size fits all approach’?

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9. Do you have in place clear criteria to route projects quickly to the appropriate stage-gate
process to match project complexity and risk to the stage activities?
10. What steps could your organization take to help clarify expectations for both the project
team and the gatekeepers for projects as they progress through the process?
11. Does your organization have standard criteria and procedures in place for NPD projects?
12. Are accountabilities clearly defined at your organization for all NPD roles for all of the
different levels in the company and for the different functional areas? How might these
accountabilities (or roles and responsibilities) be better communicated?
13. When does your organization provide its NPD process training? Is this sufficient or are
there any other training opportunities that it should leverage? Do you make it easy for new
employees to get up to speed? Have a plan to help new executives on-board—understand
how they can support NPD as Gatekeepers?
14. What approaches might your organization take to capture and implement lessons learned?
15. What measures has your organization put in place to continuously improve its NPD
processes?
Concluding Comment: Success at new product development and product innovation has quickly
returned to be the number one priority of executives everywhere. Executives are now faced with the
question like never before: how can my business improve its NPD performance—more sales, better
profits from new products?
This benchmarking study has helped to reveal current practices and best practices in NPD across an
array of areas and topics. One conclusion is clear: Top performing companies have in place strong
product innovation capabilities and are continuing to raise the performance bar for their competitors.

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Appendix A
I N-DE PTH C ASE STU DIE S
1. Air Products and Chemicals, Inc.
2. Ashland, Inc.
3. Becton, Dickinson and Company (BD)
4. Electro Scientific Industries, Inc. (ESI)
5. EXFO

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Case Study
Air Products and Chemicals, Inc.

Performance Materials Division

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Organization Overview
We are a global company with a local commitment.
—Michael P. Popule, Group Manager, Reaction Engineering
Air Products is a global atmospheric, process and specialty gases, performance materials, equipment,
and services provider. The Fortune 500 organization serves industrial, energy, technology, and health
care markets in more than 40 countries, with approximately 19,000 employees. The organization
strives to balance innovativeness, operational excellence, and corporate responsibility.
The organization has three global businesses.

1. Merchant gases (44 percent of 2009 sales)—industrial gases such as liquid nitrogen and
liquid oxygen
2. Tonnage gases, equipment, and energy (37 percent of 2009 sales)—industrial gases
supplied via large on-site facilities or pipelines systems, equipment, and technology focused
on future energy markets
3. Electronics and performance materials (19 percent of 2009 sales)—specialty and tonnage
gases and chemicals and services and equipment supplied to electronics markets.
For this site visit, the focus was on the product development processes in Air Product’s performance
materials division (PMD), which uses both organization-wide and division-specific processes and
tools. The PMD segment is focused on high-end, performance-specific applications, primarily in a
business-to-business model. It seeks to deliver products beyond minimum specifications and to
supply customers with both the product and a solution. PMD operates on a product leadership
business model, with selling based on performance rather than price and by investing in and
developing enabling technologies. There are six business lines within PMD: specialty additives,
functional additives, personal care, reactive intermediates, polyurethane additives, and epoxy
additives. This division contributed approximately $700 million in sales in 2009. Its goal is to have
new products (defined as products introduced within the past five years) compose 20 percent of the
organization’s annual revenue.
The R&D budget for PMD is approximately 4 percent of sales. However, an organization-wide
global technology center also contributes resources to R&D and performs a lot of the
fundamental/basic research.
The technology segment of PMD is split into three portions: applied technology, product R&D, and
process R&D. Applied technology and product R&D report directly to the business lines and work
with customers, sales, and marketing. Process R&D reports directly to the chief technology officer

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and works with internal functions such as supply chain, asset management, and operations. The three
groups are tied together at the portfolio management level.
New Product Development (NPD) Governance

Air Products has organization-wide work processes, but each business uses business-specific work
processes to handle planning and execution. Figure 1 shows the global process teams at Air Products.
Within PMD, ideas typically enter the portfolio process as a result of customer needs or marketplace
drivers (including regulatory requirements, new technology developments, and competitors). A
filtered subset of ideas go through to strategic marketing where voice of customer and business
strategy are considered. Ideas with recognized potential then go to the portfolio team, which is
responsible for determining whether sufficient resources—both personnel and budget—are available
for the project (Figure 2).
PMD strives to create a portfolio that balances risk and reward by including different classes of
products, designated as level 1, 2, or 3 projects.
 Level 1 projects, either new to the world or new to the market, typically take two to five
years from concept to commercialization. These projects have both larger potential risk and
larger potential reward and often require new capital equipment.
 Level 2 projects, typically extensions or modifications of existing products, take one to two
years and leverage existing equipment. Level 2 projects tend to be extensions or
modifications of existing products.
 Level 3 projects may only take three to six months and tend to be more targeted products.
That is, the product is a specific solution to a customer’s problem that is expected to be a
quick win.

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Air Products’ Enterprise Blueprint
Figure 1
Offering Portfolio Selection and Management
Figure 2

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Whereas PMD may be able to sustain 50 to 60 Level 3 projects in a given year, typically there are
only around 10 Level 1 projects due to the higher risk and resources needed. Success for all projects
is measured both against revenue targets and how well a project delivered relative to the operating
plan.
Each business line within PMD has its own portfolio management team. As part of its product
leadership business model, Air Products recognizes that technology is a strong component of the
businesses. Accordingly, each of the portfolio management teams is co-run by a representative from
the technology area (typically, the business technology manager) and a representative from the
business or marketing area (a global business manager or global marketing manager). The marketing
employees do everything from determining product pricing to creating marketing materials and
conducting market research.
Portfolio team members tend to be middle-management functional leaders, and typically teams have
global representation. The teams manage at the individual project level in order to ensure each
project is on track compared to set objectives that represent the absolute value of new products in
terms of revenue targets. Portfolio teams have the autonomy to sponsor and approve projects and
supply resources. Additionally, they perform technical reviews of each project.
The two co-leaders participate both in their business line portfolio management team and in a
division-wide portfolio team. The division-wide portfolio team is responsible for monitoring the
overall health across all of the portfolios. As such, it is responsible for resolving resource conflicts
across the business lines, both in terms of employees and budgets. Portfolio teams are responsible
for delivering business results; they are given a lot of responsibility and expected to manage risk to
achieve those results.
Within PMD, portfolio team members also serve as the gatekeepers. Gate meetings are either
organized by portfolio leads (reoccurring monthly meetings) or can be requested by the project
manager.
Air Products has an organization-wide risk management process to quantify the potential risk of a
given project. Typically, Level 3 projects are exempt because they are considered low risk. Anytime
the organization considers spending a significant amount of capital to execute a program, the
portfolio team uses the risk management process to mitigate, avoid, or respond to the risk. Portfolio
teams (a cross function of technology and engineering) often use their own scoring system or rubric
to compute a numerical risk score. This rubric is comprised of factors like strategic fit, technical
feasibility, defensibility, regulatory requirements/concerns, and the degree of certainty in each of the
element ratings. The business units weight the rubric factors as they deem appropriate. Projects
deemed too risky may be killed at this point in the process.
When a new product development effort is underway that doesn’t easily fit within a particular
business unit, there is a separate, corporate process to get the project approved and funded. After

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that process occurs, the project typically begins in the global technology center and eventually may
find a home in one of the divisions.
Culture and People

Fail fast and move on.
— Michael P. Popule, Group Manager, Reaction Engineering
Air Products is a global business with technical centers in the United States (Pennsylvania), Japan
(Tokyo), the Netherlands, and several other locations. Any of its technical centers can have a Level 3
project, and those projects tend to have a regional focus and a regional team. For more complex
projects (levels 1 or 2), the organization engages employees based on the skill sets needed to execute
the project most effectively rather than on location. These projects often have global teams, and the
corresponding portfolio teams have members from each of the represented business sites.
During concept-type work, the NPD project team is small and may only include technology and
marketing representatives. In later stages of development (e.g., prototyping), the team often grows;
and as execution approaches, operations personnel are added. The project team is responsible for
determining who is involved but the team may escalate that decision to the portfolio level if resource
constraint issues arise.
P R OJE CT TE AMS
Project teams are comprised of the project leaders and additional team members. The project leader
is a part-time position typically filled by a technologist or a marketing manager. Often this role
requires the individual to be both the technical leader and the project leader, necessitating that he or
she be objective in spite of any individual wants or needs for the project.
Project team members are selected by the functional leaders on the portfolio team. Skill sets are
weighted more heavily than location when determining team members, especially for Level 1
projects. In some cases, team members are selected based on the opportunity for growth; an
individual may not be a perfect fit at the start of the project but has a desire to improve or learn by
being involved in the project.
The project team is collectively held accountable for the success or failure of a project. Typically, it is
a win or lose situation for the entire team. The organization encourages team members to speak up if
they believe the project is unable to succeed rather than letting it cycle through the process repeatedly
without progress. It is a well-known corporate philosophy that sometimes the technology is not
going to work. The organization strives to “fail fast and move on” rather than not try risky projects
that could have a large reward.

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The portfolio teams have insight into their progress against key milestones and deliverables. In
addition to gate reviews and project reviews, each team is required to issue a quarterly report to
outline what they achieved in the previous quarter and what is planned for the next quarter. Also,
they review key projects with senior executives.
T RAI NI NG
For organization-wide systems, on-demand training is available online for new hires and for existing
employees who want to refresh their knowledge or learn about something new. Local systems and
processes have a process owner, and training is scheduled on request or when a need is demonstrated
(e.g., if there seems to be a global misunderstanding or if a process is being implemented at a new
site). In addition to standard training, Air Products also designates “power users”—individuals who
use a process extensively and are knowledgeable about it—who are available as mentors or resources
for other employees.
Beyond systems and process training, Air Products also has general skills training comprised of three
colleges:
1. people college (focuses on HR skills, communication, project leadership, influence without
authority, and situational leadership),
2. finance college (focuses on finance basics, time/value of money, return calculations), and
3. innovate college (technology-focused course offerings, technical engineering training,
statistics, experimental design, and market excellence).
E MP L OYEE B UY -I N
Air Products employees have mixed reactions toward adhering to the work process. There is a
general concern among employees regarding speed and whether the processes slow things down or
speed things up. Additionally, employees have asked for guidance when making decisions to expand
project teams or understand impact across functions. Air Products is overcoming these concerns by
working on three key improvements.
1. The organization is working to develop better metrics that will allow it to understand how to
improve the process from an empirical standpoint as opposed to people’s opinions of
how/what to improve.
2. The organization is focusing on an awareness campaign that provides high-level overviews
to a division or group regarding the NPD process. When employee turnover occurs, this
becomes essential. Sometimes these campaigns are as simple as noting process changes in a
newsletter.
3. The organization is using lessons learned not only for individual projects but also to build
those lessons into the process moving forward.

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Processes
If we make it to the end of prototype, we’re probably going all the way.
— Michael P. Popule, Group Manager, Reaction Engineering
Air Products uses several work processes that are a mixture of organization-wide and local processes
to manage new product development and execution.
OFFERI NG D EVEL OP ME NT AND INTR OD UCT I ON

The organization uses a consistent, organization-wide process called offering development and
introduction (ODI, Figure 3) that is inspired by Robert Cooper and Scott Edgett’s model.
The process has five stages: concept, feasibility, prototype, development, and commercialization. Air
Products has an organization-wide database called the project and resource management system
(PRMS) to track the offerings in development.
Often, project teams are allotted around 40 hours for idea generation/evaluation prior to a project
entering the ODI process. During that time, the team may be able to conduct quick experiments or
screening to determine whether the idea has merit. In the concept stage, both applied technology and
R&D begin to do the bulk of their work.
Ideas enter Air Products’ ODI process through a number of sources: direct from customers, from
market development activities, or through tracking regulatory changes. Ideas are filtered through the
market teams at Gate 0, and the portfolio team prioritizes and allocates resources for those that pass
through. Not all businesses within Air Products include a formal Gate 0 review as part of the ODI
process; sometimes they create a statement of work that outlines what they are trying to achieve.

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Offering Development and Introduction
Figure 3
The objective of the concept stage is to conduct an initial investigation of an idea through
technology-focused activities in order to establish its potential to meet current or future market
needs. This is the stage in which the portfolio team ensures that the idea is aligned with the
sponsoring business, verifies the absence of show-stoppers, and confirms the business case. If show-
stoppers such as intellectual property or regulatory concerns are uncovered, then projects can be
killed at this stage by either the project team or the portfolio team. Within PMD, both the project
teams and portfolio team provide input concerning whether a project is worth continuing at each
gate.
The feasibility stage serves to confirm the concept is achievable. During this phase, the project team
develops one or more business model options, investigates and confirms technical feasibility, and
again confirms the absence of show-stoppers. Additionally, the team determines the most probable
product, process, or service options.
The goal of the prototype stage is to select and demonstrate the best product/process option—to
narrow down the possibilities to find the best offering. In this stage, the team ensures the new
offering meets all critical performance criteria and market needs, evaluates financial assumptions,
tests prototype equipment and sets product design, and yet again confirms that no show-stoppers
exist. Often samples are created and then test-marketed with customers or potential partners.

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During the development stage, the team completes scale-up activities and finalizes the
product/process design. This tends to be the part of the process where team members get fully
engaged and is the stage in which the team prepares business, commercialization, and sourcing plans.
Additionally, the team ensures the proposed new offering meets all manufacturing goals, including
verifying that permits are in place and any new hazards have been addressed.
The objective of the commercialization stage is entry into the supply chain for sale to customers.
During this stage, the project team executes the market introduction plan, validates the technology
for continuous commercial use with normal business technical support, develops and deploys a
manufacturing or production strategy, and sets a pricing strategy. Additionally, the sales force is
trained on the new offering in order to begin selling it.
Not all projects enter the ODI process at the beginning. When determining the entry point, the
project team considers whether the project is a new idea, a product extension, or a product spin-off.
Breakthrough technology projects tend to start at the beginning of the ODI process, but Level 3
projects (e.g., a product line extension) may enter the process at the prototype stage or Gate 3 stage.
Air Products refers to this truncated process as “ODI Lite.” Air Products embraces an adaptable
NPD process by allowing the project team the flexibility to skip certain stages of the process they
feel are redundant or not needed. For example, if the technology development is spin-off or
enhancement, then the prototyping stage may not be necessary; so the project may skip from
feasibility to development. Project leaders have the autonomy to determine whether to skip a gate,
but the gatekeepers must approve that decision.
SEVE N KEY ELE ME NT S OF OD I

As a project proceeds through the ODI process, the project team must address seven key elements.
If the project team lacks necessary expertise to address any of the items, then they may bring in ad
hoc members. At each phase in the ODI process, the questions become more detailed and the team’s
confidence in its answers to these questions is expected to increase.
1. Strategic fit—Expected deliverables include a business model, a partnership strategy, a
globalization assessment (primarily for Level 1 projects to determine whether the new
product can be sold in all regions), and a value assessment.
2. Market assessment—Associated deliverables are a market study, competitor analysis, a
market plan, and a link to the customer development cycle. A number of Air Products key
competitors are also its suppliers and customers. Accordingly, this step is crucial to
understanding whether the organization is potentially jeopardizing a customer or supplier
relationship by going head-to-head with a competitor.
3. Technology development—Deliverables from this element are product specifications,
product/equipment testing, customer performance validation, and identification of show-
stoppers. In cases where performance cannot be tied to something measurable at the plant,
PMD attempts to link the product’s performance to a physical property that can be
measured.
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4. Manufacturing assessment—This assessment is closely tied to technology development. In

this element, the deliverables are manufacturing capability, plant trials, supply chain issues
(e.g., logistics), and capital investment (i.e., Do they need to make such an investment, or can
they outsource to a third-party manufacturer with existing capabilities?).
5. Project leadership—Associated deliverables are resource/skill requirements, a key milestones
schedule, a gate review schedule, and a commercialization plan.
6. Defensibility/sustainability—Deliverables are intellectual property strategy (more important
for products that will have global roll-out), competitive intellectual assets assessment,
documentation and storage of technical work in Air Product’s research report retrieval
system, and foreign filings.
7. Environmental health and safety/regulatory—Deliverables for this element are risk
evaluation, product stewardship, pre-manufacturing notification and global registration, and
design hazard reviews/operational readiness inspections. Due to increased oversight from
the U.S. Environmental Protection Agency, Air Products must devote a significant amount
of time to addressing this element.
ODI P R OCE SS R OLE S AND RE SPONSIB IL ITIE S

The ODI process involves decision teams (portfolio management teams and gatekeepers, who are
typically the same individuals) and individual roles (project manager, business lead, technology lead,
and team member).
The portfolio management team reviews and approves all proposals for the development of new
offerings and active offerings in development. It interacts with the division-level portfolio team to
report on the health of the portfolio and the means by which end goals will be achieved. It is
responsible for monitoring the progress of all products in order to understand what is on track and
what is not.
The gatekeepers (again, typically the same individuals that comprise the portfolio management team)
manage the resources required to take a project forward: both managing the resources required at the
current stage of the project and understanding how the resource need may change as the project
progresses. They have the ultimate approval of whether the project team has satisfied all of the
criteria and can move to the next gate and are responsible for approving the go forward plan for
ongoing projects.
The project manager monitors the overall progress of the project, facilitates and organizes team
interactions, and tracks the budget. Additionally, he or she monitors and adjusts the project plan to
reflect any changes or new developments and ensures that milestones, checkpoints, and assumptions
are met. The project manager ensures that the project is compliant with the ODI process and with
other sublevel processes such as environmental health and safety and intellectual asset management.
He or she communicates project progress to the project team and the portfolio team.

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The technical lead oversees the execution of the technical portion of the project plan and
communicates progress on technical milestones to all stakeholders. He or she works with the project
lead to determine if resource issues exist and, if so, elevates the issues to the business technology
manager.
A business lead for a project oversees the execution of the commercial portion of the project plan
and communicates progress on commercial milestones to all stakeholders. He or she elevates any
resource and other issues to the funding business area manager. With the technical lead, the business
lead represents the project team at gate meetings and recommends gate decisions on behalf of the
project team. Additionally, the business lead, technical lead, and a corporate technology group called
the Innovate Process Center are responsible for completing impact analysis and for updating the
organization-wide project development database.
A project team member is an individual contributor to the project who is responsible within his or
her functional area for the project deliverables outlined on the gate checklists. The team member is
required to participate in the team meetings, communicate his or her progress on milestones to the
team leader, and maintain the documentation for his or her functional area. Additionally the project
team member assists in completing required documentation (ODI, environmental health and safety,
and intellectual asset management) and updating the project development database.
NEW PR ODU C T I NTROD U CT ION

Beyond Air Products’ ODI process, PMD has its own local process called new production
introduction (NPI). NPI is an execution-focused process involving a cross-functional team from the
point the portfolio team gives approval to begin commercial production. This process links product
development to the supply chain to ensure that the organization addresses a product’s logistics and
planning needs.
There are more than 14 team members involved in NPI including the ODI project manager, a NPI
lead, marketing, product research, applied technology, process R&D, global operations (Air Products’
manufacturing organization), supply chain, distribution and logistics, asset management, plant
process engineering, environmental health and safety, purchasing, customer services, and SAP master
data technicians. The NPI lead is sometimes the ODI project manager. The ODI project manager is
accountable for the overall ODI planning and execution, coordinates internal and external ODI
activities, communicates with the project team and portfolio team, and seeks additional
resources/skill sets as needed for ODI. When separate, the NPI lead is accountable to the ODI
project manager and raises issues directly to him or her. The NPI lead is responsible for coordinating
internal NPI activities, accountable for NPI planning and execution, communicates to the NPI team,
and seeks additional resources/skill sets as needed for NPI. Both the ODI project manager and NPI
lead have a set of milestones and checklists to complete, but the level of detail is much greater for the
NPI lead.

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As shown in Figure 4, during an opportunity assessment, the project is classified as ODI, ODI Lite
(i.e., a Level 3 project), or Source Change (e.g., a product that is currently produced only in North
America is going to be produced in Asia—it is a new project for that site and may have logistics
concerns, regulatory differences, hazards, different lead times, etc.). The NPI project teams for all
three types of projects are required to complete a common set of milestones and checklists prior to
beginning production. Then the organization produces a trial batch and fulfills initial orders to
provide the project team with an opportunity to make any necessary tweaks before beginning the
full-scale production. Following this, the NPI team captures lessons learned and decides whether any
resources can be removed from the project.
NPI Process Map Overview
Figure 4

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Portfolio Management
At Air Products, the portfolio management teams consist of a cross-functional membership typically
including a marketing manager, business technology manager, commercial development manager,
and product development manager. Each business may have one or more portfolio management
teams to manage the business segments.
The portfolio teams perform a number of activities including:
 business strategy alignment—an annual strategy and development process in which the team
identifies drives and growth opportunities for the next three years
 market segmentation and selection—determine target customers and the strategy for any
partnering
 idea management and selection
 offering definition, prioritization, and selection
 portfolio balance—ensures a balance exists between short/easy and long/difficult projects
 new offering development sponsorship
 budget and resource management
 oversight of intellectual asset management process—ensures that the actions taken by
intellectual asset management align with the overall business strategy
 monitoring portfolio performance
 execution and encouragement of continuous process improvement—individual portfolio
teams cannot change the corporate process and must execute it.
At least quarterly, the portfolio teams look at the overall health of the entire portfolio. To prioritize
and select projects, the portfolio teams consider the strategic fit, competitive position, operating
income (impact) in five and then fifteen years, development costs, uncertainty and risk, and any other
relevant factors.
At the completion of each stage in the process, a gate review is required. The gatekeepers must meet
with the project team to decide whether to advance the project to the next phase; hold the project
and temporarily suspend the funding and resources; drop the project due to unfavorable economics,
market, technology development, and/or risks; or recycle the project so that additional milestones
are met before advancing it to the next stage. The goal is to have consensus in deciding the project’s
fate at the gate review. When disagreement occurs among the gatekeepers, decisions regarding the
project’s status may be escalated to the portfolio team so that the project team members are not
present for the discussion.
PMD has determined best practices for conducting gate reviews related to frequency and
documentation. First, gate review meetings are scheduled in advance to ensure that everyone is
available to attend. Each gate review is for a single project gate as opposed to reviewing multiple

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gates simultaneously. If the time between gate reviews is greater than 1 year, then the portfolio team
and the project team discuss where the project is in the process and what problems (if any) are
causing the lag time. Second, prior to or at the gate review, the project team must submit ODI
checklists, a gate review presentation, and impact analysis (to be discussed further in the Performance
Evaluation section).
Portfolio teams may leverage resource bubble charts (Figure 5) to compare the cost and value of
various projects. These charts are published at the business segment level by portfolio and provide a
view of the current, active technology pipeline for that portfolio. Each chart shows the number of
projects and cost of each project in order to give a visual understanding of the number and scale of
projects.
Resource Tracking (Mock Data)
Figure 5

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Performance Evaluation
Air Products employs impact analysis for all projects and performs cost/benefit analysis by
calculating the present value of benefits minus the costs over the project life. It takes into account
the likelihood of success and determines whether the expected future benefits from a project justify
the risk in making the investment. The benefits that impact analysis provides include:
 a consistent basis for evaluating portfolio investment decisions across the organization,
 a record of baseline assumptions to use when evaluating the project later, and
 a means of calculating project make-goods for commercialized offerings.
Additionally, impact analysis facilitates communication among technology, commercial development,

and business units and supports the ODI and portfolio processes.
The results of impact analysis are presented at ODI gate meetings. The project team updates the
analysis with current cost and market information prior to each gate review, and then uses the
financial impact data as a factor when deciding whether to advance the project. The results of the
analysis are also used in portfolio management. Impact analysis provides the data necessary to
prioritize and select projects based on their financial impact to the organization.
In addition to impact analysis, Air Products uses metrics and scorecards to evaluate performance.
The organization believes that metrics are an important means of communicating the value of
technology to management and of measuring and finding ways to improve the efficiency of executing
ODI projects. It measures mostly high-level metrics such as the number of products launched per
year, the time between gates, and time to commercialization. The organization is in the process of
developing more refined metrics to better understand where and why delays occur.
Scorecards are published at multiple levels within the business including the enterprise level, the
business division level, and the business segment level. The objective of the scorecards is to
determine the health of the work process by looking at ODI processes, NPI processes, and details in
the PRMS system.
Air Products also has an organization-wide process called “relative what and how.” It is used as part
of the organization’s evaluation process. Individuals are judged on both what they did and how they
did it. Air Products places value on both getting to a positive end result and getting there in the best
possible way. “Relative what and how” helps the organization understand both of those aspects
when reviewing projects.

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Case Study
Ashland, Inc.

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Ashland, Inc. is a global specialty chemicals organization that is composed of five businesses.
1. Ashland Hercules Water Technologies—primarily papermaking chemicals
2. Ashland Performance Materials—resins for composites and high-performance adhesives
3. Ashland Aqualon Functional Ingredients—raw materials in everyday household items
4. Ashland Consumer Markets—Valvoline, Ashland’s only business-to-consumer segment, and
the only business unit that is still involved with its previous oil market
5. Ashland Distribution — the No. 1 distributor of plastics in North America.
The focus for this site visit was on the product development processes at the Ashland Performance
Materials business unit. The performance materials division has a business-to-business focus within
two main markets: transportation and building/construction. Ashland Performance Materials does
not sell composites; it sells the resins that are eventually used by its customers to make the
composites. Some examples of composites include countertops, car hoods, wind turbine blades, and
boat hulls. This business unit contributes approximately $1 billion in sales annually.
The performance materials leadership team (PMLT) is led by the business unit president and
comprised of nine individuals including five regional directors, the Vice President of Global
Technology, and vice presidents of other key functions including marketing and supply
chain/manufacturing.
There are 200 employees in the global technology organization, which is led by Fred Good, Vice
President of Global Technology. The global technology organization is responsible for technical
service and product development for Ashland’s performance materials business. These 200
employees are divided among four product development groups and three support groups.
 Product development groups (60 percent of the group)—One group is dedicated to North
America, two groups are dedicated to global product development, and the fourth group, led
by Joe Fox, is responsible for larger emerging ideas, platform development, and external
technologies.
 Support groups (40 percent of the group) include corporate technology solutions (both
analytical and engineering research), technical service, and SAP/raw materials management.

In 2008 Ashland senior management identified the major, organization-wide processes that would be
key to a smooth acquisition of Hercules. Process councils govern these processes and provide
commonality across the organization. As of 2009, many of these councils continue to meet on a
regular basis, whereas others such as the new solutions development council were on hiatus until

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2010 due to organizational changes. In addition to process councils, Ashland created a process office
with seven employees that functions as a shared service for the each of the five businesses. The
process office supports all of the process councils and is responsible for change management,
records, and process documentation.
Ashland’s senior leadership is involved and engaged in the different process councils. Ashland’s
senior leadership team emphasizes the differences among the organization’s five high-priority goals
and other short-term, less important priorities. Ashland employees are motivated to focus on these
high-priority goals:
1. provide responsible care

2. compete to win new business
3. lead and operate globally
4. achieve operating plan and working capital targets, and
5. create a unified Ashland.
Each goal is further broken down into performance goals and individual objectives. The vice
president of global technology for Ashland Performance Materials has shown his department how
the high-level organizational objectives cascade down to each team member’s role in helping the
business unit achieve its objectives.
THE NE W SOL UT IONS D EVEL OP ME NT C OU NC IL

The new solutions development council went dormant in late 2008 as a result of organizational
changes and the acquisition of Hercules. In late 2009, the new solutions development council was
resurrected to ensure that the successful development of new products and services would be a key
driver of organic growth in the organization. To ensure this continuous growth occurs, Ashland’s
corporate process office assisted in chartering the new solutions development council to focus and
re-engage the business units in collecting and documenting best practices, as well as sharing
knowledge concerning the new product development process. This council’s main priority is to
maintain the health and stability of Ashland’s new product development processes. After the
council’s reinstitution, each business unit went through assessments, external benchmarking
exercises, and other measurement activities to identify where there was room for improvement of the
new product development process.
Since its reinstitution, the solutions development council meets monthly, led by the new product
development process owner (who also serves as the president of Ashland’s Aqualon division). The
council consists of marketing and technical representatives from each of the five business units,
along with the chief growth officer and the director of process excellence. Each member of the
council must agree on the objectives and agenda set for each meeting. In late 2009 and early 2010,
these meetings were dedicated to learning how each business unit develops new products, specifically
which processes and measurements were used and found successful. In late 2010 each of the
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business units are in the process of creating action plans to implement the best practices and lessons
learned from the other business units. Additionally, the performance materials business unit worked
with the process office to take a deeper dive to look for more opportunities to refine and improve its
NPD process.
G ATEKEE PING
The gatekeepers in Ashland Performance Materials are the managers of the project team members. If
the project is particularly large or risky, then the next highest level of managers becomes additional
gatekeepers. The performance material business unit’s vice president of global technology attends all
gate reviews to answer questions and ensure a smooth process. In gate meetings, all gatekeepers are
considered equal, and decisions are reached via consensus vote. The gatekeepers remain the same
regardless of the stage of the process. At each stage, specified deliverables and requirements must be
completed in order to move forward to the next stage. As Ashland’s project teams have become
more familiar with the required deliverables and checklists, the percentage of stage-gate passes has
increased.
Ashland Performance Materials’ gate meetings are scheduled by the project manager when he or she
thinks the project is ready for the next stage. Some of Ashland’s other business units have gate
meetings at scheduled times, as opposed to giving the project manager the scheduling flexibility. Gate
meetings involve a lot of discussion and feedback.
Culture and People

Design for Six Sigma, an important part of Ashland’s culture, is integrated into Ashland Performance
Materials’ new product development process. Design for Six Sigma was introduced to Ashland in
2003 by its former chief technology officer, who was originally an employee of General Electric.
Ashland’s chief technology officer had ownership of the Design for Six Sigma initiative; however, his
direct reports were responsible for its implementation in each individual project portfolio.
Design for Six Sigma had a large-scale rollout at the corporate level, including three weeks of
intensive training sessions. Week one of training, conducted by an outside firm, was attended by all
vice presidents, directors, and managers, including representatives from marketing, sales,
manufacturing, legal, and communications. This first wave of training included an overview of
Design for Six Sigma and stage-gate training. Weeks two and three of training were led by Ashland’s
internal master black belts and introduced statistical tools and Design of Experiments for Green and
Black Belts. At the corporate level, the Master Black Belts served as mentors for the Black Belts and
the Green Belts. In each of the business units, the Black Belts were responsible for focusing on the
project gates, as well as mentoring the Green Belts on the use of the tools. In addition to the initial
training, Ashland has periodic Design for Six Sigma training for new employees and existing
employees in need of a refresher course. There is also specific, just-in-time refresher training, offered
by Black Belts, at each phase of the NPD process.
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Before the introduction of Design for Six Sigma, Ashland was not a process-oriented organization,
and some employees were overwhelmed by the sudden and intense introduction. Although many of
the technical-minded Master Black Belts took Design for Six Sigma seriously, there were some less
formal Master Black Belts that helped balance the detail-oriented, technical philosophy with a more
pragmatic outlook.
Design for Six Sigma is an integral part of Ashland’s new product development process and
extremely embedded in its culture. Design for Six Sigma provides a rigorous structure that is relevant
in the manufacturing phase; however, some employees find this structure to be a large burden in the
ideation and discovery phases of the process. As a result, Ashland has allowed greater flexibility in
the application of Design for Six Sigma in the early phases of the NPD process. The organization
learned that it is important to devote enough time to showcase the tools available and stress that
every tool is not required for every project. That is, the tools used should be commensurate with the
size and scope of the project.
According to the representatives at Ashland, product development is a collaborative and concurrent

effort. In addition to the Design for Six Sigma teams, a typical NPD project team at Ashland is
always cross-functional in nature. The Design for Six Sigma philosophy fits well with this approach,
given its reliance on cross-functional teams to drive success across the organization. The successful
launch of a Design for Six Sigma initiative requires contributions from all parts of the organization
including management, marketing, sales, technology, engineering, manufacturing, and legal.
T YP ICAL NP D PR OJE CT TEAM

The typical project team (Figure 1) in Ashland Performance Materials is headed by a lead chemist.
Ideally, a lead chemist is only in charge of one project at a time to allow for full dedication and
ownership of the project. The lead chemist on a particular project is responsible for managing all the
team members and delegating tasks. The lead chemist is mentored by a Master Black Belt or Black
Belt and is sponsored by the technology group leader. Ashland Performance Materials employs
project leaders from science or engineering backgrounds who are responsible for the technical
execution of projects.
One of Ashland’s other business units, Valvoline, uses a different approach to project management.
Valvoline’s project team leads are not technical experts; they are project management experts. These
general project managers support the content leader specialist and take on the more burdensome
day-to-day tasks. These project managers typically work on 10 to 20 projects at one time. The
Valvoline business unit conducted on-the-job project management training to prepare its employees
for this role. These project managers must be strong leaders who can delegate tasks, facilitate groups,
communicate with sales and marketing, and be customer-oriented. This role is typically a pass-
through position and a grooming job for those with leadership potential.
Until one format is determined to be significantly more productive, Ashland will continue to allow
both types of project management. The most important requirement for a project manager or leader
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is that they are willing to devote the required amount of time and effort and to participate in the right
amount of training.
Ashland Performance Materials Typical Project Team
Figure 1
The senior leadership team is continually working to make Ashland employees more comfortable
with taking risk. For example, when a major, high-risk reward project was killed at the same time the
organization was downsizing, senior leadership took actions to reward risk-taking and
entrepreneurship within the organization by ensuring that all employees on the project team kept
their jobs and moved into strategic growth areas for the organization with opportunity for upward
mobility.
Processes
Each year, Ashland Performance Materials creates about 700 new products. Although this may seem
high, the majority of these projects are small extensions of a previous product. Of those 700 projects,
approximately 10 percent—or 70 projects—would go through the entire Design for Six Sigma
process. Of those 70 projects, approximately 40 to 50 would go through an abbreviated, three-phase
version of the NPD process. Ashland Performance Materials embraces an adaptable new product
development process that allows smaller projects to follow an expedited process that can take as little
as 24 hours to complete.
Design for Six Sigma philosophy is deeply embedded in Ashland performance material’s new product
development process (Figure 2). Ashland’s Design for Six Sigma process consists of six phases that
ensure a disciplined product development process for producing high-quality products (Figure 3).
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The six phases in Figure 3 are embedded into Figure 2 inside the long boxes (i.e. Define, Measure,
Analyze, Validate, Implement and Control). In addition, Design for Six Sigma assesses risk
throughout the life of the project using a variety of tools, including a risk assessment form.
Ashland Performance Material’s New Product Development Process
Figure 2
Ashland Performance Material’s Design for Six Sigma Process
Figure 3
One of the most critical pieces of Design for Six Sigma is the critical-to-quality (CTQ) flowdown
(Figure 4), which occurs throughout the Ashland Performance Materials NPD process. A CTQ
emphasizes identifying and addressing the customer’s needs as early as possible. The CTQ flowdown
includes four quality function deployment (QFD) steps. The project team prioritizes quality function
deployments at each step using a weighted matrix spreadsheet. A QFD1 helps the project leader
move from high-level requirements (e.g., higher productivity) to identifying what is important to the

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customer and produces a prioritized list of features critical to quality. A QFD2 takes the information
from the QFD1 and converts the critical features into specific product properties and measurable
outcomes for researchers at Ashland to measure. At the end of the QFD2, the project leader should
have a prioritized list of tests and measurements to use throughout the development of that product.
The critical-to-quality flowdown was implemented at Ashland Performance Materials to move from a
reactive design quality (evolving and testing) to a predictive design quality (exact, controlled
parameters). Instead of a “test in” quality aspiration, there is a more serious “design in” quality
expectation.
Critical-to-Quality (CTQ) Flow
Figure 4
DE FI NE
The first phase in Design for Six Sigma is the define phase. In this phase, the business case is created,
voice of the customer data is collected, and a risk assessment is completed. Several items are defined
in the project’s business case such as market size and opportunity, market segmentation, key
customers, and financial projections. Voice of the customer data is collected using two main
mechanisms. These options include the QFD1 and a technique the business is currently
experimenting with called new product blueprinting. New product blueprinting focuses on discovery
interviews to extract true customer wants and to determine which solutions they would be willing to
pay for. One of the outcomes of the blueprinting process is a spider diagram that compares existing
and envisioned products. This can be a powerful and intuitive communication tool at the beginning
of the process to develop a new product.

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The initial risk assessments (both business and technical) conducted in the define phase rate a
number of risk items based on probability and impact and provide a score, or probability, of success.
Although this tool is subjective, it can still provide a useful, upfront risk assessment. After the
assessment is complete, all risk items that obtain a minimum score are addressed in a mitigation plan.
At the end of this phase, all stakeholders and gate keepers convene to decide whether or not a
project will be kept in the define phase, moved to the measure phase, or killed. In order for a project
to move forward, the gatekeepers must reach a consensus and complete all pertinent items on the
define tollgate checklist.
ME ASURE
The second phase in Ashland performance material’s Design for Six Sigma process is to measure.
This phase of the process includes creating the project charter and goals, creating the project
timeline, outlining the project’s detailed technical requirements, and completing the QFD2 to ensure
the outcomes are measured from the customer’s perspective. This is the major planning phase. The
project charter is filled out by the sponsor and the project leader and includes team members, project
sponsors, a snapshot of the project timeline, a list of product properties that will be measured and
tracked, and project financials. The project timeline is detailed and typically created using either
Microsoft Project or Excel.
The business team communicates critical milestones and deadlines while the technical team plans the
project and identifies the critical path. The final timeline is negotiated given the deadlines and need
for resources. In the measure phase, it is important that all measurement systems have sufficient
accuracy and precision.
Finally, there is a risk assessment using failure mode and effects analysis (FMEA). This tool
quantifies the risk of the project by multiplying the severity by the occurrence by the frequency. After
all of the items in this phase are completed, a decision gate (called tollgate) review is conducted to
assess whether or not the project will move forward.
ANALYZE
The third phase in Ashland’s Design for Six Sigma process is the analyze phase, which focuses
primarily on laboratory work, technical solutions, and manufacturing plans. As described above,
Ashland Performance Materials business unit is implementing predictive modeling that should result
in fewer experiments. The business unit has moved from a shotgun and trial-and-error approach to
design experiments and factorial designs that hone in on solutions necessary to make the product.
The QFD3 and QFD4 (if necessary) also occur in this phase. The QFD3 connects the new product’s
properties with the properties and processing conditions of the raw materials. If Ashland
Performance Materials is manufacturing one or more of the raw materials itself, then a QFD4
assesses how the processing variables affect the production of those materials. Because the analyze
phase can be an iterative process, it is had the potential to be one of the most time-consuming

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phases. After the project team evaluates the different technical approaches, a decision is made on the
best approach, and if approved, the project moves into the validate phase.
V ALI DATE
Validate is the fourth phase of the Design for Six Sigma process and involves internal pilot scale-up,
external customer field trials to collect validation and feedback, a detailed manufacturing plan, and a
risk assessment. The validation phase is also a time-consuming phase in the NPD process. The pilot
scale-up is important to ensure that the product can be manufactured, and the product meets all the
critical features articulated by the customers. In addition to the internal scale-up, the organization
conducts customer field trial to ensure that all customer expectations are met. This phase validates
that a product gets the same results during the pilot that the product received in the laboratory. Once
the validity of the product is confirmed, the project leader must complete a detailed manufacturing
and scale-up checklist. This 240-piece questionnaire covers all areas of the NPD spectrum such as
issues related to sourcing, process safety, manufacturing, quality control, legal, and customer issues.
The project team uses the information on the checklist to update and review the risk assessment to
prepare the project to move into the next phase.
I MPLE ME NT
The fifth phase of the process is the implement phase, where the product is starting full-scale
production in a manufacturing plant. Other items in this phase include short-term product capability,
control and audit plans, commercial packages, customer feedback, and a financials update. A tollgate
review is conducted at the end of this phase to determine whether or not this project will move into
the final phase.
CONTR OL
The sixth and final phase of the Design for Six Sigma process is the control phase, or long-term
manufacturing. This phase includes the assessment of long-term product capability, comparison of
results to the plan, lessons learned, project documentation, and risk assessment resolutions. After the
checklist for this phase is completed, the project is reviewed and closed out.
Ashland’s performance material’s portfolio of products is managed by its performance materials
leadership team. Both technology and marketing have shared accountability for the success of
Ashland’s portfolio. There are three types of projects in Ashland’s portfolio.
1. Pipeline projects
2. Big idea projects
3. Platform projects

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Ashland’s pipeline projects are typically short- to medium-term growth opportunities taking 12
months or longer from start to commercialization. There are typically many of these types of projects
going on at one time. Most often these projects are extensions of existing product lines, involve
internal scale-up and field trials, include intellectual property opportunities, and require technical
service support.
Big idea projects are opportunities that have the potential to provide greater than $100 million in
revenue within five years of commercialization (i.e., a significant impact on the project portfolio).
These projects often have greater risks associated with them because they are new to Ashland in one
or more aspects. Because there is such a large risk associated with these types of projects, only a few
of these projects occur at one time. Often, these projects have a strong partnership or open
innovation component. The origin of these types of ideas varies, including cross-functional forums,
informal recognition of expanded potential from an existing technology, skunk works, and informal
technology scouting at small companies or in collaboration with universities. Big idea projects are
staffed by cross-functional teams and are housed in the emerging and external technologies group.
Big idea projects are managed as Design for Six Sigma projects and undergo regular reviews by the
performance materials leadership team.
Platform projects provide a new technology platform that product development groups can leverage
for multiple applications. The work in these projects is heavily centered on concept feasibility. The
platform projects are intended to spawn pipeline projects.
Ashland’s four-block diagrams (Figure 5) provide a quick snapshot of each project in the portfolio,
and they are a one-page version of the Design for Six Sigma project charter. This document also
includes additional items such as a solution story (internal and external technology approaches, key
issues, and intellectual property information), project status, and action items.
Ashland employs a project scorecard that gives each project a ranking based on a number of
variables such as value proposition, project financials, strategic fit, and feasibility. The project
variables are first ranked high, medium, or low and are then given a sublevel score and a weighted
total score. The scorecard is initially completed by the project team, and then the performance
materials leadership team reviews and adjusts the score if necessary. These scorecards are done once
every six months and are separate from the gate meetings.

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Four Block Diagram
Figure 5
In addition, these scorecards provide an opportunity to check the gatekeepers. Once each project is
scored, the list of projects is prioritized and typically weighted based on market considerations (i.e., in
tough economic conditions, short-term projects may be a higher priority). The team will use these
numbers (adjusted for probability of success and value creation) to prioritize the project pipeline.
This scorecard is only completed for about 100 projects (out of the 700 total projects), and only the
top 30 projects’ scorecards are reviewed by the team every six months. The team makes strategic
resource allocation decisions per product line, and the product line leadership teams will then
reallocate as necessary. The team also reviews the portfolio to ensure it is realistic and consistent with
corporate strategy.

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You get what you measure.
—Joseph Fox, Director of Emerging and External Technologies
Ashland has several metrics that are used to track the success of new products. The primary metric,
and the most widely used, is the new product index. This number represents the revenue from new
products as a percentage of total sales. Ashland considers new products to be products that are less
than five years old. This metric is tracked using SAP, and it includes revenue from products in each
of the six categories (e.g., new to the world, new to Ashland, product line extension, and new
platform) in all of the business units. This number ranges from about 20 percent to 25 percent.
Other secondary metrics include time to market, time between each phase, value of the pipeline,
forecasted pipeline versus results, gross margin on new products, market share, revenue growth in
emerging markets, and channel penetration.

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Case Study
Becton, Dickinson and Company (BD)

page 90
Becton, Dickinson and Company (BD) is a global medical technology company that develops,
manufactures, and sells medical supplies, devices, laboratory instruments, antibodies, reagents, and
diagnostic products through three business segments.
1. BD Biosciences (17 percent of revenue)—the science and applications associated with

cellular analysis that help grow living cells and tissue
2. BD Diagnostics (31 percent of revenue)—products for the safe collection and transport of
diagnostics specimens, as well as instruments and reagent systems that accurately detect a
broad range of infectious diseases, health care–associated infections, and cancers
3. BD Medical (52 percent of revenue)—medical devices and injection- and infusion-based
drug delivery including needles, syringes, and catheters.
BD is a Fortune 500 organization with more than 50 locations in North America, Latin America,
Western Europe, Asia-Pacific, and Japan. BD strives to be an ethical organization by keeping a
strategic focus on “helping all people live healthy lives.”
BD has always been recognized for its operational excellence and the ability to make high-quality
products efficiently. In 2005 BD Diagnostics Preanalytical Systems renewed its focus on its global
product development system in order to balance its strength in operational excellence with successful
innovation that consistently filled the funnel with significant new products and effectively delivering
those products to market on time. As BD Diagnostics Preanalytical Systems found the process to be
successful, the process was propagated through the rest of the business units in BD. BD employs a
corporate-level process owner for its global product development system, and each business unit also
has a unit-level process owner.
As part of continuous efforts to improve the effectiveness and predictability of NPD, BD

Diagnostics Preanalytical Systems also formed a program management office in 2009 with direct
reporting to the president of the business unit. This change was made to increase focus on both
cross-functional excellence and balance a solid business perspective with quality technical
performance.

The BD Diagnostics Preanalytical Systems program management office is housed outside of a
particular function, and the director of the program management office reports directly to the
business unit president and also sits on the business unit’s worldwide leadership team. This reporting
structure has heightened the importance of NPD and also helps alleviate any cross-functional hurdles
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that may arise. The continuous commitment of the president has also kept the objectives of the
program management office on track. Within the program management office, there is a global
product development system manager that reports to the director of the program management office
and handles most of the tactical execution of the process.
The global product development system process has five phases—concept, definition, development,
qualification and launch—and four formal gates. BD’s NPD governance involves four levels of
reviews (Figure 1). Ongoing functional reviews, located at the base of the pyramid, are the
foundation of the review process. The second level of the pyramid is split by two types of reviews:
Design for Six Sigma reviews (performance and technical components) and commercial excellence
reviews (the business case, which includes commercial, marketing, finance, intellectual property,
operations, and sales pieces). These are scheduled monthly meetings. The next level of the pyramid
includes the gate reviews conducted for individual projects in the portfolio and led by the portfolio
decision team. In order for a project to reach this phase, it must have passed both the Design for Six
Sigma and commercial excellence reviews. Gate reviews are owned by the director of the program
management office. The top level of the pyramid is the portfolio reviews conducted by the portfolio
decision team.
BD has approximately seven functions involved in the ongoing functional reviews, which are
scheduled as appropriate prior to the Design for Six Sigma and commercial excellence reviews.
Functional reviews involve the functional manager, core team member, and if necessary, extended
team members. The purpose of functional reviews is to ensure that functional deliverables meet the
quality and timing expectations defined by the core team and align with the project plan. These
functional reviews are less formal, but they are integral to ensuring functional excellence as the
project approaches the next level of reviews.
BD’s Review Hierarchy
Figure 1

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DFSS reviews are owned by the manager of the global product development system, and attendees
include the DFSS review team, the design review team, independent reviewers (from outside the
business, to gain objectivity), and a technical expert or SME. These meetings are required at the end
of the definition, development, and qualification phases of the global product development system as
well as part of the post-launch review. The objective of this meeting is to ensure that the product and
process design meets customer, product, and DFSS requirements.
Commercial excellence reviews are owned by both the manager of the global product development
system and the director of the program management office. There are several participants in these
reviews including appropriate functional representatives, the core team leader, core team members,
and a subset of portfolio decision team members from marketing, finance, and operations.
Commercial excellence reviews occur at the end of the definition and qualification phases as well as
part of the post-launch review. The purpose of these meetings is to ensure that marketing, finance,
legal and supply chain plans meet project objectives and to ensure that marketplace and financial
assumptions for a project have been properly validated.
Gate reviews take place at the end of each phase in the global product development system. The
portfolio decision team conducts business-level reviews to determine if the business value and
technical assessment criteria have been met before proceeding to the next phase. These reviews also
look at the overall performance so far of the project, variances to plan and plans for going forward.
These are go/no-go or redirect decision points for the project.
Portfolio reviews are at the top level of the pyramid and are also conducted by the BD Diagnostics
Preanalytical Systems portfolio decision team. Portfolio reviews provide the main forum for
managing the overall priorities, investments, and return of the entire portfolio of product
development projects. In the portfolio reviews, the portfolio decision team evaluates the strength of
the portfolio against a variety of business drivers including strategic alignment, value and return, risk
profile, mix, and launch cadence. The portfolio decision team is led by the business unit president
and facilitated by the director of the program management office. The portfolio decision team’s
members include the functional leaders from medical/clinical affairs, regulatory affairs, finance,
operations, quality, R&D, global marketing and HR, and an open seat for region-specific members as
appropriate. Portfolio decision team members also serve as sponsors to the core teams. The portfolio
decision team’s mission in BD Diagnostics Preanalytical Systems includes:
 ensuring successful implementation of the portfolio strategy

 allocating resources
 acting as champions for the product development process
 ensuring core teams execute NPD plans effectively; and
 ensuring adequate and balanced investments in technology, innovation, growth, and
maintenance activities.

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Culture and People

Once a project is reviewed and approved in the concept phase, resources are allocated to the project,
it gets added to the portfolio, and it is ready for execution. It is at this point when the project core
team is assembled. Teams include a core team leader, core team members, and extended team
members that are pulled in by designated core team members as required.
Core teams are responsible for making decisions and executing the project within the boundaries of
the contracts established through the various project reviews. In addition, the core team is
accountable for:
 executing all aspects of the project

 maintaining accountability to the portfolio team
 making decisions as a team, and
 achieving positive results in the marketplace.
C ORE TE AM LE ADER S
The core team leader is the general manager and chief architect of the project and is ultimately
responsible for the success of the project. Although most core team leaders come from an R&D
background, the organization has placed an increased emphasis on filling roles with strong project
managers. These leaders are given business, strategic thinking, team dynamics, team tools, and
project management training. Core team leaders must:
 possess project management skills

 be business-savvy and adept at interpersonal interactions
 handle resourcing and other team issues, and
 create and manage schedules and budgets.
This cross-functional leadership role drives the product development efforts of the cross-functional
team through all phases of product development.
Core team leaders also reinforce the business perspective throughout the NPD process. Core team
leaders are constantly coordinating with leadership to provide project status, schedule appropriate
project reviews, and provide key input into team member’s performance evaluation. Core team
leaders report into the program management office and are considered equivalent to functional
managers in terms of grouping and compensation. Depending on a project’s complexity, core team
leaders might work on one project full-time or work on several projects simultaneously.
CORE TE AM MEMBERS
Core team members lead the functional delivery of the project and ensure alignment of the extended
team activities with the overall plan and goals of the project. Core team members typically go
through a two-and-a-half day training session that includes dynamic team exercises and simulations.

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Core team members are mainly held accountable for functional excellence and functional reviews
that include:
 leading the overall planning, leadership, and execution of all activities related to their
function
 providing work direction to extended team members inside the function
 representing all aspects of their function at core team meetings
 ensuring deliverables produced by their function meet predetermined standards; and
 communicating progress throughout their function.
FUNCT I ONAL MANAGER S

Functional managers are accountable for quality of deliverables, cross-project leverage, functional
budgets, mentoring, recruiting, training, processes and standards, tools, and benchmarking.
Functional managers along with core team members are jointly accountable for success of functional
delivery within the core teams. More specifically, both roles are responsible for resource estimations,
discussion and resolution of team issues, and the identification of and commitment to specific
deliverables.
T RAI NI NG
BD offers an extensive amount of training to a variety of audiences. In addition to actual classroom
instruction, BD Diagnostics Preanalytical Systems training typically involves team exercises, practical
applications, and assignments. The global product development system overview training is available
to the entire BD Diagnostics Preanalytical Systems organization, including new and existing
employees. Some additional training programs available follow.
 Portfolio management training—offered to the portfolio decision team and vice

presidents that includes portfolio management and gate reviews
 Core team leader training—reviews a curriculum concerning strategic thinking, project
management, finance, and team dynamics aligned with a development plan
 Core team member training—project management training attended by both core team
members and core team leaders.
Other BD Diagnostics Preanalytical Systems training courses offered are functional manager training,
resource allocation and management training, training on the technology development process,
sponsor training, portfolio management, and project management training.
Processes
BD’s global product development system, the organization’s guideline for product development
teams and functions, serves as an effective baseline for planning and managing NPD projects and
provides a basis for functional transparency and accountability. The global product development
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system is used for the commercialization of new internal or external products, as well as for projects
that modify existing devices to improve fit, function, or performance. The global product
development system is not used for product or process changes that do not affect final device form,
fit, materials, or performance or for technology development projects. All projects must be
implemented in accordance with the corporate design control process.
BD’s global product development system has six key elements that are continuously improved:
1. the portfolio decision team

2. cross-functional core teams
3. the structured development process (i.e., the five-phase NPD process)
4. the business review process
5. operations and functional excellence, and
6. basic portfolio management processes.
There are several types of ideas that can come through the front end. Before concepts become
official projects, all ideas are filtered through a concept proposal database and go through an initial
market segment screen. If is the organization verifies these concepts are strategically aligned and do
not have any financial hurdles, then the idea proceeds one of three ways.
1. Sustaining engineering (e.g., simple process improvements or small tweaks to existing
products)—These types of projects are not required to follow the entire global product
development system. They go through a separate, scaled global product development system
called the sustaining engineering process.
2. New idea (e.g., new product or technology, breakthrough, basic science, and discovery)—
New ideas can originate from innovation teams or come from anywhere inside or outside
the organization.
3. Line extension—These projects go directly to the concept phase upon approval from the
market segment screening.
BD’s innovation teams identify new key areas the organization might want to participate in. These
teams conduct market research to generate new ideas to enter the funnel, get screened, and gain
approval. Once a quarter, these projects go through a prioritization process with the portfolio
decision team and might be added to the overall portfolio depending on the opportunity, financial
value, and strategic alignment. Before a project reaches the concept phase, it is reviewed by the
innovation council (a subset of the portfolio decision team with different objectives) to verify it is a
high-value opportunity satisfying an unmet need and balanced by current projects in the portfolio.
ST RUCT URE D DE VEL OP ME NT PROC E SS

As a component of the global product development system, many of BD new products go through
the five-phase structured development process. Each phase of the structured development process
includes specific tools and guidelines. One tool is an overview chart created with swim lanes that

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specifies appropriate functions and process phases. In addition, each phase includes a series of
documented step plans and descriptions, tasks, and deliverables that feed into a detailed Microsoft
Project schedule and development plan.
Projects that follow the structured development process are typically planned and managed at four
levels.
1. Phases (less than seven per project)—business-decision focused and conclude with
investment decisions made by executive management
2. Steps (between 20 and 25 per project)—major cross-functional modules that are led by a
core team member
3. High-level tasks (between 200 and 400 per project)—key tasks, often allocated to extended
team members, that must be accomplished to complete a work effort
4. Activities (more than 1,000 per project)—daily efforts required by core team members to
complete a particular task.
As mentioned earlier, BD’s NPD process has five phases: concept, definition, development,
qualification, and launch. To balance risks and rewards, the portfolio decision team makes go/no-go
and redirect decisions for a particular project at the gate reviews.
In the concept phase, the project manager defines the scope of the opportunity, estimates the size of
the financial opportunity, and assesses the feasibility of the project. The most important element of
this phase is to ensure that that project concept satisfies a significant business opportunity. Only a
portfolio review is required at the end of this phase. After a project passes the concept phase, the
portfolio decision team assigns the project a budget and resources and the newly formed team drafts
a preliminary business plan.
The definition phase is focused on collecting voice-of-customer insights to define the market and
product requirements. At this phase, the project team completes and confirms the cross-functional
development plan and develops an integrated business plan, determines critical risks, and solidifies
project schedules. This is the phase where the most projects are killed. At the end of the definition
phase are three reviews: a portfolio review, a Design for Six Sigma review, and a commercial
excellence review.
The development phase has two parts: (1) verifying the product design and (2) ensuring the design is
insensitive to noise and stress. In the first phase, the core team designs the product, puts the
manufacturing plans into place, and builds prototypes. The project’s core team is responsible for
confirming that the product can be manufactured and assembled at target cost and the strategies are
confirmed for the market launch. In second phase, the core team optimizes the product for
performance and conducts experiments to ensure the product is robust and insensitive to noise. At
the end of this phase, portfolio and commercial excellence reviews are optional, but a Design for Six
Sigma review is mandatory.

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The qualification phase validates the project design and manufacturing process. In this phase, the
project team makes final preparations for commercial launch, including all necessary regulatory and
clinical certifications, global marketing, and sales launch plans. At the end of the qualification phase
are three reviews: a portfolio review, a Design for Six Sigma review, and a commercial excellence
review.
The launch phase begins when BD scales up product manufacturing, releases the product to market,
and assesses the product’s performance. In this phase, the core team prepares to manage and
monitor the product life cycle. Approximately three to six months after launch, the core team leader
facilitates a project post-mortem, and the portfolio decision team conducts a post-mortem business
review 12 to 18 months after launch.
SCAL AB ILIT Y
Each project at BD Diagnostics Preanalytical Systems is unique; therefore, the core team leader can
employ process guidelines flexibly based on the specific needs of the project. Core team leaders, in
accordance with team members and the portfolio decision team, can execute projects on a macro
and/or micro scale depending on the complexity of the project. Macro scaling is a high-level
adaptation of the process to the requirements of the project. A decision to follow a micro scale is
made by the core team leader and approved by the portfolio decision team during a business review.
Micro scaling occurs when a core team member within a particular function opts to scale details of
the process within a particular step.
TE CH NOLOGY DEVEL OP MENT P R OCE SS

BD’s technology development process is a front-end element before a “new to the world” or “new
to BD” project can enter the structured development process. For these projects, the core team is led
by a technical leader, typically a lead researcher or engineering expert. Core team members are
typically technical representatives such as researchers, laboratory staff, and developmental staff
support. The extended team members may include functional representatives and marketing staff.
The technology development process has four phases.
1. Chartering—The first phase is conducted by the technology charter team. The main
objectives of this phase are to define the project by completing the technology project
charter, conduct an initial intellectual property assessment, and creating a technology
development matrix.
2. Planning—The second phase is conducted by the full technology development team. The
main objectives of this phase are to finalize the technology development matrix, initiate
intellectual property planning, and create the development plan. The technology
development matrix helps the team manage the level of risk as the team develops the new
technology.

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3. Development—In the third phase, the technology development team completes

experimentation and analysis work in several iterations via multiple experiments in short
bursts in order to mitigate risk. As it completes iterations, the team updates the development
plan and matrix to reflect advances in the experiments.
4. Integration—The fourth phase involves transitioning the project from the technology
development team to the product development core team. At the end of this phase, the
technology effort is completely finished.
At the end of each phase, gate reviews are conducted by both the technology review board for
technical assessment and the portfolio decision team for business assessment. In the development
phase, reviews occur after each iteration of the experiment.
According to the manager of BD Diagnostics Preanalytical System’s product development system,
portfolio management is the nexus of the business unit’s management system. There are four key
elements integral to successful portfolio management: strategy development, revenue planning and
budget development, project execution, and functional resource management. BD has a cross-
business portfolio initiative that takes into account an additional three global elements: global
governance, global harmonization, and global transparency.
The purpose of portfolio management is to shift the balance of the organization’s investments to
areas with the greatest promise for return. The main responsibility of the portfolio decision team is to
determine and balance which projects best fit the strategy of the business unit, to balance risks and
rewards across the array of projects, and to allocate resources accordingly. Quarterly portfolio
reviews involve selecting the best projects and putting a limit on the number of projects to avoid
pipeline gridlock.
In terms of portfolio governance, the business unit general manager is ultimately accountable for the
success of the product portfolio’s performance across the different product lines. In addition, the
general manager is also accountable for ensuring that all the business portfolio reviews are effective
within their business unit.
As discussed earlier, the purpose of portfolio reviews is to evaluate the strength of the portfolio
against a variety of strategic business drivers (strategic alignment) then assess the value of the project,
its risk (technical and commercial), the overall mix and pipeline, and the ability to adequately resource
it. The reviews occur on a regular and an as-needed basis. These portfolio reviews differ from project
reviews that make decisions about an individual project’s value within the context of the entire
portfolio.
BD categorizes its portfolio’s projects into four main categories.

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1. NPD—new products (adds a major capability to an existing product family), breakthrough

products (the first generation of an entirely new product family), and line extensions
2. Sustaining engineering—rework due to quality or usability issues and ongoing technical
support, engineering service, and manufacturing service
3. Governance—activities that address regulatory compliance
4. Technology development—inventing new science to be used in specific product
development projects.
BD Diagnostics Preanalytical System’s portfolio decision team uses a set of common criteria to
assess individual projects across its portfolio. It also uses a standardized valuation model that is
consistent with the enterprise-wide valuation model and has been agreed upon by all the business
units. The valuation model discounts a project’s net present value as a function based on which
phase of the process the project is in. This function is based on the technical (including regulatory)
and commercial probabilities of success.
BD uses Microsoft Office Project Portfolio Server as its portfolio management technology software.
This software has three major modules: builder, optimizer, and dashboard. The builder view provides
a hierarchical list of all portfolios, programs, and projects with key financial data. The optimizer
module provides support for portfolio analytics for areas such as strategic and financial modeling and
risk assessments. This module can manipulate data and create any chart or table necessary for
analysis. The dashboard, mainly used for high-level status updates and progress tracking, provides a
color-coded view of each project based on schedule and financials.
Microsoft Office Project Portfolio Server helps the organization review the portfolio in several other
ways such as an efficient frontier, productivity index, or for risk management. The efficient frontier
view shows the organization’s overall R&D spend coupled with other criteria (e.g., a benefit such as
net present value) to provide the best set of projects that return the maximum value and to determine
where it becomes inconsequential to invest in additional projects. The productivity index provides a
graphical view of all projects where project cost or some other constraint is plotted against project
value (e.g., net present value and incremental revenue). The portfolio decision team is also
responsible for ongoing risk management in the organization’s portfolio. This risk associated with a
particular project is categorized as familiar, unfamiliar, or uncertain and typically plotted against the
project’s value.
Tools and Systems to Support NPD

Design for Six Sigma processes run in parallel with BD Diagnostics Preanalytical System’s NPD
process. Design for Six Sigma is primarily integrated into the definition, development, and
qualification phases of BD’s NPD process.

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Design for Six Sigma provides integral parts of the process including: converting voice-of-customer
data into customer requirements, functional and first principles modeling, concept brainstorming and
selection, design for manufacturing and assembly, robust design, tolerance and capability analysis,
and other statistical and analytical tools.
Critical parameter management is the heart of Design for Six Sigma. It provides a means to track
requirements from voice-of-customer down to the manufacturing floor and measure the capability to
meet those requirements up the chain, resulting in a composite measure of the system’s capability to
meet customer needs.
BD uses a number of other tools and systems to supplement and support its NPD efforts.
BD has identified five phases of maturity on its journey to be a world-class product development
company.
1. Informal management—informal practices that are based on individual experiences

2. Functional excellence—excellence inside individual functions, but not across functions
3. Project excellence—alignment and management across functions and the ability to deliver
projects successfully from beginning to end
4. Portfolio excellence—management across projects to create a balanced portfolio
5. Cross-enterprise excellence—all processes align with both internal and external business
partners.
BD tracks several key metrics including critical milestone achievements, cycle time by phase, time-to-
market, time to project close-out, product defects, and new product revenue.
Each core team leader, in conjunction with the portfolio decision team, must fill out a project
contract. This contract includes project timeline, committed resources, risk levels, financial data, and
a qualitative project description. The project contract is updated after each phase of the NPD
process to reflect planned versus actual numbers. Interim reviews are conducted if the project
contract is broken. The monthly dashboard review is typically a good leading indicator of a pending
broken project contract.
Post-launch project reviews are conducted by both the core team and portfolio decision team
approximately two to three months after the product launch. The core team post-launch review,
conducted first, involves a comparison of project performance metrics (planned versus actual) along
with a retrospective analysis of the project. This analysis includes a review of the major phases and
activities, a rating of the quality of execution on a scale of one to ten, and lessons learned. Following
the team review, the portfolio decision team reviews the same financials and the summary of the
team’s retrospective analysis. Twelve to 18 months after the launch, the product financial
performance is reviewed by the portfolio decision team. This review determines how the product
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performs in the market compared to financial assumptions used to approve the product development
investment.
Critical Success Factors

BD has identified critical success factors in instilling NPD as a part of its culture.
 Critical thinking—BD has a continuous focus and effort on training, mentoring, and
coaching to improve critical thinking skills and judgment for core team leaders and core
team members. For example the portfolio decision team members (leadership team) serve as
mentors to core team leaders in order to drive critical thinking and foster a broader business
perspective.
 Organizational alignment and commitment—The entire organization is focused on
improving the predictability and effectiveness of product development projects through
regularly monitored metrics at the business unit and individual performance levels.
 Culture change—A cultural transformation team drives the successful behaviors including
a sense of urgency, a customer/patient focus, a willingness to take calculated risks, and a
unified team concept.
 Structure and reporting—The creation of the program management office and its
reporting structure directly to the business unit president has underscored the organizational
commitment to NPD as a critical, cross-functional business process that focuses on
successful commercialization instead of development.
 Toolkit—Structured processes and tools such portfolio management and a stage-gate
process (global product development system) provide the organization with a disciplined but
flexible approach to NPD.

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Case Study
Electro Scientific Industries, Inc.

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We are the 66-year-old start-up.
—Brad King, Director of Program Management
Electro Scientific Industries, Inc. (ESI) is a leading supplier of innovative, laser-based manufacturing
solutions for the microtechnology industry. Its systems enable precise structuring and testing of
micron to submicron features in semiconductors, LEDs and other high-value components. ESI
partners with its customers to make breakthrough technologies possible in the semiconductor,
microelectronics and other emerging industries. Founded in 1944, ESI is headquartered in Portland,
Oregon, with global operations from the Pacific Northwest to the Pacific Rim.
ESI is a business unit matrix structure (Figure 1). Of ESI’s 600 employees, approximately 250 work
in new product development. The new product development methodology at ESI was defined in
2005, but its adoption by the stakeholder functions was inconsistent. In 2007, ESI’s executives
decided to make the office of program management more autonomous from the business units and
hired an industry veteran, Brad King, to lead the function. The principal charter was to align the
program to the reality of business needs and drive better process adherence and program outcome
results.
ESI’s Business Unit Matrix Structure
Figure 1

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New Product Development Governance

ESI utilizes a process called the new product introduction (NPI) program to develop and launch new
products. This program is owned by the director of program management and sponsored by the
CEO. Under the director of program management is a group of program managers who are assigned
to individual business units. The director of program management is responsible for the integrity of
the process, managing the program management function (e.g., updates to the process, coaching, and
training), and providing each program manager with the necessary resources to deliver successful
new products. Each new product program is managed by a cross-functional team, and all NPI
programs are initiated at the business unit level. Although program managers are responsible for
running the programs within the NPI process, the general managers of the business units remain
accountable for the financial, schedule adherence, and functional aspects of the programs.
RE VIEW MEET ING S

ESI’s NPI process is governed by two types of meetings: a monthly program review and phase-gate
milestone review meetings. The monthly program review meeting provides a forum for status
updates of all new product projects as well as a way to consistently reinforce use of the NPI process.
The monthly program review ensures a level of transparency, resulting in no surprises at any of the
subsequent phase-gate reviews.
At each critical milestone meeting, executives conduct individual program reviews to approve the
advancement of a project. At these meetings, a consensus must be reached by the vice presidents
(located on the left side of the newly revised organizational structure in Figure 1) from various
functions such as operations (e.g., Is this product ready to build?), service, and sales (i.e., Can this
product be sold?), and the sponsoring general manager.
Milestones are either approved or not approved: pass, fail, or recycle. Approval at a milestone review
means that the project team has been granted investment for the next phase. The meetings are meant
to be transparent discussions displaying all the facts. It is integral that the director of program
management attends every meeting (program reviews and milestone reviews) to ensure the integrity
of the process and keep meetings on track. According to King, the improved consistency of the
process is helping to improve quality of content, accelerate learning for new participants, and enable
objective status reporting.
SE NI OR LEADE R SHI P SU P P ORT

The CEO’s support during the transition of ESI’s NPI process has been invaluable, said King. He is
committed to having a consistent NPI methodology. He expects and supports use of the process and
is constantly pushing employees to embrace the new process. Key programs are reflected in ESI’s
annual goal-setting process and are tied to the employee bonus scheme.

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Culture and People

THE PR OGR AM MANAGER R OLE
As described above, each new project at ESI is led by a program manager and a group of cross-
functional team members. The full-time program manager acts as a conductor and leads the project
by driving all functions to meet the project’s objectives. The program manager is responsible for the
integrity of the NPI process at the team level. He/she is also accountable for ensuring team members
are prepared to present relevant material at each milestone review.
At any one time, ESI’s program managers are usually working on two to three projects. Sometimes
program managers are hired from within, and other times they are recruited externally. The
individuals that fulfill this senior role are usually experienced professionals with 10 to 15 years of
experience. According to the director of program management, this is a difficult job that requires a
unique set of skills; that person must be tough, fearless, and have the ability to tell management what
they don’t want to hear.
One important distinction that ESI makes is that the program manager is not the technical decision
maker. When program managers have “technical egos,” they can become more focused on the design
and engineering of the project at the expense of the broader cross-functional deliverables to
successfully bring the product to market.
P R OJE CT TE AMS
Although some level of concept exploration may precede the first NPI program milestone (concept
approval), the new product development (NPD) project team is formed directly after the first
milestone is approved, where the product opportunity is assessed and defined. By including all
functions from the initial milestone, ESI is able to help employees feel included and come to see the
NPD process as more of an enabler than a barrier. Standardizing templates for gate deliverables and
publicizing corporate-level indicators has also helped make the case for embracing the process.
Cross-Functional Teams
ESI has taken steps to improve cross-functional team collaboration and effectiveness. ESI senior
management has employed several cross-functional teams on internal projects such as creating the
design requirements for a new product lifecycle management (PLM) tool, documenting the
organization’s mission and values, and redesigning the NPI process.
Global Teams
In addition to creating successful cross-functional teams, ESI also focuses on the effectiveness of its
global teams. Currently, ESI has six international facilities, including a design center in Taiwan and a

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manufacturing facility in Singapore. ESI’s move to offshore manufacturing reinforced the need for
tighter processes and, therefore, a more formalized NPI process.
ESI’s continuous global endeavors have created several key takeaways. ESI has realized that
continuous communication and alignment within the global project team is essential for project
success. This interaction should expand well beyond the initial NPI training and into the specific
details and execution of the project. King believes that this interaction should be facilitated by the
program manager. Program managers who have team members located in multiple locations must
work hard to maintain alignment while considering time, distance, and language challenges. There is a
strong belief among ESI leadership that the most effective way to deeply embed the NPI process is
to supplement classroom learning with learning by doing. ESI works to ensure new employees
experience firsthand the different project gate reviews and monthly program reviews so they are fully
prepared when it is their turn to present.
As offshore locations increasingly participate in the new product development process, challenges
emerged similar to those faced in the United States concerning completeness and timeliness of
milestones and deliverables (i.e., what is due, when it is due, and how to complete these items
effectively and correctly).
T RAI NI NG
To help embed the NPD process at ESI, a portion of the new-hire orientation process is devoted to
discussing the importance and processes around new product introductions. ESI also conducts
existing employee training on changes in the NPI process, mainly on an ad hoc basis because of
organizational size restrictions and limited resources.
R I SK
The strategy for taking risks at ESI is largely based around increasing objectivity and data-supported
risk assessment. Some methodologies such as the development of a laser qualification process have
helped the organization’s evolution from subjective discussions on laser technology readiness to data-
based quantification of performance versus requirements on critical attributes. Although the
development of such a methodology can be achieved in a relatively short time frame, the shift in the
organizational culture toward embracing this approach takes longer. Senior management is working
on building a greater tolerance for objective-based risk taking and on exhibiting the desired behavior.
ESI stresses that it is important to extract the lessons learned and apply them to the next program—
especially when a product fails. Although senior management might not be fully comfortable in this
area yet, it has vastly improved.
The annual goal-setting process produces the first level of program prioritization to support the
business plan. At the divisional level the general manager is responsible for managing resource
allocation for engineering across his top programs, but the gate approval process commits other key
stakeholders to programs.
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Processes
It has become increasingly more unacceptable to be outside the process.
—Adrian Keating, Director of Corporate Quality
NP I 2.0 T O 3.0
ESI has historically been an engineering-led organization with a documented NPI process; however,
the process adherence was inconsistent. Brad King was hired in 2007 to set up the Office of Program
Management in order to address the issue and understand the barriers to greater adoption of the
program. This new hire marked the beginning of ESI’s move from its NPI 2.0 process to NPI
version 3.0. King created a small cross-functional team (including those that were involved in
creating the NPI 2.0 process) to develop and improve the process. He used this broad-based,
inclusive group to ensure that a wide variety of stakeholders had input into the new process. This
group developed the initial milestone checklists (organized by function), provided opinions and
feedback on the necessary deliverables for each gate, and created abbreviated checklists (i.e., “need to
have” versus “nice to have” items) for smaller-scale projects and abbreviated tracks.
The group discovered how the NPI 2.0 process was communicated to the employees, how the
original process was mapped together, and why there was a lack of buy-in and implementation. The
group realized that the previous process had no official roll-out, which was a logical explanation as to
why there was a lack of employee buy-in.
QU ALIT ATIVE TO QUANTI TATIVE

Concurrent to the focus groups creating and documenting the new NPI process, Adrian Keating,
was brought on board as Director of Corporate Quality. He developed a series of NPD productivity
indicators, such as cost of quality or cost of warranty, to provide a quantitative look at the success of
ESI’s NPI program. This new approach, which was met with some initial opposition, makes it more
about numbers and facts and less about opinions. This objectivity became one of Keating’s missions
to ensure that every quality indicator at ESI has both a performance and dollar impact associated
with it. These measures have the potential to tell a story some people may not want to hear, but they
are the best indicators to show where to improve.
For the most part, ESI’s NPI process has been uniformly applied across the business units in the
organization. Four of ESI’s five business units have been completely converted to the new NPI
process and use all of the associated templates and deliverables. The fifth business unit, an
acquisition, is on a learning curve.
P R OCE SS DOC U ME NTATI O N

ESI’s new product introduction process has a standard and documented set of processes and
procedures. ESI maintains an engineering change order release process for the introduction of each

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new business process with formal release control. As the NPI 3.0 process was finalized, there was a
plethora of new documentation for the process, updated governing procedures, and new cross-
functional milestone checklists and other deliverables. ESI uses a legacy product data management
system to house all of its documentation. ESI plans to update the legacy product data management
system to a full product lifecycle management system.
E SI ’ S NE W P R OD U CT IN TR OD UCT I ON PR OC E SS
ESI’s full NPI process (Figure 2) has seven main phases.
1. Opportunity—defines the product opportunity, the available market share, and the customer
2. Concept—outlines product requirements and risks, identifies necessary technology and product
architecture, and engages with a key partner if applicable
3. Risk reduction—reduces risks, engages the cross-functional program in planning, begins alpha
testing, and generates the plan of record. (The plan of record is an extremely critical deliverable
and is the stake in the ground for the entire project. This document provides a top-level look at
the program, as well as a detailed design and manufacturing plan including Gantt charts and
quantitative measures and expectations for the success of the project.)
4. Detailed design—alpha reviews and starts beta builds, initial shipments, outsource plans (In this
stage, the product is customer-ready.)
5. Final design and documentation—initiates outsourcing, releases manuals, and ensures product
can meet demand and be shipped (i.e., manufacturing is ready).
6. Pilot production
7. Production—ramps up production, sustains success of the product, and ultimately phases-out.
ESI’s NPI Process: A Simple View
Figure 2
At the end of each phase is a gate and set of milestone objectives that must be met for the product to
move through to the next gate.
1. Opportunity approval (after phase 1) — investment is approved based on the market

opportunity analysis (i.e. the project has acceptable returns and financials)

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2. Concept approval (after phase 2) — investment is approved based on the alignment of the
project concept to the market requirements and financial objectives
3. Feasibility approval (after phase 3) — this is the “money gate” where the investment is
approved based on the plan of record. This is a critical milestone review. The plan of record
must include a detailed schedule, an outline of all issues associated with the product, a plan
for market launch, and a list of financial targets.
4. Beta review (after phase 4) — initial shipment to the customer site is approved when the
system verification test results have been verified and accepted
5. Readiness approval (after phase 5) — investment in pilot builds is approved based on the
beta qualification, design, and documentation maturity plan
6. Production release approval (after phase 6) — high-volume production is approved based
on the success of the pilot production and documentation/training/facility readiness.
Each gate requires a list of deliverables associated with that particular milestone. All deliverables have
a template and an expectation of how they must be completed. In addition to the specified
deliverables at each gate, there are also detailed financial and investment plans that must be kept up-
to-date.
A Scalable Process
ESI employs a scalable process to fit each business unit’s needs. These tracks were implemented in
the transition from NPI 2.0 to NPI 3.0. ESI has added two alternative tracks in addition to its full
process: a scaled version and a lite version. An effort to combine some stages together to expedite
the process, while leaving in the key deliverables, addressed some of the general managers’ and
engineers’ biggest issues with the 2.0 process. ESI has a process flow (Figure 3) to help the programs’
core teams and the general managers decide which track is the most appropriate for each new
project. The ability to choose the track for a project helps accomplish things concurrently in order to
expedite the time-to-market for a new product.
The scaled version combines the first two steps of the process (opportunity and concept) and
removes the alpha exit step. This alternative version of the process hastens the beginning stages,
which can be redundant when entering an existing platform or market. For the most part, ESI
employees are satisfied with the scaled version, and it has proven to be successful.
The Lite NPI process has been more challenging. This scaled-back version (combining the first three
steps of the program) is necessary for projects requiring an extremely expedited time-to-market and
with minimum overhead costs. This version of the NPI program can only be followed on a small
product extension or a new application on an existing technology platform. One negative aspect of
the lite NPI process is that the combination of the first three phases has the potential to omit a fair
amount of detail and leave gaps in the material. Although the abbreviated tracks combine key phases
in the plan, it does not remove any of the required key deliverables. For example, the plan of record
still requires an extensive amount of detail.

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With three different tracks, the NPI process is relatively adaptable for each project. At any point
during a project, team members can adjust the process to fit their needs, as long as they are able to
explain the changes at the milestone review. Most alterations to the process are acceptable. There is
also flexibility in forming the milestone checklists; items can be removed if they don’t fit a particular
project.
ESI’s Process Flow for Program Classification
Figure 3
E SI ’ S REG UL ATORY ENVI R ONMENT

The global regulatory environment poses a relatively low burden on ESI’s NPI process. Most of
ESI’s equipment is shipped into the Asia-Pacific region, and its large-scale industrial equipment is
Restriction of Hazardous Substances–exempt. ESI adheres to the broadly accepted CE marking, a
self-declared safety protocol, as its standard. ESI also has to abide by U.S. FDA regulations for lasers
(i.e., the kind of lasers ESI uses, the applications of those lasers, and some beam path details). One of
the main initiatives of the director of corporate quality has been to increase the rigor and visibility of
ESI’s compliance work.
ESI has an extensive evaluation framework to ensure that the success of its NPD process is
consistently assessed. Key programs are reflected in ESI’s annual goal setting process and are tied to
the employee bonus scheme. Each program has a set of clearly defined critical success indicators

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typically covering market, financial, schedule and product performance attributes. These indicators
are reviewed at each milestone meeting and monthly program review to provide an ongoing
opportunity to delve into more detail.
ESI also maintains several outcome measures to evaluate the success of its NPD processes.
 Warranty costs—Tracked by platform and division, these costs offer a means to measure
the impact of risk decisions made during the development phase. Actual warranty costs are
compared to warranty provisions to expose invalid or inaccurate assumptions.
 External cost of quality—This measure identifies the top failing field replacement units.
This metric allows ESI to identify which units fail most often and which failures are the
most expensive.
 NPD productivity—This measure compares new product revenue to program costs over a
rolling eight quarters (offset by one year). New products are defined as a product within its
first two years of life.
 Revenue—A ratio of new product revenue over total revenue by division is tracked
quarterly.
ESI maintains an overview of all projects’ plans of record (Figure 4). This chart is presented at the
monthly program review, and it displays which milestone is approaching for each active project by
business unit. The arrows in the chart symbolize milestones moving around and flags delays due to
insufficient resourcing, market shifts, or technical problems for that particular program. Although
there are a large number of projects in the image, only a few programs are discussed at each of the
monthly program reviews—typically those approaching a customer release milestone.
In addition to tracking plans of record, ESI uses a detailed scorecard (Figure 5) to measure the
success of each program. The program or project manager is listed on the top left of the scorecard,
and the milestones and associated dates are across the top. If a milestone moves around, then these
changes are also indicated on the scorecard using arrows. The top right of the scorecard shows a risk
indicator, with a moving triangle to indicate the level of associated risk and therefore the expectations
of the project at a given time. The scorecard also includes a few, top-level program goals and a text-
based executive summary that explains the major things an employee might need to know about that
particular program. The scorecard also indicates items on the program’s critical path, both immediate
and in the longer term.
ESI focuses on the critical path for each project. It educates employees that there are critical activities
that determine whether a project is on schedule. If something on the critical path slips, then there
may be no recovery as a result of the ripple effect.
ESI has worked to create a rigorous new product development process with standardized templates
and deliverables. At the same time, though, it has created alternative paths for projects when the risk
is lower and the need for speed is greater.

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ESI’s NPI Plan of Record Program Tracking
Figure 4
ESI’s Program Scorecard
Figure 5

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Case Study
EXFO

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EXFO is the No. 1 provider of optical testing solutions in the world, No. 2 in wireless protocol
analyzers and network simulators, and No. 2 in portable test sets in the telecommunications industry.
Since its 1985 founding in Quebec City, Canada, the organization has grown to more than 1,700
employees and has increased its market share every year, launching an average of 30 new products
annually to 2,000 customers in 100 countries. EXFO is known for its usable, modular testing
platforms and high-quality fiber optic equipment.
With a focus on innovative and scalable service solutions for fixed and mobile telecommunications
networks, 44 percent of EXFO’s workforce is in research and development (R&D). Since 2000,
EXFO has expanded the reach and diversity of R&D with development teams dispersed in Quebec
City, Montreal, Toronto, Boston, Sweden, and two sites in India. EXFO has a working presence in
25 countries with manufacturing facilities in Quebec and China and sales and support offices all over
the world. (For the purpose of this case study, the EXFO NetHawk activities are not considered,
which includes 250 R&D resources in Finland and one of the Indian centers.)
The cultural differences between R&D team members in Quebec City and Montreal alone were
challenging for EXFO. The addition of three more global locations strengthened the organization’s
commitment to bridge cultural and time barriers in order to develop cohesive global teams that
leverage the expertise of many worldwide members.
R&D is a central component of EXFO. The organization’s revenue is based on its ability to provide
cutting-edge products that meet pertinent market needs. Therefore, bringing ideas to fruition is
critical to the organization’s future. The percentage of the workforce dedicated to R&D and the fact
that 20 percent of revenue is invested in R&D demonstrate EXFO’s focus on product development
and innovation.

EXFO’s organizational structure reflects its emphasis on R&D. Under the CEO, EXFO employs
nine vice presidents, with one devoted entirely to R&D. Six locations support R&D: Quebec City,
Montreal, Boston, Toronto, Pune (India), and Gothenburg (Sweden). R&D employs directors for its
business units and product centers. R&D project teams are composed of members from multiple
sites, depending on each individual’s expertise.
At EXFO, strategy developed at the executive level trickles down into portfolio decisions, which
shape the processes that employees follow when developing new products. Activities at the new
product development process level link to executive goals and objectives, which focuses the entire
organization on developing products that will give EXFO an advantageous position in the
marketplace.

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EXFO has established a global project management office (PMO) to manage the projects at all of its
diverse sites. The PMO ensures that processes that prove successful at one location are replicated
across all sites as appropriate. The PMO is led by the PMO director, who communicates the
organization’s strategic vision throughout all projects/locations to ensure that efforts align with
business objectives.
The ultimate business process owner of new product development is the R&D vice president, who
oversees gate meetings, plays a large role in portfolio prioritization, and takes ultimate responsibility
for the performance of new product development in the organization. The business process manager
of new product development is the PMO director, who manages the way business is practiced across
sites and ensures that best practices are transferred and that all locations support the organization’s
strategic vision.
Project managers are always assigned to projects within different units to apply processes that have
been successful. When a project incorporates resources from multiple business units, the business
unit directors are usually directly involved in the project. Their participation increases the visibility of
successes across the organization. Because the directors regularly work together, the business unit
processes are becoming more aligned as they share the best practices.
G ATE MEETI NG S
Every stage of the process includes a gate meeting to determine the state and readiness of the project
for the next stage of development. At the meetings, the project manager and the product line
manager present the state of the project along with any other pertinent information or topics for
discussion.
A weekly set time for gate meetings facilitates the attendance of team members located in North
America and India. Each meeting lasts 30 minutes, a time frame respected by all attendees and
generally sufficient for addressing the issues at each gate. The PMO director coordinates and
schedules the meetings and sends invitations to all required participants.
EXFO transmits each meeting to all remote attendees using an internal video system or tool such as
WebEx. If someone is traveling, then he or she calls in to participate. A standard PowerPoint
template serves as the basis for the gate presentation. The slides are sent in advance to meeting
participants, who are encouraged to send any questions to the group before the meeting. This
reduces the meeting time considerably. After the meeting, the PMO sends highlights, action items,
and the gate verdict to all participants and relevant stakeholders.
During the gate meeting, the gatekeepers assess the project against a set of standard criteria for that
gate, which address the technical specifications, manufacturability, launch plans, and serviceability of
the product. If a certain criterion does not apply to a given project, then it will not be included in the
assessment. If one or more criteria are not met, then the gatekeepers will not approve the project,

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and the PM will have to present the fulfilled criteria at the next gate review meeting. Occasionally, a
project will pass a gate conditionally if missing criteria can be fulfilled within a week.
Each project has its individual quirks and requirements, but the standard template and design of the
gate assessment allow for speedier and more consistent reviews. Having standard criteria and
procedures in place also help the employees working on the projects know what to expect as they
present their projects and anticipate promotion to the next stage. The gatekeepers make comments
and assess risk levels at each gate, which helps the team make decisions as the project progresses.
Process maturity is not equal across all product development centers, so some sites are still working
to determine which activities will work best for them. Every product development center has the
flexibility to apply processes as needed. This can prove difficult when multiple centers or units have
to work together, but EXFO believes that some autonomy ultimately benefits the process.
At gates 0 through 2, the portfolio review committee acts as corporate gatekeeper by attending the
gate meetings and evaluating the presented material. This team consists of:
 the president of EXFO

 the vice president of marketing
 the vice president of service assurance
 the vice president of R&D, and
 the vice president of sales (both U.S. and international).
After Gate 2, the mandatory corporate gatekeepers include:
 the vice president of R&D (NPD’s business process owner)

 the vice president of manufacturing operations and customer service
 the vice president of the wireline division and corporate marketing
 the vice president of service assurance, and
 the director of manufacturing engineering.
In addition to the mandatory gatekeepers and the project manager and product line manager, the
marketing and R&D directors for the product center or business unit appropriate to the project are
invited, along with a record keeper. Depending on the project, its current stage, and the risks
involved, additional participants may attend. At Gate 4.1, marketing and R&D play a diminished role,
with manufacturing and service personnel taking over as they finalize preparations for full-scale
manufacturing.
Culture and People

EXFO’s culture is based on a combination of rigorously applied processes and flexibility to adapt
those processes as needed. This balance of structure and openness to change is reflected throughout
the NPD environment.

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P R OJE CT TE AMS
R&D at EXFO is organized around projects. Once a proposed product is approved for development
at Gate 2, it becomes a project and is prioritized and granted project resources accordingly. Projects
and the project teams, which change in composition based on the expertise and availability required,
are an essential element of EXFO’s R&D culture.
A product line manager (PLM) is typically the person who first presents the idea to the organization.
The PLM remains technically involved in the project, oversees the development of a full product
definition, and determines any changes that may need to be made. The project manager (PM) leads
the logistics of the project and typically stays out of the more technical elements of the project so
that he or she can manage the team objectively and make decisions that are best for the project and
its ability to support business objectives.
Teams in charge of developing new projects are led by a project manager (PM), an important
strategic position at EXFO. EXFO employees in R&D typically take either a technical or managerial
track. The PM position is fairly high on the management track; individuals holding the role typically
have a technical background but do not specialize in a particular technology at the time they reach
the PM level. The PM must provide objective guidance and maintain a disciplined distance from
technical details during each stage of the project so that he/she can keep the project moving
efficiently. He or she helps determine which deliverables are appropriate and how to apply process
rules. A PM usually manages approximately five projects at a time.
Other than the PLM and PM, the core new product development team consists of a:
 system engineer—who translates the PLM’s product definition into specific technical
requirements
 R&D technical coordinator—who manages a subset of tasks according to his/her
expertise
 technical team—who reports to the R&D technical coordinator and is made up of
specialists in different facets of the proposed new product, and
 manufacturing engineering leader—who coordinates the activities required of
manufacturing and will prepare processes for when the product moves from concept to the
manufacturing/operations floor.
Members of the core new product development team devote a substantial amount of time to the
project and will stay on the project for the majority, if not all, of its life. They reach out to extended
team members for additional support only when necessary. Extended team members could include a:
 purchaser—who procures materials for the project and negotiates with subcontractors as
needed
 support and service center leader—who defines and coordinates the activities that will be
required of the service center and product support groups
 R&D contributors—experts that are contacted for short-term tasks within the projects; and
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 manufacturing and engineering contributors—who assemble prototypes, set up

manufacturing systems, and contribute industrial engineering expertise.
Even if new product development teams are dispersed across several sites, they respond to a single
R&D management authority—typically the PMO or the R&D vice president. EXFO sees R&D as a
single entity and allocates resources across all locations, without limiting the pool to a single site. By
approaching projects from a multisite perspective, EXFO can use the same rules and similar
processes organization wide.
EXFO Product Center Structure and Projects
Figure 1
New product development projects not only run across multiple sites but also operate independently
of the organizational structure (Figure 1). New product projects are not owned by a specific product
center (product centers focus on a particular type of EXFO product such as wireline protocols,
enterprise applications, and platforms) and may use resources from multiple centers, depending on
the expertise and technology required.
MU LTI SITE C H ALLE NGE S

Having team members located among five disparate locations presents special challenges, but EXFO
has adapted several of its practices to accommodate differences between sites. For instance, stage-
gate or other major meetings are now held early in the morning to accommodate the time difference
for team members in India. The organization has also installed video systems in all sites to facilitate
more direct and personal relationships amongst team members. EXFO gives training to all sites that

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explain the cultural differences between one location and another. Although teams often never meet
in-person as an entire group, EXFO sends employees to visit different sites as much as possible
within budgetary constraints.
T RAI NI NG
EXFO introduces all new employees to new product development processes within the first week of
hire and explains the supporting tools and methodologies involved. If EXFO hires a new employee
specifically to support new product development, then he or she is assigned to a project team. The
technical leader of that project team will guide the new hire through the new product development
processes during the course of the project. The new employee can also ask the project manager or
group manager (GM) for guidance if needed.
Each employee has a development plan that focuses on honing competencies and increasing
knowledge in areas that will benefit his or her group and support the career track the employee is
interested in (technical or managerial). The development plan links directly to the corporate-level
strategic objectives of the organization. Typically, the group manager is responsible for creating and
administering the development plan, along with the employee.
As changes are made to product development processes (e.g., new deliverables or product criteria
alterations), PMs and technical leaders communicate the impact and new requirements to their team
members. If major changes are implemented, such as new sets of documentation requirements, then
the organization gives formal presentations in which leaders describe and explain the changes to all
R&D employees.
To increase employee buy-in for any alterations to processes or practices, most major changes are
piloted in a project where a select number of people affected by the change receive training in the
new procedures and then try the new way of doing things. They can recommend adjustments and get
an idea of how the changes will affect work on a small scale. The stakeholders involved in the project
then serve as trainers and leaders when broader scale deployment begins.
T UR NOVE R
EXFO looks to grow employees with the organization. Its turnover rate is relatively low, and EXFO
wants to keep it that way. Because of its policy to load 100 percent of its workforce into projects,
losing an employee at any point during a project presents a major challenge.
EXFO leaders believe that they have built such a strong, committed workforce because they have
provided training and experience to the people that needed it. However, EXFO does set limits.
Stephen Bull, Vice President of R&D, says that he will not tolerate two specific employee actions: the
hiding of mistakes or failures and continued missteps after repeated mistakes, education, and
warnings.

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Group managers are responsible for developing resources and identifying key people whose loss
would pose a risk to the organization. If such a situation exists, then the group manager develops
other resources to have the same knowledge or expertise so that valuable information and skill will
not reside within only one individual.
EXFO also maintains a knowledge base of product development information to ease knowledge
transfer and retain important content related to processes and projects of value. It is currently
working to grow this repository and increase its accessibility.
ACQUI SITIONS
When EXFO acquires a new business, gatekeepers concern themselves less with process details and
focus more attention on shepherding new employees through the process. The goal is for new units
to integrate progressively into EXFO systems and culture; therefore, patience is applied liberally in
the early stages. Thus far, EXFO’s rigorous processes have enabled faster and more complete
integration. Expectations are clear, and the regular meetings keep everyone, especially those new to
the process, on track.
New Product Development Processes

EXFO employs a standard new product development process, but that process has been modified to
create other official processes for projects that must adhere to shorter timeframes (XPRESS
projects), projects with multiple releases, and software-specific projects. EXFO has designated a
specialized group to perform nonstandard processes for projects with special customer requirements
and customizations.
EXFO currently has one official product development stage-gate process. But in parallel with the
operational stage-gating, there is a strategic planning process. EXFO decouples strategic and
operational activities so that employees involved in strategic decision-making processes do not get
mired in the operational product development flow and so that those on the operational or technical
side can concentrate on completing their work rather than feeling sudden pressure to also assist with
strategic preparations. Marketing, R&D, and operations all participate in the operational product
development flow. Executives and directors are typically the most involved in the strategic process.
Project managers and product management leads have multiple responsibilities within both process
flows.
All projects go through the gating process, including incremental and product improvement projects.
In EXFO’s funnel-to-tunnel approach, gates 0 through 2 funnel the pool of potential product ideas
into a streamlined tunnel that takes a much smaller group of selected projects through to marketing
and production. Typically, a project will be in the funnel for about eight months and will take nine to
12 months to go through the rest of the process.

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Figure 2 illustrates all of the gates along with the focus and activities associated with each.
The product line manager (PLM) presents potential product ideas to the portfolio committee at Gate
0. Beginning there, a team of technical managers and the prospective project manager evaluate the
product and make preliminary plans. The project team is officially constituted at Gate 2, when the
project is approved by the portfolio committee. At that point, the project manager leads the team
through Gate 5, when R&D’s hands the product over to manufacturing and the support group.
EXFO’s Stage-Gate Activities
Figure 2
The PLM is responsible for engaging the customer and understanding how a product could or
should be oriented in the market. From Gate 0 to Gate 5, the PLM collects voice-of-customer
information from multiple sources including:
 the sales force

 distributors
 lead customers (customers identified with a need or interest in a particular product)
 external market analysis/research providers
 an internal research group, and
 R&D specialists.
The entire enterprise uses the same high-level process, but the particulars can vary as required at each
EXFO site. The high-level milestones for each project stage remain consistent, but every site and
project team has the flexibility to use their own documents and other processes to respond to the
requirements.
Each gate consists of four parts.

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1. Technical review—Technical leaders with applicable expertise review all the material related
to the product and provide a recommendation that states whether or not the technical team
believes the product is ready for the next stage or what actions need to be taken. The
gatekeepers review the recommendation and take it into consideration, but they have the
authority to agree or disagree with the technical team’s suggestions.
2. Project planning—The PM and PLM prepare a presentation for the gatekeepers. If they
received feedback from the technical review committee, then the PM and PLM may
incorporate the suggestions and explain any issues or resolve conflicts before the gate
meeting.
3. Gate meeting—The PM and PLM present the current state of the product/project and
alterations to the business case or project plan to the gatekeepers and others in attendance.
The gatekeepers make a final approval decision. If they approve the project, then it passes
through to the next stage. If required deliverables are not prepared or if the gatekeepers do
not feel the project is at the level necessary to pass the gate, then a new gate meeting will be
scheduled, which gives the project team time to address issues and go through another
technical review and planning session.
4. Next steps—Once a project passes a gate, the PM must transition the team to the new stage.
Some team members may need to take a larger or smaller role, and the focus of the team will
shift to new requirements and deliverables. In some cases, passage into a new gate requires
that certain project resources be activated from departments with little former involvement.
Marketing, for instance, asserts a greater presence after Gate 4.
Ideas are not considered projects until they pass Gate 2. After that point, few projects are ever killed
(i.e., removed from the portfolio), although it has occurred. EXFO believes in rigorously stage-gating
ideas until they meet the requirements to become a project, have an appropriate and compelling
business case, and have a reasonable plan to support development. This ensures the success of
approved projects. Also, PMs do not have the authority to kill a project; their responsibility is to
provide creative solutions to keep a project on-track.
Gate 0—Positioning
Gate 0 occurs primarily within marketing, the department tasked with determining which ideas fit
with current corporate, product, or technology strategies. If the idea seems to fit, then the PLM
performs competitive and market appreciation analyses to identify a unique selling position,
differentiation, and the size of the market for the product.
Some products never make it out of Gate 0. At a minimum, the product needs to fit with corporate
strategy and have a positive competitive analysis and high-level market analysis. At this stage, it does
not matter if EXFO has the technology to develop the product.
Gate 1—Definition
To make it through Gate 1, the product must fit with corporate strategy. If the portfolio committee
approves this initial definition, then the PLM refines it based on any feedback given and conducts a
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detailed market analysis using the refined definition. Simultaneously, R&D managers begin
developing technical solutions to meet the product definition.
Gate 1.5—Foundation Review
Eight weeks before Gate 2, a Gate 1.5 (review) meeting occurs. This step ensures proper preparation
of the business case before Gate 2, when the product idea will be submitted to the gatekeepers as a
potential project. Without Gate 1.5, employees tended to wait until immediately before Gate 2 before
refining a business case, which often resulted in a Gate 2 meeting mired in details that slowed the
process. This gate ensures that technical issues are discussed and considered in conjunction with
market conditions. A PM joins the PLM at this stage, and they must agree on the product definition.
Gate 2—Feasibility
The portfolio team again acts as the gatekeepers at this gate. Gate 2 requires a secure financial
business case and technical preliminary feasibility. The technical review committee’s feedback is
taken into consideration, and the PM / PLM must present an acceptable:
 target cost
 target sales price
 development cost, and
 time to market.
If Gate 2 is passed, then the PM officially joins the team and asks for appropriate specialists to be
assigned to the project. Once the full team is assembled, they prepare for Gate 3. The PM creates a
feasibility plan based on the allocated budget.
To accurately determine feasibility, the team may build a preliminary prototype at minimal cost,
which may be presented to certain core customers if they are the primary market for the product.
Those customers sign confidentiality agreements and provide feedback that can be used in later gate
meetings.
All of this information ultimately forms the detailed feasibility plan and a high-level plan for the
remainder of the project. The costs of the feasibility planning process vary widely but average
approximately 15 percent of total project costs (typically related to intensely technical work).
Gate 3—Conception
Armed with a detailed feasibility plan and a map for the rest of the project, the PM and PLM
approach the mandatory team of gatekeepers at Gate 3. At this stage, the gatekeepers require a:
 final product definition

 validated product design
 preliminary prototype
 assurance of market acceptance, and

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 project plan.
If technical analysis, market analysis, and the business case prove acceptable and compelling, then the
project team passes the gate and is given permission to develop the product. All gatekeepers must
agree on the decision. The project cannot pass Gate 3 unless the team has everything is needs to
begin producing a finished product.
Thus, upon passing the gate, the team develops the first complete iteration of the product (a
complete prototype, as opposed to the preliminary version constructed during feasibility phase). This
prototype must meet all functional specifications, as well as the additional specifications required to
differentiate it from the competition. Although the product may not be finished during this stage, the
team works more heavily with marketing to ensure that it stands out from the competition. Without a
competitive advantage, the product will never go to market.
This work is accomplished in EXFO’s “emerging cell” environment, where products are
manufactured in their final forms before hitting the main production floor in either China or
Quebec. The emerging cell allows EXFO to try different ways of manufacturing and servicing a
product, by establishing the most complete and efficient methods to create and maintain the product
prior to rolling out major new work flows within a larger production environment. By bringing in key
members of operations, the project team can identify the best ways to accomplish tasks and
introduce new concepts at an early stage.
At the end of the feasibility stage, the product definition should remain stable. Gatekeepers must
approve any changes to the concept or definition after this point.
Gate 4—Validation
Gate 4 is crucial for any new product. Gatekeepers at this stage determine if the product is ready to
be launched in the market. Any bugs found in the emerging cell need to be addressed, and
gatekeepers must believe that it can be successfully marketed.
Between gates 4 and 4.1, marketing begins generating sales, and the organization offers the product
to customers and may provide demonstrations. All gatekeepers and functional leaders must commit
to the launch schedule and stay on track. This is a high-intensity stage.
Gate 4.1—Transition
Gate 4.1 was added to signify the point at which a product leaves the hands of R&D and enters the
control of manufacturing. The R&D team fine-tunes the product, increases efficiencies, and helps
optimize the production cycle if needed; but manufacturing has ultimate responsibility for the
product’s creation at this point. If a product will be manufactured in China, then it is sent directly
from the emerging cell to the Chinese production floor, which operates virtually identically to the
Quebec manufacturing site.

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The R&D team remains on-call to monitor any product returns, especially ones that are dead or
defective when the customer receives it. Such returns must be examined to increase the quality and
sustainability of the product.
This phase lasts approximately three months, with the goal of optimizing the product and the
manufacturing cycle so that the product can move fully out of R&D and into long-term production.
Gate 5—Close Project
At Gate 5, the PM presents an optimized manufacturing cycle to the gatekeepers along with
customer feedback and actions taken to address it. Team members perform an end-of-project
postmortem before the project is officially closed.
Until 2002, the postmortems were presented to the portfolio committee as well as the Gate 5
gatekeepers, but this proved problematic once the portfolio grew and did not leave time for such
reviews. Now, the PM presents any postmortem recommendations only to the gatekeepers. Those
recommendations should be related to three things:
1. team dynamics (how the team worked together and coordinated the project)
2. process (how processes were adhered to, any changes made or suggested), and
3. management (how well the vision for the project was defined, how decisions were made, and
any recommendations for more effective management or special issues).
XP RE SS GAT ING PR OC E SS
EXFO always intended that its standard stage-gate process be scalable and flexible. Sometimes,
activities can be omitted for the sake of greater efficiency and customer satisfaction. Although some
employees shifted activities to accommodate shorter schedules, many individuals did not feel
comfortable skipping certain steps or activities.
To accommodate and encourage faster development when appropriate, EXFO introduced the
XPRESS process (Figure 3), a truncated version of the standard stage-gate process. Having an
officially shortened version made people more comfortable with requesting changes to the work flow
when necessary, based on appropriate conditions. Four or five projects per year use the XPRESS
gating system.

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EXFO’s XPRESS Gating Process
Figure 3
Figure 4
P R OCE SS FOR SOFT WARE PR OGR AMS

EXFO differentiates between conventional product development and software program
development. The path is similar, but Gate 3 is replaced with extra iterations of the Gate 4 to Gate
4.1 feasibility activities. EXFO typically divides the features that will be included in a finished
software program into packs. The project team works on the features packs (FPs) one at a time and
often releases them to customers as they are completed. For this reason, the project team repeats
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Gates 4 and 4.1 for each features pack. Figure 4 illustrates how the software program development
process works.
The team presents the program road map with all of the anticipated feature packs at Gate 2. If
approved, software engineering and development for the first features pack begins, and the team
works through the delivery of all planned features packs. The process allows for flexibility according
to the specifics of the program and the particular features packs included.
MANAG ING CH ANGES T O T HE PR OJEC T PLAN
Innovation could not be done by robots

—Stephen Bull, EXFO’s Vice President of R&D
Although EXFO largely adheres to its processes, flexibility is necessary to allow for the kind of
innovation crucial to the organization’s success. If an issue occurs or there is some reason why a
project manager needs to deviate from the original project plan, then he or she can pursue three
different avenues for a change.
1. If the project will not be ready to pass the gate at the time of the gate meeting, then the PM
lets the gatekeepers know, and the gate meeting instead becomes an update meeting. During
this meeting, participants offer solutions on how to correct the situation and assess the
impact of delays and how those impacts can be mitigated. Then, a new date is scheduled for
the gate meeting.
2. If a PM wants to create or provide market or customer deliverables prior to a scheduled

milestone, then he or she requests a risk meeting. During this meeting, gatekeepers and other
stakeholders (e.g., marketing and manufacturing) determine if the opportunity is worth the
risk being taken to provide deliverables early. They also assess what the impacts of the new
plan would be on quality, schedules, cost, and other project elements.
3. For all other changes after the project has received Gate 3 approval, the PM can submit a
project change request. He or she fills out the project change request form and asks the
gatekeepers to hold a project change request meeting. During the meeting, participants add,
modify, or remove functionalities from the Gate 3 requirements, evaluate the impact of the
changes on the project (e.g., to time, budget, costs, and the business case), and get a final
consensus and approval from the gatekeepers.
GL OB AL REG UL AT OR Y RE QUIRE ME NT S
Meeting regulatory requirements in the more-than 100 countries where EXFO sells its products can
be challenging. To reduce the time project teams spend on ensuring compliance with global
regulations, EXFO formed a centralized certification group to handle the complexities associated
with compliance. The responsibilities of the certification group include:

page 128
 reducing the complexity of standards and requirements and applying it to daily work
 determining where in EXFO different standards apply, and
 bringing compliance expertise to projects teams so that project team members can focus on
innovation rather than regulations.
The certification group identifies compliance issues early in the development of a product. In
particularly complex cases, a certification specialist may work directly on the project team so that they
can analyze and apply standards appropriately.
I NTE R NAL ST ANDARDS

EXFO has developed internal standards that define mandatory requirements and compliance-specific
requirements. The internal standards cover more than 90 percent of project issues and questions and
help the different sites project teams in the reuse of internal designs or development on existing
EXFO platforms.
Managing the portfolio is critical to guiding projects through the appropriate processes and ensuring
that EXFO releases products that give the organization an advantage in the marketplace.
The periodic review process to prioritize EXFO’s projects (every four months) takes five days. The
first four days include the:
1. strategy review
2. technology review
3. project management office (PMO) results from the previous four months
4. review of strategic products; and
5. strategic business unit presentations, which cover the unit’s current product strategy,
ongoing projects, Gate 1 and 2 presentations.
The final day encompasses the:
1. prioritization of marketing plans

2. final project prioritization rankings, and
3. loading resources to each project.
Once the final ranking, priority, and committee comments are complete, along with an approved
allocation of resources, the R&D vice president holds a general meeting with the organization’s
cross-functional management team and project management office to communicate the results. The
individual R&D directors then host general meetings with their business units to explain the new
rankings.
page 129
EXFO does publish the rankings publicly but in a blinded format. Only individuals who know the
code for their specific project(s) can discern where their projects fall in the list of priorities.
ST RATEGI C RE VIEW
The strategic review assesses how well a product/project:
 aligns with strategic objectives

 differentiates EXFO’s offering from the competition
 addresses a worthwhile market
 promises revenue generation
 offers an acceptable return on investment
 stretches current technology levels
 mitigates risk
 adheres to an acceptable budget, and
 projects an appropriate and market-advantageous timeline.
Software programs in development have different requirements. Software is often released in stages
and goes through different processes from hardware products. At the strategic review, programs
must have a:
 roadmap—a list of projected total features with estimated release dates for each program
update;
 first feature pack release—the complete list of features for the base model and what will
be included in its first update (this should cover 50 percent of all the features that will
eventually be released);
 financial prospectus (e.g., sales or sales projection and fixed and variable margins);
 overall budget and how resources are currently being used; and
 metric results (e.g., return on investment, net present value, and hit rate).
The portfolio review committee tracks the information, review details, and notes in a standard
portfolio project review form.
P R OJE CT PR I ORI TIZ AT I ON

The prioritization of the project portfolio is critical to the gatekeepers’ decision-making process as a
project moves through the stages and gates. After the strategic review, the portfolio review
committee ranks the top projects in the organization. The committee designates each project with a
priority level.
 Priority 1—highest priority projects that may take resources from other projects (priority 3)
if necessary
 Priority 2—important projects that are fully staffed, cannot lose resources to priority 1
projects, but also cannot pull more resources from other projects
page 130
 Priority 3—lower priority projects that may lose resources to priority 1 projects, resulting in
occasional schedule slips
 Priority 4—projects on hold until the next review.
Then the committee ranks the projects in prioritized order from the highest to the lowest. The
committee votes to establish the final ranking order.
Ranks are determined according to each project’s:
 strategic fit
 expected increased revenue as a result of the project
 planned market share
 product differentiation in the marketplace
 technology advancement, and
 risk levels.
In some cases, a project can change priority levels between portfolio reviews. This depends on the
marketplace, technology advancements, and resource availability. As a project moves through the
stage-gate process, gatekeepers review the project and may make new recommendations between
review periods.
RE SOUR CE AL LOC AT ION

Based on the rankings, a team of all the R&D directors divides available resources (funds and staff)
among the business units and their assigned projects and then presents its recommendations to the
portfolio review committee for deliberation.
New product development projects at EXFO are not given a buffer in terms of resources. Leaders
fully load each project with the amount of resources they determine necessary for that project.
Instead of saving a pool of resources as emergency or alternate staff or funds, EXFO prioritizes
projects and fully staffs and funds each one individually, using all available resources.
It is difficult to staff priority 3 projects, and resource reallocation can slow a priority 3 project
manager’s anticipated progress. Low-priority projects have to wait for the next portfolio planning
session to receive a higher ranking.
It can be discouraging to work on a priority 3 project because of the insecure timeline and resource
pool, but priority 3 projects are often some of the most innovative and radical. Thus, employees can
be attracted to projects with various levels of priority depending on their interests and tolerance for
project lag times.
Ultimately, employees work on many different types of projects, and any given project can rise from
priority 4 to priority 1 as time passes. During the period between portfolio reviews, some projects

page 131
may end, the team could develop a more compelling business case, new technologies could come to
the forefront, or market demand may increase for a given product.
EXFO executes resource planning and monitoring through an internally developed tool based on
Microsoft Excel. High-level staffing is done at the corporate or business unit level; the individual
sites complete the detailed loading of staff to different projects.
Metrics play a key role in managing risk and encouraging performance excellence at EXFO. On a
monthly basis, R&D directors review the following key measures to evaluate the progression of the
multiple projects under their purview:
 dynamic time to market

 time to market
 project cost, and
 hit rate (for software programs).
Every month, metrics can be viewed for each individual project, and individual metrics roll up to
reports that show the performance of all the projects in a given product center, as well as the overall
performance of all projects organization-wide. Project metrics are accessible via a project dashboard
(Figure 5).
EXFO’s Project Management Dashboard
Figure 5
page 132
At the beginning of each project, the PM and PLM identify targets for the:
 project budget
 project schedule (time to market)
 return on investment
 cost of goods (for hardware development), and
 list of features.
These targets are tracked with dedicated metrics (e.g., drifts in budget, schedule, or cost of goods;
actual vs. projected ROI; and completion of product features), and the project teams are accountable
for those metrics. The metric results are part of employees’ annual performance appraisals.
Outstanding performance on a project will affect salary decisions.
EXFO has a variable compensation structure for its employees. The variable percentage of an
individual’s salary increases the higher that person’s position falls on EXFO’s organizational chart.
The opportunity for performance rewards depends on metrics like ROI for a given business unit.
EXFO continuously refines its metrics so that leaders can make objective decisions about issues like
compensation, and the organization is trying to orient itself around measures employees feel that they
can control through more effective work.
Compensation is tied to project team or business unit performance rather than individual
performance outcomes. Teams are rewarded for their performance as a group, which encourages
contributions that benefit the team rather than work that serves simply to increase a particular
employee’s numbers.

page 133
Tracking Return on Investment (ROI) by Product Center
Figure 6
EXFO is pushing for more project managers to focus on tracking dynamic time to market. This
metric tracks the forecasted schedule against current conditions. If PMs see that they will miss a
deadline or not be ready for a gate, then they are charged to get the project back onto the original
schedule. If this is not possible, then PM’s should do their best to mitigate the amount of timeline
creep that occurs.
At the corporate level, EXFO tracks the performance of each of the product centers (e.g., optical,
protocol, and access) in a number of metrics such as ROI and budget. For example, Figure 6 displays
a hypothetical comparison of the ROI of EXFO’s product centers to the overall average. (The thick
line across 3.0 is the target return.)
Product center directors view such tracked metrics and comparisons each month in order to make
decisions that will drive better performance. They conduct root-cause analysis based on each month’s
results, take action, and view the new results the following month. Metric shifts can indicate the
impact of changes made or can alert managers to take other actions.

page 134
CAPT UR I NG LE SSONS LE AR NE D
Before the final Gate 5 meeting for a project, the PM must conduct a postmortem evaluation of the
project and present recommendations to the gatekeepers at the meeting. Management can then
choose to incorporate those suggestions to improve processes or spread best practices.
EXFO does not have a formal approach to capturing lessons learned and currently relies on its
employees to learn from each project to make future projects better. This has worked thus far, largely
due to EXFO’s hands-on and activity-oriented culture. The organization has a learn-by-doing
approach. And because employees are constantly working on a shifting portfolio of projects, they can
immediately apply lessons to new development activities and teams.
Nonetheless, EXFO is actively improving its documentation capabilities (with software developed by
its group in India) and investigating more formal ways to transfer lessons learned throughout its
multiple sites. It wants to ensure that best practices are translated into the different cultures and that,
as the organization grows, it can improve as one organization rather than only in small units. Because
the organization is growing, lessons need to be communicated beyond the reach of the groups that
individual employees interact with.
Critical Success Factors and Next Steps

EXFO attributes its product development success to three main factors:
1. senior management sponsorship

2. the rigorous application of processes and practices, and
3. a commitment to continuous improvement.
EXFO’s president is devoted to the efficient creation of innovative new products. His passion drives
EXFO’s vice presidents and directors. They are committed to developing the best work processes
and modifying them as circumstances change and new best practices are discovered.
EXFO applies its processes with rigor and consistency. However, directors are quick to note that
rigor is not synonymous with rigidity. The processes are flexible and encourage employees to think
intelligently and make the best choices for their particular projects. Methods to change course, apply
different practices, or provide alternate deliverables are built into the process. Change request forms
facilitate this as well as the fluid nature of processes at EXFO.
This flexibility also stems from a recognition that the world, the marketplace, and technology
constantly change. Therefore, EXFO must change. Leaders want the organization to grow and adapt
as external and internal transformation occurs. EXFO’s marketing and product development
departments monitor the technological and customer climate. Adjusting according to market needs
and EXFO’s own technological capabilities has enabled the organization to gain market share every
year since its inception. EXFO’s goal is to sustain and grow that position by adhering to its core
values of rigor, flexibility, and continuous improvement.
page 135
EXFO is reviewing its product development processes and streamlining the flows for conventional
hardware products and software products. As software development increases in significance at
EXFO, clear distinctions have arisen between hardware and software processes. Changes to the
processes will take into account where the work is being performed and the different deliverables and
release requirements of each type of product.
EXFO also wants to solidify processes for original equipment manufacturer products that are
manufactured by EXFO but require the integration of a third-party product. A few details of this
process need refinement.
EXFO is intensifying its focus on a unified R&D model, with full integration of all its product
development centers. As EXFO makes changes and broadens its global scope, the organization will
continue to rely on the objectives set forth by senior leaders, its structured processes, and openness
to improvement.

page 136
Appendix B: Selected Data Charts
Section 1: Organizational Characteristics
Section 2: Governance
Section 3: Culture and People
Section 4: The NPD Process
Section 5: New Product Performance
Section 6: Tools and Systems to Support NPD

page 137
Responses to Survey Questions

The information that follows was provided by a data set of 211 usable individual organizations.
SECTION 1: ORGANIZATIONAL CHARACTERISTICS

page 138

page 139
Organization-Level Statistics

page 140

page 141
Business Unit/Department Level Statistics

page 142

page 143
Changes at the Business Entity over the Past Year

page 144

page 145
New Product Development Metrics 25th Percentile 50th Percentile 75th Percentile
Projects Launched and Considered Commercial Successes 35% 55% 70%

Projects Launched and Considered Commercial Failures 10% 25% 35%
Projects Killed or Cancelled Prior to Launch 5% 10% 30%
Projects Developed on Budget 40% 60% 80%
Projects Launched on Schedule 20% 50% 70%
% Behind Schedule (for Projects Classified as Behind Schedule)
19% 25% 40%
Projects that Meet Forecasted Profit Targets/Objectives 30% 50% 70%

Projects that Meet Sales Targets 34% 50% 70%
Projects that Meet Forecasted Market Share Targets 30% 50% 70%
Annual Sales (Revenue) Derived from New Products (launched 10% 20% 36%
Annual Profits Derived from New Products 10% 20% 31%

page 146
SECTION 2: GOVERNANCE

page 147

page 148

page 149
SECTION 3: CULTURE AND PEOPLE

page 150

page 151

page 152
SECTION 4: THE NPD PROCESS

page 153

page 154

page 155

page 156

page 157
Quality of Execution of Key NPD Activities

page 158

page 159
The NPD Process

page 160

page 161
Gate Effectiveness

page 162

page 163

page 164

page 165
Quality of Deliverables

page 166

page 167
SECTION 5: NEW PRODUCT PERFORMANCE

page 168

page 169

page 170

page 171

page 172

page 173

page 174
SECTION 6: TOOLS AND SYSTEMS TO SUPPORT NPD

page 175

page 176
References and Endnotes

1. See success/failure studies and benchmarking investigations into NPD, for example:
Cooper, R.G. and Edgett, S.J., “Developing a Product Innovation and Technology Strategy
for Your Business”, Research Technology Management, 53, 3, 2010, 33-40; Cooper, R., Edgett, S.
and Kleinschmidt, E. “Benchmarking Best NPD Practices – III: Driving New Product
Projects to Market Success”, Research Technology Management, 47, 6, 2004, 3-55; Cooper, R.,
Edgett, S. and Kleinschmidt, E. “Benchmarking Best NPD Practices – I: Culture, Climate,
Teams and Senior Management Roles”, Research Technology Management, 47, 1, 2004, 31-43;
Cooper, R., Edgett, S. and Kleinschmidt, E. “Benchmarking Best NPD Practices – II:
Strategy, Resource Allocation and Portfolio Management Practices”, Research Technology
Management, 47, 2, 2004, 50-59.; Cooper, R.G., “New products: What Separates the Winners
from the Losers”, in PDMA Handbook for New Product Development, ed. Milton D Rosenau Jr.,
New York, NY: John Wiley & Sons Inc, 1996; Cooper, R.G. & Kleinschmidt E.J., “An
Investigation into the New Product Process: Steps, Deficiencies and Impact”, Journal of
Product Innovation Management, 3, 2, 1986, 71-85; Cooper, R. and Edgett, S. “Critical Success
Factors for New Financial Services”, Marketing Management, 5, 3, 1997, 26-37; Cooper, R., C.
Easingwood, S. Edgett, E. Kleinschmidt and C. Storey, "What Distinguishes the Top
Performing New Products in Financial Services", Journal of Product Innovation Management, 11,
4, 1994, 281-299; Edgett, S., "The Traits of Successful New Service Development", The
Journal of Services Marketing, 8, 3, 1994, 40-49; Cooper, R.G. & Kleinschmidt, E.J., “Major
New Products: What Distinguishes the Winners in the Chemical Industry,” Journal of Product
Innovation Management, 10, 2 March 1993, 90-111; Cooper, R.G. & Kleinschmidt, E.J.,
“Benchmarking the Firm’s Critical Success Factors in New Product Development”, Journal of
Product Innovation Management, 12, 5, Nov. 1995, 374-391; Cooper, R.G. & Kleinschmidt, E.J.,
Benchmarking Firms’ New Product Performance and Practices”, Engineering Management
Review, 23, 3, Fall 1995, 112-120; Sanchez, A.M. & Elola, L.N., “Product Innovation
Management in Spain,” Journal of Product Innovation Management, 8, 1991, pp. 49-56; Montoya-
Weiss, M.M. & Calantone, R.J., “Determinants of New Product Performance: A Review and
Meta Analysis”, Journal of Product Innovation Management, 11, 5, Nov. 1994, 397-417; Griffin, A.,
Drivers of NPD Success: The 1997 PDMA Report. (Chicago, Product Development &
Management Association) 1997; Di Benedetto C. A., “Identifying the Key Success Factors in
the New Product Launch,” Journal of Product Innovation Management, 16, 6, Nov. 1999, 530-544;
Maidique, M.A. & Zirger, B.J., “The New Product Learning Cycle,” Research Policy, 14, 6,
1985, 299-313; Menke, M., “Essentials of R&D Strategic Excellence,” Research-Technology
Management, 40, 5, Sept-Oct 1997, 42-47; Mishra S., Kim D. & Lee D.H., “Factors Affecting
New Product Success: Cross Country Comparisons”, Journal Product Innovation Management,
13, 6, Nov. 1996, 530-550; Song X. M. and Parry M.E., “What Separates Japanese New
Product Winners from Losers”, Journal Product Innovation Management, 13, 5, Sept. 1996, 422-

page 177
439; Song X. M. and Montoya-Weiss M. M,. “Critical Development Activities for Really
New Versus Incremental Products”, Journal Product Innovation Management, 15, 2, March 1998,
124-135.
2. Adapted from Kar, S., Subramanian, S., & Saran, D., “Managing Global R&D Operations –
Lessons from the Trenches”, Research-Technology Management, 52:2 March-April 2009 pp. 14-
21. For more information on gatekeeping practices, see Cooper, R.G., “Effective Gating:
Make Product Innovation More Productive by Using Gates with Teeth”, Marketing
Management, March-April 2009, pp. 12-17.
3. See endnote 1; also Griffin, A. & Hauser, J., “Integrating R&D, and Marketing: A Review
and Analysis of the Literature”, Journal of Product Innovation Management, 13, 1996, 191-215 and
E. Olson, O. Walker, R. Ruekert & J. Bonner, “Patterns of Cooperation During New
Product Development Among Marketing, Operations and R&D: Implications for Project
Performance”, Journal of Product Innovation Management, 18, 4, 2001, 258-271.
4. Cooper, R.G. and Edgett, S.J., “Maximizing Productivity in Product Innovation”, Research
Technology Management, 51, 2, 2008, 47-58; Cooper, R.G. Edgett, S.J. & Kleinschmidt, E.J,
“Best Practices for Managing R&D Portfolios”, Research-Technology Management, 41, 4, July-
Aug. 1998, 20-33. See www.stage-gate.com for additional info.
5. Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J., Portfolio Management for New Products, 2nd
Edition. Reading, Mass. Perseus Books, 2002, Cooper, R.G. and Edgett, S.J., “Ten Ways to
Make Better Portfolio and Project Selection Decisions”, Visions, 2006, Vol. XXX, No. 3, 11-
15; Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J., “New Product Portfolio Management:
Practices and Performance”, Journal of Product Innovation Management, 16, 4, July 1999, 333-351;
Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J., “Portfolio Management: Fundamental to
New Product Success”, in The PDMA Toolbook for New Product Development, 2002, 331-364;
Cooper et al, 2002, endnote 10; and Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J., “New
Problems, New Solutions: Making Portfolio Management More Effective”, Research-
Technology Management, 2000, 43, 2, 18-33.
6. See endnote 5.

page 178
About the Author
Dr. Scott J. Edgett is internationally recognized as one of the world’s top experts in product
innovation and is the pioneer of portfolio management for product innovation. He is a high profile
speaker and sought-after advisor. Dr. Edgett has had extensive experience working with large
multinational clients in a variety of industries, principally focusing on issues affecting innovation
leadership and capability. He is credited with helping business executives and innovation
professionals successfully implement world-class innovation processes that have generated
outstanding results. His speaking engagements and consulting work have taken him around the globe
to work with some of the world’s best innovators and companies among the Fortune 1000.
Dr. Edgett is Chief Executive Officer and co-founder, with Dr. Robert G. Cooper, of both Product
Development Institute and Stage-Gate International. He has spent more than 20 years researching
and developing innovation best practices and working with organizations in product innovation. He
is a prolific author having coauthored seven books including the popular ‘Portfolio Management for
New Products, 2nd Edition’ and has published more than 65 academic articles. Dr. Edgett is a
former Professor of the Michael G. DeGroote School of Business, McMaster University in Ontario
and is a Faculty Scholar at the Institute for the Study of Business Markets (ISBM) at Penn State
University.
Contact the author at: edgett@prod-dev.com

page 179
About the Product Development Institute

The Product Development Institute (PDI) is dedicated to helping companies improve their
approach to new product development and portfolio management. The Institute has conducted
some of the world's most comprehensive research and best practices in new product development—
research that has led to some of the most important discoveries in product innovation such as: the
widely used Stage-Gate® system; the concept of New Product Portfolio Management; and the
Innovation Diamond™ Framework. Visit us at www.prod-dev.com.
About APQC
APQC is a member-based nonprofit and one of the leading proponents of benchmarking and best
practice business research. Working with more than 500 organizations worldwide in all industries,
APQC focuses on providing organizations with the information they need to work smarter, faster,
and with confidence. Every day we uncover the processes and practices that push organizations from
good to great. Visit us at www.apqc.org and learn how you can make best practices your practices.

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New Product Development

P R OCE SS BE NCHMARK S AND PER F OR MANC E ME TRI CS

NEW PRODUCT DEVELOPMENT

New Product Development:

Copyright © 2011 by Product Development Institute and APQC

Stage-Gate is a registered trademark of the Product Development Institute

Publishers: Product Development Institute and APQC

Author: Dr. Scott J. Edgett

For more information please contact:

Product Development Institute APQC

Product Development Institute APQC

NEW PRODUCT DEVELOPMENT

2. New Product Performance Metrics 13

3. The Idea-to-Launch New Product Process and Practices 30

4. The Impact of People 44

5. Portfolio Management—A Special Insert 52

6. Conclusions and Recommendations 57

NEW PRODUCT DEVELOPMENT

B. Selected Data Charts

References and Endnotes 177

About the Author 179

About the Product Development Institute and APQC 180

NEW PRODUCT DEVELOPMENT

NEW PRODUCT DEVELOPMENT

1.2 T HE KEY RE SEARCH QUE STI ONS

1.3 T OPI C ARE AS ST UD IE D

2. The type of projects undertaken—the portfolio breakdown

3. Metrics used to gauge NPD performance at the project level

The Idea-to-Launch New Product Process and Practices:

6. Best practices embedded within the NPD process

7. Quality of execution of key activities in typical new product development projects/programs

8. The quality of up-front activities (before development begins)

NEW PRODUCT DEVELOPMENT

10. The impact of teams, leadership, and process management.

1.4 H OW THE BENCHMARKI NG RE SE AR CH W AS U NDER TAKE N

NEW PRODUCT DEVELOPMENT

The following five companies were visited.

 Ashland, Inc. (Performance Materials Business Unit) has a business-to-business focus

 Becton, Dickinson and Company (BD) is a global medical technology company,

 Electro Scientific Industries, Inc. (ESI) is a leading supplier of innovative, laser-based

NEW PRODUCT DEVELOPMENT

Exhibit 1.1: The Sample – Industry Breakdown

Industry Percentage of Participants

Industrial Products 20.4%

Consumer Goods 18.5%

Other Business-Business 7.1%

Health Care 6.6%

NEW PRODUCT DEVELOPMENT

Exhibit 1.2: Selected Characteristics of Businesses in the Sample

Average Value Across Median Value (50th

Number of employees 15,423 2,500

Annual sales revenue $8.4 billion $1 billion

Annual spending on R&D $1.1 billion $10 million

1.5 ORG ANI ZATI ON OF THE RE SUL T S

NEW PRODUCT DEVELOPMENT

2. New Product Performance Metrics

2.1 PER CE NT AGE OF REVE NUE S AND PR OFI TS F R OM NEW PR ODUC T S