Manufacturers work hard to minimize disruptions to their operations and invest significant resources to minimize production risk. They also are under constant pressure to find new ways to deliver more value to their customers. Sustainable business growth is critical to delivering this value. Many achieve that sustainability through experimentation.
But innovation and experimentation involve risk, which could lead to wasted resources, not meeting expectations, or a lack of return on investment. Sometimes precious resources will be devoted to experiments that will not work out. But just as there is the risk of failure, there is risk associated with not being innovative as well. For instance, the business may not stay competitive.
Manufacturers can reduce their innovation risk by linking initiatives to the unmet needs of their customers. They need to anticipate how their customers’ needs will change in the future.
Focusing on Cost is not Sustainable for Growth
The notion that “cheaper is where innovation goes to die” has never been made more evident than during the recent disruptions in the global supply chain. The traditional focus on low, per-unit cost of production has proven to be shortsighted as the onset of the COVID-19 pandemic led to factory shutdowns in Asia and a cascading series of issues that still haunt U.S. manufacturers such as failed deliveries, unreliable schedules and massive increases in shipping costs.
A smaller manufacturer cannot focus on cost alone in the supply chain. It must value reliability and however it and its partners can add value. A manufacturer can mitigate risk with a disciplined approach to its supply chain with redundant sourcing and by finding new suppliers. Many small manufacturers are now realizing the benefits of doing things differently, which can include increasing efficiencies, growth and competitive advantage. This applies to new product development (NPD) as well. Manufacturers can mitigate risk in innovation with a disciplined approach to NPD.
A Disciplined Approach Will Help Manage Risk in Innovation
Manufacturers can better manage innovation risk if their organizations are aligned behind an initiative. This starts with an appetite from leadership to dedicate resources to the initiative and depends on good timing to take advantage of opportunities and the market.
In many ways, barriers to innovation have been lowered. Analytical tools and predictive modeling capabilities enable manufacturers to extract more meaning and direction from their data. Cloud computing enables manufacturers to benefit from robust IT capabilities without having to maintain related software, hardware and infrastructure in-house. There also are many partners available with lab scientists, engineers and cutting-edge technology to solve vexing problems and test concepts for manufacturers. There are often connectors in various markets who can help find the right resources for specific challenges.
Being customer-centric is a huge advantage in NPD. If a manufacturer knows what its customers’ pain points are, and it knows what they will be worried about in the near future, it is in a better position to bring them additional value.
It’s essential to follow an iterative process for NPD that involves design, prototyping and testing and then keeping what works and refining the rest. At every iteration, a manufacturer must ask:
- Is this solving an important problem?
- Does this work actually solve the problem?
- Does the business have the resources to produce and deliver this in its current iteration?
- Will anybody buy it (and at what cost)?
The Phases of New Product Development
McKinsey & Company popularized a model of growth with three distinct phases of NPD, which it refers to as “horizons.” Each horizon requires a focus on product, process, distribution and customers. The three horizons are:
- Close-In: About 70% of NPD falls into this category. This horizon is about taking products or services the manufacturer already has and improving them and the margins. For many small manufacturers, this entails making a machine or process more efficient to lower costs. It might also be centered on improving quality. Ultimately, this is work to improve upon the core business.
- Midway: This is about 20% of NPD. Examples of this could be growth through expanding into a new market or region or launching a new product. This involves some type of investment, and thereby risk. This amounts to extending beyond the old dimensions of a business model to nurture the emerging business.
- Disruptive: This is about 10% of NPD. To create a genuinely new business and new business model requires a significant investment and a higher level of risk. Failure is often associated with high levels of risk, and these types of NPD are no different. Disruptive ideas may be unproven and potentially unprofitable for some time.
When this model first emerged, the three horizons were more easily associated with time frames – close-in meant something that could be completed more quickly than midway. But that is not necessarily the case anymore – as mentioned, digitization has lowered many barriers. Manufacturers would be wise to focus on speed of delivery across all three horizons.
MEP Centers Can Help Manage Risk in New Product Development
Innovation comes with risk, but the benefits of being innovative can be significant. Manufacturers that build NPD into their culture often develop “intrapreneurs,” staff members with an entrepreneurial spirit who will help their companies grow. Not sure where to start? The Manufacturing Extension Partnership (MEP) National NetworkTM is here to help manufacturers achieve growth through innovation and new product development. Contact your local MEP Center, WMEP Manufacturing Solutions, to get the conversation started.