Chapter 8: Product Innovation

Chapter 8 Learning Outcomes

After reading this chapter, you should be able to do the following:

  1. Explain the difference between radical and incremental product innovation.
  2. List three benefits companies gain from product innovation.
  3. Explain what happens at each of the seven stages of new product development.
  4. Discuss the factors that influence the success of new product development.
  5. Explain how combining different types of innovation into a new offering often results in greater returns.

What is Product Innovation?

“When people think of innovation, often, they’re thinking of product innovation. Product Innovation is the process of creating a new product—or improving an existing one—to meet customers’ needs in a novel way.[1] Product innovation can come in three different forms. 1) The development of a new product, such as the Fitbit or Amazon’s Kindle. 2) An improvement of the performance of the existing product, such as an increase in the digital camera resolution of the iPhone 11. 3) A new feature to an existing product, such as power windows to a car.”[2]

Incremental innovation, the least risky and most frequently seen, is the improvement of existing products. An example of this is the development of the first Walkman, a personal music player released by Sony in 1979. It combined an audio cassette player and headphones. As the story goes the Sony chairman wanted a way to listen to his opera music on a long international flight. His request was sent to a Sony designer who prototyped something by working with an existing Sony product, a bulky tape player popular with journalists. But the designer modified it to be a playback-only version that could be used with headphones. He rigged up a prototype in time for the chairman’s next flight and the Sony Walkman was born. This wasn’t a technological breakthrough, but compared to previous products it was a breakthrough in imagination in incremental product innovation.[3]

Radical innovation is the creation of a whole new product. This category is riskier than incremental innovation and can disrupt entire markets. One famous example is the launch of the Apple iPod. It not only served as an improvement to portable music players but also made digital music more popular and introduced access to the Apple App Store. It disrupted the music industry and created a whole new ecosystem.  Today’s product managers are like mini CEOs of their products. They own the decisions about what gets built and influence aspects of how it’s launched. But the product managers aren’t the actual CEOs and they don’t have direct authority over most of the things required for product innovation. They arm themselves with the vision and influence and focus on leading teams with the company’s strategy in hand. Product leaders innovate by leveraging collaboration, bringing together the best people and ideas, and setting the stage for innovation.[4]

Why is Product Innovation Important?

Product innovation aids companies in doing the following:

  1. Gaining a Competitive Advantage (e.g., increasing profits)
  2. Expanding Market Share (e.g., entering global markets)
  3. Meeting Sustainability Goals/Requirements  (e.g., keeping up with trends, changing values and beliefs, meeting regulations)
  4. Recovering Losses (e.g., from product failures)
  5. Improving Company Image (e.g., becoming an innovative leader)
  6. Growing the Business (e.g., expansion through new fields explored, new ideas, new brands, attracting more customers)

Where should the responsibility for innovation lie? Companies need to create an organizational structure to drive innovation; there are many variations and approaches. A product innovator must recognize the company’s innovative business structure and its inherent roadblocks and then determine how to overcome them. The most common approaches companies use for innovation include components of design thinking, rapid prototyping, lean innovation, and open innovation. Design thinking is a process that brings together what is desirable from a human point of view with what is technologically feasible, and economically viable. The design thinking process starts with a deep understanding and empathy for the customers’ needs. Then, it goes through the steps of defining the problem, ideating the solutions, prototyping the ideas, and testing the ideas. IBM developed an internal framework for innovation, naming it IBM Design Thinking.[5]

What are the Seven Stages of Product Development?

Person thinking, generating ideas
Person generating ideas

The product life cycle attempts to describe the stages a product goes through from launch to discontinuation, which typically includes introduction, growth, maturity, and decline. “The product development life cycle explains how new ideas are brought to the market. From concept to commercialization, it guides aspiring builders through the process of product development in a way that’s intended to reduce risk and maximize the odds of finding traction. In relation to the product life cycle, it’s like a prequel to the introduction phase. There are a few different ways to categorize the steps in the product development life cycle. What’s most important, however, is for companies to lead a lean, user-driven operation. That way, they can deliver a minimum viable product (MVP), gather customer feedback, and generate revenue as quickly as possible.”[6]

New product development teams often consist of top management, and specialists from sales and marketing, research and development, manufacturing, and finance. This team will conduct market research and gather customer and employee feedback to consider when formulating ideas for new products. The team will also evaluate the feasibility of ideas, consider the resources available, and identify risks. This group considers and plans new and improved products following seven stages, as listed below.

  1. Idea Generation (Idea formulation)
  2. Idea Evaluation (Screening)
  3. Concept Testing
  4. Product Development
  5. Testing and Execution
  6. Post Development (Commercialization, Market Introduction)
  7. Support and Maintenance

The most innovative organizations rely on systems of individuals and teams working across functions in their organizations. Innovation isn’t the work of only scientists, engineers, or marketers; it’s the work of an entire business and its leadership.[7]

Play the YouTube video below, “Product Development Process: 7 Essential Stages”, to learn more about each stage in the new product development process.[8][/footnote] Transcript for “Product Development Process: 7 Essential Stages” Video [PDF–New Tab]. Closed captioning is available on YouTube.

What are the Success Factors for Product Development?

There are different factors that influence the success of new product development.  For instance, the entire team needs to be competent and committed to the success of the product. The product designer will be responsible for utility and usability, but there are a number of factors that are beyond the control of the designer. An effective new product development (NPD) function is supported by the right tools and the right business culture; it depends on teamwork underpinned by organizational knowledge and strong strategic direction from above. But it is also characterized by systems and processes that are agile, adaptable, and repeatable. Businesses should carefully consider how they can develop the precise mix of culture, people, and digital infrastructure to meet these demands in the most efficient and competitive way possible.[9]

The following eight factors will influence the success of new product development.[10]

1. Top Management Support

Manager showing employee something on the computer screen
Manager supporting employee

The support of top management is essential, without it the project will not get the resources and financial budget to implement the development phases. The design team must learn to convince top management to support the project, or the entire project collapses. Creating a culture that values innovation and encourages it at every level has been found in countless studies to be one of the key indicators of success in this area. The focus, resources, and respect that your organization channels towards NPD will reflect the priority it is given in the minds of those who can influence its direction the most. Steve Jobs, for example, based the leadership culture of the Apple Company on brand fanaticism and radical customer devotion and propelled the organization into a new and unprecedented era of innovation.

2. Market Orientation

Market orientation analysis should guide the team on how to meet the needs and wants of customers. Investopedia defines market orientation as follows: “Market orientation is a company philosophy focused on discovering and meeting the needs and desires of its customers through its product mix.” It seems reasonable to suggest that while a design team does not have control over company philosophy it should be in a good position to influence this. Conducting user research and where appropriate market research – two fundamentals of developing high-quality user experiences; will enable the discovery of customer/user needs and how to meet them.

3. Technology

Ensure the technology being used to introduce the product to the market is compatible with the market. It is imperative to use a technology the market can resonate with.  For instance, a multi-million dollar software or hardware requirement may make the product inaccessible to small consumers.

4. Knowledge Management

The company should ensure data and information are accessible to all. A digital document management system can act as a repository of information vital for the success of new product development (NPD) initiatives. It can give teams a firm grasp of project progress, deliverables, and dependencies. It can facilitate easy access to the documentation they need to complete tasks. It can allow different teams to work on and suggest changes to those documents. It can give overall governance of a project to a nominated individual, who can use its publishing and curation tools to keep projects well managed and on track. Good knowledge sharing capabilities reduce mistakes, increase the speed of delivery of goals, and build closer more aligned teams.[11]

5. New Product Development Strategies

The responsibility for drafting and implementing strategies is a shared goal between the development, design, and management teams. These parties should coordinate their activities to ensure there is uniformity in their decisions.  Having clear processes for design and development is essential. While these may be tailored to fit specific circumstances – a methodology for working that is clearly understood and agreed to by all members of the product development team is highly likely to produce better results than those created with no formal process.

Responsibility for new product development strategies is likely to be shared between design, product management, and development. This means that the design team will have some input into the strategies chosen and will be able to influence these strategies with their user research to guide the strategy to fit the needs of their users. It is probably fair to say that product management will normally have the final say on a strategic direction but designers have plenty of room to negotiate with product managers to ensure better outcomes.

6. New Product Development Speed

Speed to market is a critical factor in success. If the new product development process takes five years but a competitor’s process takes only two years – it is likely that no matter how good the team’s designs are; they will have been eclipsed by the time they get to market. Refining the design process to maximize speed whilst protecting the user experience is a delicate balancing act. Designing for a great user experience is within the design team’s control, however, the development process speed is much less likely to be within the design team’s control and their ability to influence that speed may be minimal.

7. New Product Development Process

Having clear processes for design and development is essential. While these may be tailored to fit specific circumstances – a methodology for working that is clearly understood and agreed to by all members of the product development team is highly likely to produce better results than those created with no formal process. The design team will, normally, have some input into these processes and be able to negotiate modifications to processes when they fail to produce optimal results. There is little control for the design team over the way other teams execute these processes. Failure in execution, from other teams, is one of the few areas where it is reasonable to say that failure was completely outside of the design team’s control.

8. New Product Development Team

New product development normally brings together teams of diverse people from all across an enterprise. It is strongly suggested that these diverse teams tend to be highly creative and more successful than teams of a more standardized nature. The way teams work together is a critical factor in their success and designers operating as part of such a team have their part to play in this. Professionalism and leadership can be displayed by any member of a team (including those without official leadership and management roles) and while one team member cannot be responsible for the actions of others within a team – they are fully responsible for their own actions. As Michael Jordan, the world-famous athlete and basketball superstar says; “Talent wins games, but teamwork and intelligence wins championships.”[12]

How Can Product Innovation Be Combined with Other Innovation Types?

When a company works to combine multiple types of innovations, they often produce powerful results. Top innovators (those repeatedly launching successful offerings) integrate twice as many types of innovation as the average innovators.[13]

“Almost all of the enterprises that we celebrate as leading innovators routinely use multiple types of innovation – and handily outperform the average firms that innovate more naively … Significantly, the top innovators outperform the S&P 500. Integrating more types of innovation can help deliver superior financial returns.”[14]
Many firms are trying to mix products with services in an effort to boost revenue and balance cash flows. Hybrid solutions—products and services combined into innovative offerings—can help companies attract new customers and increase demand among existing ones by providing superior value. Such offerings are commonplace—think Apple (the iPod product combined with the iTunes service) and Xerox (copiers and printers bundled with maintenance or customer support services). For these and many other companies, hybrid solutions have spurred growth or helped reverse market share or profit decline.[15]
Developing hybrid solutions can be tricky because various combinations may have potential. A hybrid offering is most likely to yield sustainable returns if the dependence between the product and the service can be increased and if the offering is scalable.[16]

Example: Combining Innovation Types – Nike Company

Let’s look at how Nike combines the Ten Types of Innovation® to delight customers and stay ahead of the competition.[17]

“A Product Performance company at its core, Nike has made leading sportswear and equipment for decades. In 1985 they made a remarkable innovation, by signing then-rookie basketball star Michael Jordan to endorse the Nike brand. This trend of sports star endorsements continues strongly today, to help the likes of Nike and Adidas maintain market dominance.

In 1990, Niketown was launched – a Channel innovation, to present ‘retail as theatre’. The flagship stores cost millions and were clearly never going to produce a return on investment by selling goods in-store. Instead, the initiative was funded by the advertising budget; the stores could do more to build Brand innovation than any ad campaign.

In recent times Nike has launched Nike+, a leading Product System that is integrated into the sportswear range and allows runners and athletes to track their movements. It also integrated with Apple products in a Network innovation. These steps alone touch on half of the ten types, and as a result, Nike is consistently one of the leading brand names in the world.”[18]

 

Example: Combining Innovation Types – Method Company

Let’s look at how the Method company combines the Ten Types of Innovation® to delight customers and stay ahead of the competition.[19]

The product called “method” is a non-toxic line of natural home care products. The various offerings are sold in more than 40,000 retailers worldwide, including Target, Whole Foods, and Kroger. Method’s cleaning bottles are made from 100% post-consumer recycled plastic while the company itself is a “Cradle to Cradle” endorsed company; more than 60 of its products are certified with the C2C stamp of environmentally friendly approval. Internally, Method practices what it preaches: it offsets its carbon emissions, works within a LEED-certified sustainable office, and does not test its products on animals.

The company “method” combined five types of innovation in the following way:

  1. Structure – Method outsourced production to more than 50 separate subcontractors to develop a nimble and flexible manufacturing process.
  2. Process – In a process the company calls “greensourcing,” Method worked with suppliers and manufacturers to track the environmental impact of making its products. It also identified best practices to improve the water, energy, and material efficiency of its manufacturing processes.
  3. Product Performance – Method’s product not only kills germs and grime, it was also developed without toxic chemicals or destructive production practices. The company adhered to “the precautionary principle,” meaning that if there was a chance that an ingredient wasn’t safe, it didn’t use it.
  4. Brand – With its readily identifiable, bright, and colorful packaging (originally created by industrial designer Karim Rashid), Method built a big following in home décor and design blogs, and its bottles have prompted instant on-shelf recognition.
  5. Customer Engagement – Method (soap company) created a community called “People Against Dirty” that offered perks, deals, and early looks at new products for customers. However, to broaden the brand’s appeal, they opened the community beyond customers and invited anyone interested in making the planet a cleaner place; a tactic that advanced the company’s brand promise and extended its reach to potential customers.[20]

 

Key Takeaways

  1. Product Innovation is the development of new goods or services to be launched in the market. It can also be an improvement in the functions and assignments of an existing product. If a company’s product or solution is innovative, there is a much higher chance to survive and thrive.
  2. Incremental innovation, the less risky and most frequently seen, is the improvement of existing products.
  3. Radical innovation is the creation of a whole new product. This category is riskier and can disrupt entire markets.
  4. Product innovation aids companies by helping the company gain a competitive advantage, expand its market share, meet sustainability goals/requirements, recover losses due to product failures, improve company image, and grow the business.
  5. New product development is the function of top management, specialists from sales and marketing, research and development, manufacturing, and finance. This group considers and plans new and improved products in seven different phases, as follows: idea generation, screening of ideas, concept testing, business analysis, product development, test marketing, and finally, commercialization.
  6. The following eight factors will influence the success of a new product: Top Management Support, Market Orientation, Technology, Knowledge Management, New Product Development Strategies, New Product Development Speed, New Product Development Process, and New Product Development Team.
  7. When a company works to combine multiple types of innovations, they often produce powerful results.

End-of-Chapter Exercises

  1. Unintended Product Development. Many people have heard the story of how post-it notes were invented. A chemist at the 3M company was working on developing an ultra-strong adhesive for use in aircraft construction. Instead, a mistake led to the new adhesive called acrylate co-polymer microspheres, which is a weak, pressure-sensitive adhesive. Eventually, the designers determined this weak adhesive would work on paper and post-it notes were invented and became a big success. Search the Internet to find similar stories of products that were developed unintentionally and yet became successful. Share your findings with your class and/or professor.
  2. New Product Failure. Search the Internet to discover reasons why new products fail.  What did the company do wrong?  Share your findings with your class and/or professor.
  3. Consider Product Success. Consider one of the following products you use: your cell phone, your vehicle, your computer device (e.g., tablet, laptop, computer), or another. Consider why you use it.  Consider how satisfied you are with it. Search the Internet to find out how popular this product is.  Do consumers like it?  How does it rate against competing products? Which target market was this product developed for?  Do you think it is meeting the needs/wants of this target market? Have there been previous versions/releases of this product? Does each version/release get better at meeting the needs/wants of customers?  Do you think there will be future new versions/releases of this product? Why or why not? Share your findings and analysis with your class and/or professor.
  4. Dragons’ Den. Search the Internet to explore opportunities the Dragons passed on investing in, which later became successful. What did the Dragons miss? Share your findings with your class and/or professor.
  5. Most Successful Companies. Search the Internet to find the most successful innovative companies.  Which companies are known for producing the best innovative products, services, or other types of innovations? How are they structured? Do they mention innovation in their mission, vision, or values?  Do they have an innovation lab? Do they provide employees time to innovate? Share your findings with your class and/or professor.
  6. Innovation Types Combined. Search the Internet to find a product that is a result of combining different types of innovation from the Ten Types of Innovation® Framework.  You may even have some of these combined innovation products right in your home. Do these products bring added value to customers?  How? Share your findings with your class and/or professor.

 

Self-Check Exercise – Flashcards – Type of Innovation

 

Additional Resources

  1. 15 of the Best New Products You Need to Know About
  2. 7 Successful Product Launch Examples that will Inspire You
  3. 5 Most Successful Products Ever and What Small Business Can Learn From Them
  4. Lean Innovation – What is it and How can it Impact Your Business?
  5. Open Innovation – Definition, Benefits, and Examples
  6. Rapid Prototyping
  7. What is Design Thinking?
  8. A Practical Guide to Combining Products and Services

References

(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)

Media Attributions

  1. Cote, M. (2020, March 24). Product innovation: What business leaders need to know.  https://online.hbs.edu/blog/post/product-innovation ↵
  2. Differential. (2020, March 20). The 3 types of innovation: Product, process, & business model. https://www.differential.com/posts/the-3-types-of-innovation-product-process-business-model/ ↵
  3. Holst, K. (2018, June 29). Product innovation for product managers. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/product-innovation-for-product-managers/what-product-innovation-is-and-isn-t?autoAdvance=true&autoSkip=false&autoplay=true&resume=false&u=2167290 ↵
  4. Holst, K. (2018, June 29). Product innovation for product managers. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/product-innovation-for-product-managers/what-product-innovation-is-and-isn-t?autoAdvance=true&autoSkip=false&autoplay=true&resume=false&u=2167290 ↵
  5. Holst, K. (2018, June 29). Product innovation for product managers. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/product-innovation-for-product-managers/what-product-innovation-is-and-isn-t?autoAdvance=true&autoSkip=false&autoplay=true&resume=false&u=2167290 ↵
  6. Anderson, D. (2022, October 27). 7 key stages of product development life cycle. https://zapier.com/blog/product-development-life-cycle/ ↵
  7. Woods, T. (2015, December 7). The Ten Types of Innovation® Framework - and how to use it. Hype. https://blog.hypeinnovation.com/using-the-ten-types-of-innovation-framework ↵
  8. Jelvix. (2020, June 24). Product development process: 7 essential stages. [Video]. YouTube. https://www.youtube.com/watch?v=k9qOo09KG_I ↵
  9. Interactive Design Foundation. (2021). An overview of the factors of success for new product development. https://www.interaction-design.org/literature/article/an-overview-of-the-factors-of-success-for-new-product-development ↵
  10. Interactive Design Foundation. (2021). An overview of the factors of success for new product development. https://www.interaction-design.org/literature/article/an-overview-of-the-factors-of-success-for-new-product-development ↵
  11. Byrne, J. (n.d.). 5 critical success factors for a new product development process. https://www.cognidox.com/blog/new-product-development-process ↵
  12. Interactive Design Foundation. (2021). An overview of the factors of success for new product development. https://www.interaction-design.org/literature/article/an-overview-of-the-factors-of-success-for-new-product-development ↵
  13. Woods, T. (2015, December 7). The ten types of innovation framework - and how to use it. Hype. https://blog.hypeinnovation.com/using-the-ten-types-of-innovation-framework ↵
  14. Woods, T. (2015, December 7). The ten types of innovation framework - and how to use it. Hype. https://blog.hypeinnovation.com/using-the-ten-types-of-innovation-framework ↵
  15. Shankar, V., Berry, L. & Dotzel, T. (n.d.). A practical guide to combining products and services.https://hbr.org/2009/11/a-practical-guide-to-combining-products-and-services#:~:text=Hybrid%20solutions%E2%80%94products%20and%20services%20combined%20into%20innovative%20offerings%E2%80%94can,demand%20among%20existing%20ones%20by%20providing%20superior%20value ↵
  16. Shankar, V., Berry, L. & Dotzel, T. (n.d.). A practical guide to combining products and services.https://hbr.org/2009/11/a-practical-guide-to-combining-products-and-services#:~:text=Hybrid%20solutions%E2%80%94products%20and%20services%20combined%20into%20innovative%20offerings%E2%80%94can,demand%20among%20existing%20ones%20by%20providing%20superior%20value ↵
  17. Woods, T. (2015, December 7). The ten types of innovation framework - and how to use it. Hype. https://blog.hypeinnovation.com/using-the-ten-types-of-innovation-framework ↵
  18. Woods, T. (2015, December 7). The ten types of innovation framework - and how to use it. Hype. https://blog.hypeinnovation.com/using-the-ten-types-of-innovation-framework ↵
  19. Deloitte Digital. Ten types of innovation. https://www.deloittedigital.com/us/en/offerings/customer-led-marketing/customer-strategy-and-applied-design/applied-design-and-innovation/ten-types.html ↵
  20. Deloitte Digital. Ten types of innovation. https://www.deloittedigital.com/us/en/offerings/customer-led-marketing/customer-strategy-and-applied-design/applied-design-and-innovation/ten-types.html ↵
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Leading Innovation, 2nd Edition Copyright © 2023 by Kerri Shields is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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