C U S T O M R E S E A R C H b y k a r a r o m a n o w

2 0 cgt | september 2015 | consumergoods.com consumergoods.com | september 2015 | cgt 2 1

1 product not differentiated from competition

2 Inadequate market analysis

3 Ineffective promotion 2015 2011

Highly Innovative 12% 18%

Major Product Revisions 20% 21%

Line Extensions 42% 39%

Promotional/ 26% 22% Packaging Changes

New product introductions have long been the hallmark of the consumer goods (CG) industry, yet, failure rates remain high and seem almost expected. In 2011 we conducted research to under-stand the development process and related challenges. The results weren’t encouraging, with only half of new products meeting profit objectives and a long list of obstacles identified involving the inability to differentiate new products, resource availability, and more. This month, we partner with Sopheon to see what changed.

Unfortunately, the answer is “not much.” Time to market was ranked the most important driver over new product success rates this year, which may be telling. The success rates haven’t changed in four years, with 51 percent of new products meeting profit objec-tives compared to 50 percent previously. New products are still an important part of the overall revenue picture, even though the percentage of revenue from new products dipped slightly. These challenges may be leading to the decrease in highly innovative products from 2011, with companies instead releasing more prod-ucts with promotional or packaging changes, although line exten-sions are still the most common type of product launch overall.

Digging further into reasons products fail to meet profit objec-tives, the top three causes remain the same from 2011 although the order has changed: product differentiation moved into the top spot at 31 percent up from second place, inadequate market analysis was the next cause at 29 percent up from the third slot previously, and ineffective promotions was the third most cited reason at 25 percent falling from the top spot four years ago.

The reasons for these failures are many, and involve issues with the overall management of portfolios, the front end of the innovation process, and commercialization. The frustration around managing portfolios mostly involves resources being stretched too thin, the top challenge in both 2015 and 2011. Lack of standardized decision making criteria was the next challenge in 2015, followed by inability to determine if there are enough people to resource desired portfolios.

Challenges during the front end of the innovation process have shifted in urgency from 2011, with the top obstacle four years ago, good ideas getting stuck before moving into development, drop-ping to third. The most frequently mentioned challenge this year is simply a disorganized process, followed by low-value ideas.

When asked specifically about delays or inefficiencies in the com-mercialization process, overloaded resources were again the number one issue cited by 71 percent of respondents. Poor cross-functional planning was next, followed by resource bottlenecks. Interestingly, lack of standardized processes was an issue for 29 percent of respon-dents, although not by companies over $10 billion. Also interesting is the lack of importance placed on increasing throughput, which would have a direct impact on making resources more efficient.

Successful New Products Still Elusivec h a l l e n g e s l e d b y r e s o u r c e i s s u e s

expert perspective By Brad Eby, Consumer Goods Client Executive, Sopheon

Grow and Prosper with Agility and Shortened Time to Market

Visit consumergoods.com to download the

full research report.

Why don’t new products meet profit objectives?*

The digitized environment at CG companies has become the new ‘normal’, enabling and requir-ing large and small firms alike to be more agile in order to be successful. Behind the agility are velocity (speed with ‘direction’) and productiv-ity. We see many companies applying the pri-mary principles of Agile Software Development to innovation processes, and with the right software and governance system in place to serve as ‘guardrails’ companies can feel more comfortable with the changes this entails.

Effective planning and portfolio manage-ment ensures that your efficient and speedy in-novation is (directionally) aligned to your stra-tegic goals. You need to get the ‘right’ products to market faster than your competition and you need the agility to ensure you can adjust your goals (and align your portfolio) to fast-changing market conditions and consumer fickleness.

Many of our customers are abandoning the standard annual planning process and shorten-ing the cycle between decision points by analyz-ing portfolios quarterly or even more frequently to evaluate how well the portfolio is meeting targets from the growth plan, whether the plan should be adjusted, and whether the portfolio is doing better or worse since the last review. This is the true value add of agile innovation.

One example of Sopheon’s customers, that is having real innovation success where others are struggling is PepsiCo. The company has been very public about changes it has made to its innovation operating model, which encom-passes several standard agile practices. Its latest annual report highlighted an increase in revenue from new products of 150 basis points, i.e. an additional ~$1 billion in revenue in the last fiscal year. PepsiCo’s CEO and other senior executives have put focus on many of their innovation achievements; the CMO estimates the company has almost doubled its rate of innovation in the past 18 to 24 months!

Characterization of New Product Releases in Past 12 Months

20

15

2 015 2011

29%31%

25%

2015

23%

2015

51%

2011

26%

2011

50%

percentage of revenue from products introduced in last 3 years

percentage of new products that meet profit objectives

Challenges at front-end of innovation process*

Challenges managing product portfolios*

1 Ineffective promotion

2 product not differentiated from competition

3 Inadequate market analysis

20

11

41%44%

36%

note: Only top 3 responses shown for those

who selected “often a cause”

or “always a cause.”

resources stretched too thin/ too many active projects

No standard decision-making criteria

Can’t determine resource requirements

36%

56%

33%

2015

resources stretched too thin/ too many active projects

Not enough high-value projects

Can’t tell if aligned with strategic targets

50%59%

36%

2011

process is disorganized

Ideas are low-value

Good ideas get “stuck” and don’t move into development

21%

20%

29%Good ideas get “stuck” and don’t move into development

Ideas not broadly visible and there-fore not reused

No collaboration across functions to develop ideas

33%

27%

36%

29 21 20

36 33 27

29 21 20

36 33 27

29 21 20

36 33 27

29 21 20

36 33 27

29 21 20

36 33 27

29 21 20

36 33 27

To download the 2011 research, visit www.consumergoods.com/SopheonCR2011

Consumer Goods Technology

July 2015

1. What were your company's total revenues in 2014?

Total revenue %

Less than $50 million 9%

$50 million to $299 million 16%

$300 million to $1 billion 9%

$1 billion to $2 billion 16%

$2 billion to $10 billion 27%

More than $10 billion 24%

9%

16%

9%

16%

27% 24%

Less than $50 million

$50 million to $299 million

$300 million to $1 billion

$1 billion to $2 billion

$2 billion to $10 billion

More than $10 billion

2. What is your primary consumer goods vertical?

Consumer goods vertical %

Food & Beverage 40%

Apparel / Footwear 13%

Consumer Packaged Goods (non-food) 13%

Retail 13%

Distribution / Wholesale 9%

Consumer Durable Goods 4%

Health / Wellness / OTC Pharma 4%

Consumer Electronics 0%

Restaurants 0%

Other 2%

40%

13% 13% 13%

9%

4% 4%

0% 0% 2%

Food & Beverage

Apparel / Footwear

Consumer Packaged Goods

Retail

Distribution / Wholesale

Consumer Durable Goods

Health / Wellness / OTC Pharma

Consumer Electronics

Restaurants

Other

3. What is the type and cadence of your planning schedule?

Type and cadence %

Centralized annual planning 40%

Centralized quarterly planning 24%

Decentralized rolling-wave planning 16%

Centralized monthly planning 11%

I don't know 7%

Other 2%

40%

24%

16%

11%

7%

Centralized annual planning

Centralized quarterly planning

Decentralized rolling-wave planning

Centralized monthly planning

I don't know

Other

4. What percentage of strategic corporate initiatives are implemented in practice?

% %

0 - 30% 14%

31% - 50% 27%

51% - 70% 39%

71% - 100% 20%

14%

27%

39%

20%

0 - 30%

31% - 50%

51% - 70%

71% - 100%

5. Rank the following in importance to your company:

Critical Important

Nice to

have

Not at all

important

Time to market 49% 49% 0% 2%

New product success rate 40% 51% 7% 2%

New product value 32% 59% 7% 2%

Increased throughput 24% 40% 31% 4%

Cost avoidance / cost savings 23% 50% 25% 2%

"Lift and shift" of local innovations for global benefit 7% 38% 44% 11%

6. What are the most common causes for delays or inefficiences in new product commercialization?

Multiple responses permitted.

Most common causes %

Resources overloaded - people cannot focus on the most important work due

to distraction by lower-value projects71%

Poor up-front, cross-functional planning results in commitments without

understanding dependencies. Requires "heroic measures" to achieve

unrealistic deadlines

56%

Resource bottlenecks - lack of planning leads to delays due to poor access to

resources44%

Poor or no visibilty to cross-functional work tasks / status creates project

delays / crises, often at critical junctures40%

Lack of standardized processes means people needlessly reinvent the wheel 29%

No visibility to process metrics (e.g., actual time to market) means no way to

diagnose problems or continuously improve29%

Overly-rigid standardized processes means people do the unnecessary tasks

/ work20%

71%

56%

44% 40%

29% 29%

20%

Resources overloaded

Poor up-front, cross-functional planning

Resource bottlenecks

Poor or no visibilty to cross-functional work tasks / status

Lack of standardized processes

No visibility to process metrics

Overly-rigid standardized processes

7. Approximately what percentage of your company's revenues comes from products introduced in the last three years?

%

23.27%

8. On average, what percentage of the new products launched by your company meets their profit objectives?

%

51.33%

9. When your company introduces new products that fail to achieve profit objectives , which of the following

are the most frequent causes (with 1 being "almost never a cause" and 5 being "almost always a cause")?

Almost

never

a cause

Sometimes a

cause

Frequently

a cause

Often

a cause

Almost

always

a cause N/A

Inadequate market analysis 9% 40% 18% 20% 9% 4%

Poor timing - too early / late to market 9% 52% 23% 11% 0% 5%

Product not differentiated from competition 9% 40% 16% 22% 9% 4%

Low product quality 42% 40% 7% 4% 2% 4%

Ineffective promotion of the product 2% 39% 30% 18% 7% 5%

Ineffective pricing of the product 7% 48% 25% 11% 5% 5%

Inadequate distribution channel 20% 47% 20% 4% 4% 4%

Higher than anticipated product costs 9% 55% 16% 11% 5% 5%

Technical or regulatory problems 38% 49% 7% 2% 0% 4%

Production or supply chain problems 11% 53% 20% 7% 2% 7%

Average percentage

Revenue from products introduced in the last three years

Average percentage

New products launched that meet profit objectives

10. Which statement best describes how well your company's short -term product development activities

are aligned with long-term business growth strategies?

Growth strategies %

There is a moderate gap in alignment between our short-term product

development activities and our long-term growth strategies49%

There is a small gap in alignment between our short-term product

development activities and our long-term growth strategies24%

There is a significant gap in alignment between our short-term product

development activities and our long-term growth strategies11%

There is no gap in alignment between our short-term product development

activities and our long-term growth strategies7%

There is a very large gap in alignment between our short-term product

development activities and our long-term growth strategies0%

Don't know 9%

49%

24%

11%

7%

0%

9%

Moderate gap

Small gap

Significant gap

No gap

Large gap

Don't know

11. In the past 12 months, what percentage of products released by your company would

you estimate falls within each of these categories?

%

13.28%

20.88%

42.42%

26.89%

12. Which of the following are challenges your company faces at the front-end of its innovation process

(with 1 being "almost never a problem" and 5 being "almost always a problem")?

Almost

never

a cause

Sometimes

a cause

Frequently

a cause

Often

a cause

Almost

always

a cause N/A

We have too few ideas 31% 40% 20% 4% 2% 2%

Our ideas tend to be of low-value 9% 45% 23% 16% 5% 2%

Our ideas do not support our business

strategies 2% 67% 18% 7% 4% 2%

Good ideas get "stuck" and don't move

forward into development 4% 29% 44% 16% 4% 2%

Ideas are not broadly visible and therefore

can't be reused by others 16% 30% 34% 11% 7% 2%

We don't collaborate across functions to

develop ideas 16% 38% 24% 13% 7% 2%

Our culture discourages idea sharing 33% 33% 18% 11% 2% 2%

The front-end of our innovation process is

disorganized 4% 40% 24% 13% 16% 2%

Average percentage

Highly innovative:

Major product revisions:

Line extensions:

Promotional developments / package changes:

13. If you have a Stage-Gate® or other gated new product development process,

how well is your company adhering to the process?

Adhering to process %

It is usually adhered to 36%

We don't have a Stage-Gate® or a gated new product development process 27%

It is somewhat adhered to 20%

I don't know 7%

It is always adhered to 7%

It is never adhered to 2%

It is rarely adhered to 2%

36%

27%

20%

7% 7%

2% 2%

It is usually adhered to

We don't have a Stage-Gate® or a gated new product development process

It is somewhat adhered to

I don't know

It is always adhered to

It is never adhered to

It is rarely adhered to

14. Which of the following are challenges your company faces in managing its product portfolios

(with 1 being "almost never a problem" and 5 being "almost always a problem")?

Almost

never

a problem

Infrequently a

problem

Sometimes

a problem

Frequently

a problem

Almost

Always a

problem N/A

We don’t have visibility to all of the

projects in the portfolio 23% 20% 34% 16% 5% 2%

We don’t have enough high-value

projects in the pipeline 7% 16% 40% 24% 9% 4%

We can't tell if our portfolio is aligned

with strategic targets 4% 33% 44% 11% 4% 2%

We can't tell if we have enough people

to resource the desired portfolio 0% 20% 44% 20% 13% 2%

Our decision-making criteria are not

standardized and we can't compare

candidate products against each other 7% 24% 31% 29% 7% 2%

Investment decisions are made based

on politics rather than data 16% 27% 31% 16% 9% 2%

Our resources are stretched too thin

because we have too many active

projects 4% 7% 31% 40% 16% 2%

15. How effective are you at implementing learnings from post-launch reviews?

How effective %

We regularly do post-launch reviews but fail to feed learnings back int our

processes36%

We regularly do post-launch reviews and have a good process for

implementing learnings31%

We seldom do regular post-launch reviews 27%

We never do regular post-launch reviews 7%

36%

31%

27%

7%

We regularly do post-launch reviews but fail to feed learnings back int our processes

We regularly do post-launch reviews and have a good process for implementing learnings

We seldom do regular post-launch reviews

We never do regular post-launch reviews