by Dennis Pierce
CDH is an IMA B2B Partner
Over the many years that I have been consulting with manufacturing firms it is no surprise that the most successful of those firms are the ones that are very focused and aggressive in the area of new product development.
There are a number of benefits inherent in an aggressive new product strategy:
The need for consistent revenue growth. It is important that as part of the process that we measure incremental sales growth from new products. Some companies are continually trying to make a better version of the same product that they are already selling. This ends up cannibalizing existing sales and at the end of the day it does not get you any additional sales.
New products bring higher margins. New products should attract a higher level of margin especially if they are innovative products. A companies legacy products many times will lose margin due to the competitive environment whereas with innovative products the company has a window of time before competition becomes a factor.
New products insulate against economic swings. As we went through the Great Recession of 2008-2009 I found that my clients that weathered the storm the best were those with an active new product development strategy.
We all know that a company needs to grow revenue and profit consistently year over year and that does become difficult given the cycles that the economy goes through. I have found that the most successful companies follow a disciplined process:
- Set a Target
- Measure Progress to that Target
- Make Adjustments to Support that Target
A simple real world example from a company that I worked with for many years in the foodservice equipment manufacturing industry:
Set a Target – this company had a stated target, included in their annual budget that 20% of their sales each year would come from the sales of new products. New products in this case were defined as those products which were introduced within the last five years.
Measure Progress – as part of our monthly management review meeting we measured progress to that 20% target and discussed any positives or negatives in detail by individual product. In addition we developed timeline charts to track development going forward for the next twelve month period to insure products were introduced on a timely basis.
Make Adjustments – if for some reason we were falling behind the 20% target we would develop action plans to drive sales of the new products. This could be as simple as an increased commission to salespeople on the sales of particular new products.
To view the original article, click here.