By Brenda Reichelderfer

EXPERT INSIGHT – Improving ROI in Innovation & New Product Development

In this Q&A session, Brenda describes how investors and leadership teams can strengthen the new product development process and pipeline by addressing these 6 critical questions:

  1. BrendaHow can investment in new product development be measured by private equity firms?

  2. What kinds of resources should PE firms provide to help their portfolio companies innovate?

  3. Are there ways that PE firms can facilitate cross-fertilization of good innovation practices among their holding companies?

  4. Is there a standard model for innovation that can be applied across a range of verticals?

  5. How does a private equity firm track return on investment in innovation?

  6. What questions should PE firms be asking their management teams about their product development process?

 

Q1

 

 

How can investment in new product development be measured by private equity firms?

The typical measure used in the industry is a vitality metric which measures the amount of sales generated by product releases within a set number of years as a percent of total sales. Think about this as a freshness indicator on your product offering. The trouble with this and many other business outcome related metrics is that the feedback is very latent. Development cycles can take months to years before you get even the first feedback point. I found a study from the Corporate Executive Board to be very illuminating on this point. Basically, they separated the great organic growth firms from the rest of the pack and then looked to see if they tended to focus on a different set of metrics.

The results were clear, if you want to get more from your R&D investments the leadership team needs to be looking at the health of your portfolio of projects:

  • Do we have a balance of core and growth?
  • Do we have a healthy balance across the product lines?
  • Are we treating great projects differently than mediocre ones?
  • Do we have a healthy stage gate process to weed out those that will waste our resources?

This offers a focus that is not latent, and pays significant dividends in the long term.

stage gate

 

Q2

 

 

 

 

 

 

 

 

 

What kinds of resources should PE firms provide to help their portfolio companies innovate?

When I first begin an engagement with a firm to enhance the ROI on their R&D spending, the portfolio company usually tells me they need to invest more in R&D. Well, the truth is, until you know they are investing in the right projects, that’s a fool’s errand. When we beef up (or implement) the stage gate process there are generally two areas that need a lot of work.

  1. The first is to get the bureaucracy and excessive overhead out of the process, while still developing robust business cases for new products; and ensuring projects meet the overarching strategic objectives for the company.
  2. The second is to pay more attention in the early stages, prior to detailed design, to amp-up the goals for differentiation in the product concept and do that in a way that customers are likely willing to pay for.

At TriVista, we have a whole toolset for customer value innovation and Voice of Customer capture planning that increases the odds that we can discover meaningful ways to amp-up the project value, hence improving the ROI on that R&D project.

Bottom line – bring in resources that can help them minimize the waste in their current R&D investment before you decide to invest more – maybe you need to invest less but still achieve the same or better results.

LPD

 

Q3

 

 

 

 

 

 

 

 

Are there ways that PE firms can facilitate cross-fertilization of good innovation practices among their holding companies?

80-20Absolutely – the best approach involves consistent training and implementation of innovation best practices at each of the portfolio companies. That way everyone has the same tools and speaks the same language. From there, it’s easier to share expertise in processes, technologies and practices to accelerate performance.

Brenda 2Even if your group isn’t ready for NPD process improvement on such a wide scale, you can still get a lot of mileage by just ensuring they each have a good NPD Project Portfolio Management System. This system should clearly identify which projects will meaningfully move the needle for each company. Often times there are valuable resources within other portfolio companies that can be exploited to help drive these opportunities forward.

Generally, I find once we’ve put a good portfolio management process in place the 80/20 rule applies: 20% of the projects will deliver 80% of the results. I want them to search far and wide for help in better deployment of those 20%, whether it’s via competencies that exist at other portfolio management companies or other third party firms. Those projects deserve an over-sized share of attention and focus.

To read the rest of Brenda’s insights please click the Download PDF button to the right.

A condensed version of this article was published in Association for Corporate Growth’s (ACG) Middle Market Growth Magazine.

 

 

 

To learn more about new product development and our other services, call 949-218-4830, or email info@trivista.com.

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About the Author:

Brenda Reichelderfer

SVP & Managing Director
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