The Best vs. the Rest

The Best vs. the Rest: Key Findings from PDMA's 2012 Comparative Performance Assessment Study

The Best vs. the Rest: Key Findings from PDMA's 2012 Comparative Performance Assessment Study

Stephen K. Markham and Hyungjung Lee

Originally published: 2013 (PDMA Visions Magazine • Issue 2, 3013 • Vol 37 • No 2)
Read time: 10 minutes

Companies have faced incredible global competition over the past few years. The boundaries between firms and the environment have become more permeable and innovation transfer became more open. The desire of rapid and successful product development is obvious for competitive advantage and a long-term survival. After the long global economic crisis, the need for innovation and new product development (NPD) is stronger than ever. Possessing current knowledge about how the best performing companies conduct product development offers a great advantage in the hyper-competitive global market.

The Product Development and Management Association (PDMA) has conducted several best practice studies on New Product Development (NPD). Since the first best practice study in 1990, additional studies have been undertaken in 1995 and 2004. The fourth study, a comparative performance assessment study conducted in 2012, gathered data from 453 business units from 24 countries and represented a full range of industries.

The results provided a comprehensive view of current NPD best practices, which allowed us to analyze leading companies around the world (the best vs. the rest) and to compare NPD practices globally (North America, Europe and Asia) as well as across time. The best companies were defined in terms of 1.) the most successful or in the top third in their industry for NPD success, 2.) being above the mean for their new product program success and 3.) being above the mean for sales and profit success from NPD.1

The study included a variety of topics to track NPD management and performance: innovation culture, strategy, portfolio management, new product process, front-end of innovation, development tools, measures and metrics and outcomes. In this summary, we identify six critical elements for NPD success: success trends, shorten time to market, establish strategy, manage the portfolio, modify NPD process, and structure and management.

Success Trends

The product success rate was recovering in 2012. After being stable in previous studies, the study found 61 percent of launched products succeeded in the market. North American companies increased even more to a 67.5 percent success rates, while Europe recorded 56.8 percent and Asia scored 48.6 percent. In profitability, North American firms also had higher rates at 62.5 percent (51.8 percent in Europe and 44. 5 percent in Asia). On the other hand, sales and profits from new products were the highest in Asia at 38.9 percent and 36.7 percent, compared to North America at 28.0 percent and 28.2 percent and Europe at 29.2 percent and 31.5 percent.

There was a stark difference between the best and the rest (see Table 1). The cost associated with about a 50 percent failure rate was enormous compared with about a 20 percent failure rate. Firms have much to gain by studying and implementing best new product development practices.

The best companies started only 4.5 ideas to generate one product success versus 11.4 for the rest. The rest spent incomparably higher cost per successful project than the best. North American firms needed only 6.4 ideas for one success on average while Europe needed 10.2 ideas and Asia needed 14.9.

Table 1: Success Rates

Shorten Time to Market

The most progress was made in reducing product development cycle times (see Table 2, page 28). Radical innovation and more innovative projects took much shorter time in 2012 than 2004.

Table 2 indicates that most of the time reductions are from development activities, while the activities in the front-end showed little change in time spent. Firms were more careful in the front end and spent more time relative to later development stages in 2012 than 2004. This result indicated where time could be saved. It also indicated that time for incremental projects are probably optimized.

Table 2. Typical Length of Time on NPD Activities (weeks)

This study also showed that engineering, research and development (R&D) and design tools help to take time out of the development. The best are 30 to 50 percent more likely to use Critical Path, PERT, GANTT, Failure Mode & Effect Analysis, Design for Manufacturing, Lean NPD and Six Sigma than the rest. The best used technology tools, such as project management systems, product data management systems, performance modeling and simulation, and rapid prototyping systems more since 1995, which also helped to reduce development time.

Establish Strategy

Firms pursued a fast follower strategy most often in 2004 (36.7 percent) and again in 2012 (33.7 percent). In 2012, 31.5 percent of the firms used a first-to-market strategy, 26 percent used a niche strategy and 9 percent used a reactive strategy. The best were almost twice as likely to follow a first-to-market innovation strategy as the rest (47.7 percent vs. 24.8 percent), while significantly fewer best companies now use a niche or reactive strategy.

The results showed that ethnocentric approach was used the most (30 percent), compared to regiocentric (28 percent), geocentric (22 percent), polycentric (15 percent) and others (5 percent).2 However, the best and the rest followed different global strategies (see Figure 1). The companies in Asia used geocentric strategies only 13.2 percent of the time, which is even less than the rest.

Technology monitoring was also a strong indicator of success. The best firms monitored external sources, which resulted in breakthrough products almost twice as much as the rest (67 percent vs. 35.3 percent). European companies used technology to find break-throughs 49.2 percent of the time with Asia 45.6 percent and North America 36 percent.

Figure 1: Global Strategies for Markets and Operations

Figure 1: Global Strategies for Markets and Operations

Manage the Portfolio

Companies used a variety of tools and techniques to manage their portfolios. The best used payback period, checklists, discounted cash flow, strategic buckets, scoring models, options pricing and bubble diagrams significantly more than the rest. It is important to note that financial methods were used frequently by both the best and the rest, particularly payback period, which was used the most.

The three most often used market research tools were: 1.) Voice of the Customer (VoC) at 49.8 percent, 2.) customer site visits at 48.8 percent and 3.) beta testing at 46.3 percent. These tools were used the most by the best performing firms. Companies needed to be careful not to take time from market research to reduce cycle time.

The emerging social media tools became the accelerator for gathering external ideas. The best gathered information in the front end by using discussion forums, ratings and reviews, blogs, branded social network, innovation hubs and wikis significantly more than the rest. Notice that the more interactive the channel, the more that practice was used for gathering needs.

Modifying NPD Process

In 2012, only 49.1 percent of the respondents reported to have a formal, cross-functional process for NPD while 69 percent in 2004 and 58 percent in 1995. Nevertheless, the best used them significantly more than the rest (see Figure 2). At the same time, the use of informal systems by the rest increased over time. The best improved and the rest slipped on this practice.

As specialized structures increased, the use of formally documented processes decreased while flexibility went up. In 2012, the use of a formal process owner decreased from 60 to 72 percent in 2004 to 50 to 55 percent, whereas skipping stages or combining gates increased.

Continuously redesign the NPD process was an important differentiator. Across the whole sample, 32.5 percent of the companies redesigned their formal NPD process on an ongoing basis in 2012 vs. 30 percent in 2004. Nearly half of best companies, 47.7percent, redesigned their NPD process on an ongoing basis compared to 28.6 percent for the rest.

Figure 2: Product Development Processes

Figure 2: Product Development Processes

Structure and Management

There was a shift from functional to specialized NPD structures. In 2012, marketing, R&D, engineering and production were the drivers of NPD 44 percent of the time, a decrease from 59 percent in 2004. The best firms also used more specialized structures to drive NPD (see Figure 3).

The best firms were 15 to 30 percent more likely to use team support tools: team-building exercises, groupware, video conferencing, dedicated project intranet, software to connect technology specialist and dedicated project internet. Dedicated project intranet was not only used the most often by all firms but also is the strongest indicator of the best.

Leaders used a variety of incentives to motivate NPD teams. Project completion celebration has been the highest since these studies began in 1990. Overall, non-financial rewards were used significantly more than financial rewards in 2012 and 2004. Financial-based rewards are still used the least but posted the largest increases in the amount they were used between studies. In particular, the best now used profit sharing 24.3 percent of the time.

Figure 3: NPD Divers

Figure 3: NPD Divers


Clearly, successful new product development is not a simple matter. NPD practices are moving faster than we are able to recognize, understand and codify. The depth and variety of product development practices are highly complicated. This study can help companies find some clues for interesting areas in which to move forward. Readers are encouraged to compare and contrast their own company with the PDMA best practices study, and to use the findings as a cornerstone to leverage their potential for future NPD success.

About the Authors

Dr. Stephen Keith Markham, PhD is a professor of Management, Innovation and Entrepreneurship at North Carolina State University. His research explores the roles people play in the front end of innovation. Markham serves as president of the PDMA Foundation. He consults with numerous Fortune 500 companies and is founder of several high technology startup companies.

Dr. Hyunjung Lee, PhD is a research scholar at North Carolina State University in the Center for Innovation Management Studies. Her research interests include new product development, knowledge management, information technology, culture and innovation.


1 There are 88 (24.6 percent) best firms vs. the rest of the 270 firms (75.4 percent). Ninety-five companies did not provide enough performance data to be classified and were not used in the best vs. rest calculations. All differences noted are statistically significant (p<0.05).
2 Ethnocentric: country of headquarters domestic attitudes and mode of operations dominate; Regiocentric: regional headquarters, regional products and brand management; Geocentric: world orientation, concept of national markets disappear, operations integrated coordinated and rationalized worldwide; Polycentric: host-country orientations dominate within each country.

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