Innovation and Prodcut Development

Not surprisingly, developing profitable products is difficult, and the success rate is low. On average, for every successful product, a company has twelve failures. At this rate, the firms on the Fortune 1000 list waste over $60 billion a year in research and development. There are several reasons why product development is such a risky proposition:

  • Trade-offs. You might, for instance, be able to make your jogging shoes lighter than your competitors', but if you do, they probably won't wear as well. They could be of higher quality, but that will make them more costly (they might price themselves out of the market).
  • Time pressure. Developing a product can require hundreds of decisions that must be made quickly and with imperfect information.
  • Economics. Because developing a product requires a lot of time and money, there's always pressure to make sure that the project not only results in a successful product but also gets it to market at the most opportune time. Failure to be first to market with an otherwise desirable new product can cost a company a great deal of money.

Even so, organizations continue to dedicate immense resources to developing new products. Your supermarket, for example, can choose from about one hundred thousand items to carry on its shelves – including twenty thousand new products every year. Unfortunately, the typical supermarket can stock only thirty thousand products.

Video Clip

Even the mighty Coca-Cola has had its share of failures – New Coke, anyone?