Here is a brief excerpt from an article written by Alessandro Buffoni, Alice de Angelis, Volker Grüntges, and Alex Krieg for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.
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Fifty percent of launches don’t hit their targets. Launch champions follow these four rules.
Any company looking to boost revenue growth needs to launch new products or services. More than 25 percent of total revenue and profits across industries comes from the launch of new products, according to a McKinsey survey (See Exhibit 1).
Recent research has also shown that companies that focus on creating new products and services while maintaining core competencies across functions grow faster than their peers. And as companies look to future growth, the overwhelming majority expect it to come from creating new products, services, or business models.
In the search for growth, companies have been increasing R&D spend year-on-year since 2005, now totaling over $1.5 trillion globally (equivalent to the GDP of Canada). Yet despite this investment and the importance of developing successful new products, our research has shown that more than 50 percent of all product launches fail to hit business targets.
Why is it so difficult to launch a product or service?
Technology has made good product launches more challenging. It has lowered the bar for product development, allowing companies and startups to roll out more launches more quickly and cheaply. Digital technologies in particular have allowed companies to rapidly pilot and scale new services, from loyalty programs to support for existing products.
On top of that, myriad digital platforms from email to Snapchat have led to a barrage of messaging and communications, making it harder for products to stand out. That fact might explain why American families repeatedly buy the same 150 products that make up some 85 percent of their household needs.2
In analyzing product and service launches across industries, we noted plenty of variation in terms of frequency, average spend, and launch type—especially between completely new products, which dominate in pharma, as opposed to just upgrades or line extensions, as is often the case in consumer companies. Despite the variation, average failure rates are high across the board—over 40 percent—with consumer and retail performing worst and pharma performing best.
Interestingly, this failure rate holds across different launch types. While one might expect the launch of completely new products to be less successful because of the complexities of changing consumer perceptions and habits, their failure rate is comparable to the launch of incremental changes in familiar products. Clearly, the complexity of the product doesn’t have much of an effect on the launch.
Neither does money, as it turns out. Our research showed no correlation between the amount invested in a launch and the rate of success. Nor is there a correlation with the average frequency of launches. Just because you do it more doesn’t mean that you get any better at doing it, according to the data.
Launch champions: What they do right
What turns out to really matter is having in place a specific set of core capabilities, the most important of which are team collaboration, incorporation of market insights, rigorous planning of upcoming launches, and growing talent (See Exhibit 2).
Whichever the sector, however, most businesses do not have a clear sense of which launch capabilities really matter, nor do they have a systematic program for investing in them. More worrisome, many companies rate themselves as poor performers across the most crucial launch capabilities, with only a few rating themselves above average, e.g. 55 percent of pharma executives rate their tracking/monitoring progressperformance as good while industrial executives give scenario planning to prepare for uncertainties their top rating.
Here is what the best companies do to win when it comes to product and service launches:
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