Having a “Product Innovation Charter” (PIC) is like having a mission statement for innovation. And a mission statement provides useful guidance to the new product team. PIC’s stifle creativity you can almost hear the creative folks argue. But ultimately an innovation must reach the market and attract repeat buyers who are satisfied enough to give your organization a sustainable margin and lifetime customer value. Sounds very commercial and not innovative – I guess, but its necessary to have expectations and guidelines for all innovation projects up front. These PIC expectations and guidelines should form a subset of the larger mission of the organization. In other words, the PIC and organizational mission statement should be trying to reach the same type of overarching goals with the PIC doing so in the domain of innovation. Here is how the Product Development Management Association (PDMA) defines PIC:
The important thing to appreciate in the above definition of PIC is that it is more relaxed in the earlier creative and low cost parts of the innovation process viz. idea generation, concept development and concept testing. It is only at the big money development, prototype, manufacturing marketing and launch that the PIC is used to stay on track.
Why are early parts of the NPD process low cost? Because an idea does not cost money. Screening ideas is also not expensive. You simply ask knowledgeable employees and your relatives and friends. If you want to spend something – you can conduct focus groups, surveys and even a website to test your ideas. Your spending increases when you create a prototype and again test with customers. You calculate production costs, sales price and gross profit based on a certain volume of sales. Now to get sales, you have to invest a lot in marketing. This expenditure tends to be very high in consumer products. On the other hand a high tech product tends to have more expenses in the prototype stage when specialist get involved. These include technology products in information technology as well as biotechnology. Let’s talk about a consumer product situation.
As an example, let us assume that an organization retails its range of food products between $4-6/unit and has the marketing and distribution costs pretty much figured out for line extensions. They have a PIC drawn up for new flavors that specifies a target cost of manufacturing that should not exceed $2/unit. Now if a new flavor costs $2.50 or 25% more to manufacture the PIC should be sending out a red flag and sales projections, marketing messages and alternative supply sources should come under intense scrutiny instead of allowing the project to just float along and disappoint eventually. In other words, the team working on the “new flavor” project should know upfront that if they have a bunch of flavor ideas they need to keep the manufacturing cost under $2. Let us say the full focus of the supply chain folks helps to bring manufacturing costs down to $2.20 and the Market Insight folks are able to re-confirm the sales volume projections – guess what- its OK to proceed ! You at least know where you are going and post launch sales efforts at the retail end might just up those sales numbers, making the manufacturing cost affordable. In other words the PIC helps you to know where you want to go and serves as a road map to deploy the organizations efforts effectively.