“I believe that fundamentally, we should perceive innovation as the capability to learn and observe ongoing developments. If we cease this, it’s akin to growing old. And we all know the consequences of aging, right?” remarks Max von Zedtwitz, a professor at the School of Economics and Business at Kaunas University of Technology, Lithuania, and a co-author of the study, while discussing the findings of the PDMA survey.

The 2021 Global Best Practices Research by the Product Development & Management Association (PDMA) is the fifth instalment of the PDMA Best Practice studies (BP5). Initiated in 1990, the survey’s latest edition, in 2012, boasts the most global representation, with 62% of the 651 respondents based in Europe and the UK and a mere 6% (39 individuals) from North America.

The criteria distinguishing the best companies from the rest were established in 1997. Although these criteria focus primarily on new product development and market success, the researchers contend that the definition of the best companies is expansive, covering all business types and measuring success in broader terms.

“The survey broadly addresses product development: it includes consulting firms, banks, travel agencies, tech companies, and more. We inquire if these companies meet their financial goals, revenue targets, and product development objectives. Are they performing better than others? Thus, if a company qualifies as the Best according to PDMA standards, it is not only financially profitable but also competitive. Essentially, these companies excel in their expectations regarding products and programs. Simply put, these are the best companies,” states Von Zedtwitz.

Benchmark studies such as PDMA’s serve to refine practices universally. Hence, one of the key takeaways for practitioners is that evolving new product development capabilities is essential for any company wishing to remain competitive as circumstances and environments shift.

Conducted during the pandemic, the fifth edition of the PDMA’s global survey incorporated queries about how companies tackled the challenges posed by COVID-19. Were their strategies unchanged, reduced, or differently approached? The survey disclosed that despite the crisis, Best continued to invest in new product development, increasing manpower, budgets, and overall investments, whereas the rest adopted a more defensive strategy.

“The Best were unanimous in intensifying their investment in product development rather than scaling back; they adopted a more assertive approach. On the other hand, the rest either maintained their status quo or planned to reduce investments to bolster financial reserves in case of market declines or significant revenue drops,” explains von Zedtwitz.

In BP5, 213 companies were classified as the Best (32.3%) and 416 as the rest (67.7%). However, similar to previous PDMA Best Practice studies, BP5 did not identify a unique practice that distinctly separated the two groups.

“To be honest, we were also somewhat disappointed that we did not identify a single factor. Perhaps the most notable difference between the Best and the rest was the speed at which the Best companies developed new products. They are significantly faster. However, this isn’t necessarily a skill per se, but rather a result of adeptly managing various elements simultaneously,” mentions von Zedtwitz, a KTU School of Economics and Business professor.

The survey’s paper highlights new product development capabilities and practices where the Best Companies excel. For instance, they emphasize radical over incremental innovation (the study shows that companies with radical innovations comprising 21%–50% of their total innovation projects are likely to be among the Best). Regarding portfolio execution, the Best focuses more on penetrating new markets, applying new technologies, taking more significant risks, and adopting a more long-term outlook.

“Compared to previous “studies, it became more apparent this time that Best companies manage their new product portfolios more effectively,” adds von Zedtwitz.

“Overall, Best adopts more innovation-oriented strategies, reflected in their higher proportion of radical innovation projects. However, Best concentrates more on radical innovation and invests more in innovation projects.

Innovation is synonymous with progress, competitive capability, and economic growth today. Yet, to better understand companies’ approaches to new products and services, it’s crucial to differentiate between radical and incremental innovation.

According to von Zedtwitz, also the Director of GLORAD Center for Global R&D and Innovation, the distinction between radical and incremental innovation resulting from product development is evident from the customer’s perspective. Innovation involves minimal changes from the customer’s viewpoint: customer or service remains essentially the same in appearance and function, with only slight improvements. An example might be transitioning from one smartphone model to the next, where the new model might be slightly larger, have more memory, and perform marginally better. Conversely, radical innovation often entails a significant transformation in the product-customer interaction.

“For instance, switching from an old-style cell phone to a smartphone represents a radical

Introducing a new medication or therapy that treats a previously incurable disease would be a radical innovation. Engaging in fundamentally different activities or using things in fundamentally different ways typically characterizes radical innovation,” elucidates von Zedtwitz.

He notes that companies are invariably driven to innovate in a free market—to do things differently to stay competitive. If the environment is constantly changing, companies must adapt and avoid becoming complacent.

“One of the gradual changes we all attempt to adapt to is climate change. Today, it’s difficult to enviit’s a company that ignores this issue. The COVID-19 pandemic demonstrated the capacity of companies to respond swiftly to more immediate changes. In the survey, we see how this ability is crucial in distinguishing the Best from the rest,” concludes von Zedtwitz.

More information: Mette Praest Knudsen et al, Best practices in new product development and innovation: Results from PDMA’s 2021 global survey, Journal of Product Innovation Management. DOI: 10.1111/jpim.12663

Journal information: Journal of Product Innovation Management Provided by Kaunas University of Technology