MBA Innovation Thesis

Selected Outstanding Research Paper, 1997 PDMA Research Conference, and Approved for Publication in September, 1999 Edition of “The Journal of Product Innovation Management,” the juried publication of the PDMA, (the Product Development and Management Association).

Creativity + Business Discipline = Higher Profits Faster from New Product Development

A study was conducted of 69 analysts evaluating 267 early-stage New Product Development (NPD) projects in a major global chemical company over a 10 year time span. Positive correlations were found between profits resulting from NPD project analyses and the degree of creativity of the analysts evaluating those projects. Creativity can be reliably measured with standard psychological instruments, such as the MBTI® Creativity Index. Analysts with MBTI Creativity Indices above the median for the group studied identified opportunities providing 12-13 times more profit than those with MBTI Creativity Indices below the median, when both groups were rigorously trained and coached in “stage-gate” business analysis methods. New product development (NPD) requires breakthrough creativity because the first ideas for commercialization are almost never commercial until they have been substantially revised through a thought process involving branching. It is therefore most productive to pre-select innovative, creative people for the early stages of NPD, and then teach this group the business discipline required in stage-gate NPD processes. The results show that by utilizing these principles, both the overall speed and productivity of typical NPD processes can be increased approximately nine fold, or nearly an order of magnitude when compared to today’s typical linear stage-gate processes.

*MBTI is a registered trademark of the Consulting Psychologists Press, Palo Alto, CA 2

Creativity + Business Discipline = Higher Profits Faster from New Product Development

Address correspondence to:

Greg Stevens, President, WinOvationsSM, Inc., 5001 Oakridge Dr., Midland, MI 48640, USA. Telephone: 1-517-832-0075; FAX: 1-517-832-0981; E-mail: [email protected]

3/2/98 3

Greg Stevens is President of WinOvationsSM, Inc., specializing in industrial new product development (NPD). Prior to this he worked for The Dow Chemical Company, where he helped successfully launch Insite® metallocene polyolefin catalyst technology, and was Innovations Manager in Corporate Ventures. He received his MBA from Central Michigan University, and BA in Chemistry and Biology from Albion College. He has taught graduate courses and published on NPD in Research•Technology Management, the Journal of Product Innovation Management, the Industrial Research Institute (IRI) Proceedings, the PDMA International Research Proceedings, the Great Lakes Chapter of the PDMA/SAE International, and The Journal of the Adhesive and Sealant Council. He can be reached at WinOvations, Inc., 5001 Oakridge Dr., Midland, MI 48640, at 517-832-0075, and at the following E-mail address: [email protected].

James Burley is Professor of Marketing and Logistics at Central Michigan University, in Mt. Pleasant, MI. Professor Burley has been actively involved in teaching and research in the new product development process for many years. His articles have appeared in the Journal of Marketing, Research•Technology Management, the Journal of Product Innovation Management, the PDMA International Research Proceedings, the Industrial Research Institute (IRI) Proceedings, the Great Lakes Chapter of the PDMA/SAE International, The International Journal of Physical Distribution and Materials Management, and Industrial Marketing Management. He holds BS, MBA and Ph.D. degrees from Michigan State University.

Richard Divine is Associate Professor of Marketing at Central Michigan University. He has published on New Product Development (NPD) in the Journal of Product Innovation Management, the Industrial Research Institute (IRI) Proceedings, R&D Management, the PDMA International Research Proceedings and the Great Lakes Chapter of the PDMA/SAE International. He holds a Ph.D. degree in Marketing from Michigan State University, and MBA and BS degrees from the University of Texas.

3/2/98 1

Introduction and Background

“A well-directed imagination is the source of great deeds.” Chinese proverb [20]

Many excellent benchmarking studies over the last forty years have focused on the factors associated with industrial new product development success across hundreds of projects. The studies have virtually all found that the number one project success factor is “product superiority,” or “product advantage.” One of the first classic studies to notice this was published by Jones, of Booz, Allen Hamilton in 1958, and summarizes the findings well: "A company can't do much better than its products allow in the long run. It is difficult to make a living selling something people don't want to buy" [5]. Later studies by the same company reached the same conclusion [6,7]. Another way of saying the same thing is that the number one reason for new product failure is the lack of meaningful product uniqueness. For example, a review by Crawford of eight independent studies of project success factors in 1977 found in all cases that the number one reason for new product failure is the lack of meaningful product uniqueness. "Meaningful product uniqueness" here applies to "meaningful" in the eyes of the customer. The design engineer may think the product has meaningful differences, but only if that opinion is shared by the customer is the product likely to be a success [18]. More recent studies of the project factors leading to NPD success by Cooper et al, as well as others, have again found the same thing: that product superiority is the most important single factor in determining NPD success (Table 1) [12, 14]. A summary of one of the more recent studies of the factors that correlate with success at the project level (from the American Marketing Association) is provided in reference 12. (Other ranked success factors at the project level include: #2, an early sharp product definition; #4, technological synergy; and # 6, marketing synergy.) Still more recent studies done at the company level (instead of at the project level) by Cooper and Kleinschmidt show that that the number one factor for success is a high-quality new product development process (Table 1). Other ranked success factors at the company level that correlate with NPD success are provided in reference 17. (These include factors such as: #2, a well communicated strategy; #5, an entrepreneurial climate; and #9, cross-functional teams).

3/2/98 2

Table 1. Number One Success Factors for New Product Development

Past NPD Research Findings:

At the Project Level: #1 Success Factor: Product Superiority

At the Company Level: #1 Success Factor: High Quality NPD Process

NPD Hypothesis Tested in This Article:

At the Personnel Level: Key Success Factors: Creativity + Discipline

Note that none of these earlier works studied the personalities of the NPD project analyst as a potential success factor critical to improving the profitability of NPD efforts.

Stage-Gate NPD Processes Stage-gate NPD processes have been in existence since at least 1957, as discussed in another classic article by S.C. Johnson [26]. Many others have developed variations on the theme over the years [1, 2, 3, 7, 8, 9, 11, 12, 14, 19, 24, 27, 38]. Approximately 50% of Fortune 500 companies utilize versions of stage-gate NPD processes to one degree or another [15]. Stage-gate systems typically have between 4 and 8 stages. A typical seven-stage NPD process is shown in Table 2. Most stage-gate processes contain these activities, even if the number of stages is condensed, or if the stages overlap as in more recent processes [16].

3/2/98 3

Table 2. Typical Seven-Stage-Gate NPD Process Management’s Corporate Vision: Values, Purpose and Mission Stage 1 Idea generation Gate 1 Screen vs. management idea criteria Stage 2 Idea reshaping and exploration Gate 2 Screen vs. management idea criteria Stage 3 Preliminary analysis: very small project stage Gate 3 Screen vs. management analysis criteria Stage 4 Detailed analysis, and early multifunctional project development Gate 4 Screen vs. management analysis criteria Stage 5 Major multifunctional project development Gate 5 Screen vs. management development criteria Stage 6 Commercial launch Gate 6 Screen vs. management pre-launch criteria Stage 7 Commercial success Gate 7 Management post-implementation review

4 3000 Raw Ideas (unwritten)

g n i 3 d

e 300 Ideas Submitted e c c e u g a

S 125 Small Projects t s S

2 a t e x d e I

o 9 Early Stage Devel.

g 4 Major Devel.

L 1.7 Launches 1 Success 0 1 2 3 4 5 6 7

S tage of NPD Process

Figure 1. “Universal” Industrial Success Curve for Substantially New Products, with Success Rates from Launch Unchanged Over the Last 40 Years (at 60%)

3/2/98 4

The “universal success curve” (Figure 1) for substantially new NPD projects was developed from three separate sources of information: 1. tracking the commercialization of patents, 2. venture capitalist’s experience, and 3. the project literature. The success rates which were found (as a function of the stage of the project) were remarkably similar in all three cases. The resulting “universal success curve” shows that the odds of commercial success for substantially new products averages 1 in 300 at the idea submission stage (or at the patent disclosure stage), and 1 in 125 at the small project stage (or after a patent is granted) [41]. Note that after Stage 4, when a detailed analysis has been completed and/or early stage development has begun, the typical odds of success are approximately 1 in 9, or 11%. Even when a project reaches the stage of major development the odds of success are typically still no greater than 1 in 4, or 25%. At the commercial launch stage (after production plants have been built or a service has been fully designed, and promotional dollars spent) the odds of success are only 1 out of 1.7 launches, or 60%. This success rate has remained essentially unchanged in the last 40 years [41].

Success Factors for NPD at the Human Level Given that excellent NPD processes are often in place within major corporations today, as in the company studied, the issue becomes how to further increase the productivity of these processes. Most stage-gate processes are drawn in a linear fashion, as shown in Figure 2. However, in reality the NPD process appears to be highly non-linear and iterative, as also shown in Figure 2. The real process is less like a rifle shot and more like a heat-seeking missile that not only changes paths but also changes targets continuously (to avoid hitting flak) until it finally zeros in on a real target. Because of the low odds of success inherent in stage-gate processes, as shown in the “universal success curve” (Figure 1), success is almost assuredly not on the original path chosen at the outset of the project. This further suggests the need for creative, non-linear thinking throughout the early stages of the NPD stage-gate process.

3/2/98 5

Starting Concept for Personality Traits: Non-Linear Nature of NPD Requires Leaps of Creativity, & Branching to Identify Winners

1 2 3 4 5 6 7

Non-Linear View of Staged NPD Process

1 2 3 4 5 6 7 Linear View of Traditional “Stage-Gate*” NPD Process *Trade Name of R.G. Cooper & Associates

Figure 2. Non-Linear View and Traditional Linear View of Stage-Gate Processes

In addition to the company level and project level success factors studied in the past, we began to suspect that the personalities of the individuals working within a disciplined NPD framework were playing a critical role as well. Based on the evidence reported here, we believe that what is missing from the earlier studies is an understanding of who develops the superior product concepts associated with NPD success, and how that is really done. There is almost an implication in the existing literature that if “Stages 1-7” of a typical stage-gate NPD process are faithfully followed, then success is assured. However, in reality that is not always (or even usually) the case (see Figure 1, the “Universal Success Curve”). Observations reported in this study come from over twenty years of conducting, teaching and coaching NPD activities in a Fortune 500 chemical company using an excellent NPD stage-gate process. We observed that certain individuals use the NPD stage-gate discipline in a linear fashion chiefly to kill new product ideas (which may well be warranted). However, other individuals using the same disciplined NPD process were able to both 1. lay aside the initial idea (after identifying its flaws) and 2. using a non-linear process, identify new products that earned profits (Figure 2). We began to hypothesize that personality and especially the creativity of the key individual analysts or NPD team leader was playing a significant role in the outcome of projects done

3/2/98 6 within the framework of a stage-gate NPD process. In other words if personality works like a lens, we began to hypothesize that the lens which an individual looks through determines what opportunities they see. Others have had similar hypotheses. One of Crawford’s interviewees raises the following question: “Why, then, do we have such a high rate of new product failures? Is it possible, as some of the research studies suggest, that the problem is one of people, not technology? If so, just what is wrong?” Crawford’s article suggests that market research supporting early stage NPD project analysis is too often not done well because the type of individuals usually selected for both early stage project management and market research are risk averse, patient and persistent individuals, whereas market research for new product development requires personnel with high risk acceptance, creativity, and openness to the "irrational" process of new product development [18].

“Thus we can speculate that many (perhaps most) market researchers assigned to new product development are precisely the wrong people unless the department has been permitted to staff up especially for this purpose.” We picture the subordination of “cause and effect” leading to the typically poor NPD results (from Figure 1) as shown in Figure 3.

Suggested Root Causes Leading to NPD Failure:

1. Hires lack creativity, NPD training & coaching Key personnel factors in NPD failure

2. Lack understanding of early stages of NPD market research & analysis

3. Low quality early-stage NPD process #1 Company factor in NPD failure

4. Lack of new product uniqueness #1 Project factor in NPD failure

5. Failed NPD efforts Typically, only 11% succeed going from Stage 4 to Stage 7, per Figure 1 Figure 3. Subordination of Root-Causes Leading to Failures in NPD

3/2/98 7

Greatest Need for Improvement in Early Stages of NPD Recent studies show that the most significant differences between successful products and unsuccessful products lies in the quality of execution of the first few stages of new product development. "Simply stated, the first few plays of the game seem to decide the outcome!" [11,14]

Relative Relative Higher Need for Quality of Improvement Stage

Individual's Team's Role Role

Vision & Stages Stages Strategy 1-4 5-7

Individual or Team Leader Driven Multi-group, Multi-leader Driven Multifunctional Early Stage Effort Multifunctional Development Effort

Figure 4. Need for Improvement, and the Relative Role of Key Individuals vs. the Stage in NPD

Many others have reached the same conclusion, during four decades of research. This makes sense, because the early stages of the NPD process are when the customer's needs, and the value of meeting those needs, are determined. For example, Booz, Allen and Hamilton reached this conclusion in 1958 after studying over 400 companies’ NPD efforts [5]. “Summarizing, then, in light of what is now known, attention should be focused on the first three stages, because this is the area for major improvement in most companies... So, we focus on the stages where we determine ‘what should be developed.’ It takes just as long to

3/2/98 8

develop a million-dollar bust as a ten million dollar bell-ringer. There are plenty of problems to solve in the world. The secret of success is to be working on the most useful ones.” (Italics from original authors.) Booz, Allen Hamilton make the same point again in 1982: "...the early steps in the process of developing new products are generally viewed as the most critical” [7]. By the time the project reaches Stage 5 (major development), many more people typically become involved. Several formal multifunctional teams are almost always working in parallel on different aspects of the project by this stage. While there is room for improvement here too, organizations tend to be much better at the later stages of the NPD process. To summarize this section, Figure 4 shows that in general the earliest four stages of the NPD process are done the least well, and provide the greatest opportunities for improvement. The earlier stages needing significant improvement include vision and strategy development, as well as the predevelopment NPD activities. The specific predevelopment stages needing the most improvement are reshaping of the initial concepts, along with the preliminary and detailed analyses (Table 2, Stages 2, 3 and 4), all of which are critical to success. (Idea generation, also an early step, is less a bottleneck than the other early stages of the NPD process, because it is relatively easy to generate hundreds of ideas.) It is in the early stages that a key individual, typically acting in the role of a project analyst, plays a critical role. During later activities related to project development, commercialization and launch, the impact of any one person on the project becomes much more diffuse because there are so many more people involved. While other stages of the NPD process need to be improved as well (such as test marketing), the need for improvements especially in the early stages of the NPD process has been understood for over 40 years. These needs are just as true today:

“Firms should consider placing more emphasis on (detailed) market studies, initial screening activities, and preliminary market assessment” [10].

3/2/98 9

Creativity and the Individual NPD Analyst or Project Leader During the first 3-4 stages of the NPD process, management is relying primarily on one person to make a recommendation about whether to proceed to the next stage of product development. The reason management tends to grant such authority to a single person at the company studied is that there are so many potential projects at the early stages that it would be uneconomical to have a large team involved at “the fuzzy front end” of every project. For illustration, see Figure 1, the “Universal Success Curve.” If a team of four people was assigned to every one of the approximately three hundred ideas for which patent disclosures are made, it would take 1,200 people to find one commercially successful project for development (or 300 man-years if they worked together for 1/4 of a year). Few companies would want to do this, and virtually none could afford to do so. In the great majority of projects at the company studied, the early stage project analyst is acting as an individual project leader (while interacting with many other key people in many different functions both inside and outside the company). Much less frequently in the company studied, this person is an early-stage multifunctional NPD team leader, where the key leader’s team (when present at all) is small, typically with no more than 3-4 members. In both of these instances, the individual analyst (or leader of a small team) plays a key role in the project’s early direction. Later, in the development and commercialization stages of a project, the numbers of personnel directly involved can expand to well over 100 participants per project, depending on its scope, and involve several large teams involving different functions, with several different leaders. Given this fact that the critical early stages tend to be managed by a single key analyst or leader, usually in the role of a project analyst (at least at the company studied), it seems reasonable to assume that this person's personality could play a critical role in determining the ultimate success of an NPD project. In particular, it is hypothesized that the creativity of this key analyst or early-stage team leader would be an especially important determinant of how effectively he/she was able to manage the early stages of the new product development. Creativity can be defined as an individual's disposition toward originality [28]. Adjectives used to define creative people include: innovative, imaginative, impulsive, rebellious, unconventional, clever, independent, divergent, intuitive, nonlinear, reflective, self-assertive,

3/2/98 10 open to perceiving, and open to experience [4,33]. According to Michael Kirton, “innovatively creative” people (which in this article are referred to simply as “creative” people) tend to challenge the rules and think outside of the current paradigm. They attack problems from unique angles in searching for a solution to a problem. Creative people are more likely to identify problems and bring about radical change [30-32]. Creativity is seen as an important personality trait for NPD analysts because, as mentioned earlier, lack of meaningful product uniqueness has been found to be the number one reason why new products fail [18]. Creativity is also important because the starting idea is almost never commercial (Figure 1). Starting ideas need to be reshaped substantially, often involving several iterations, before becoming commercial. This may require several “leaps of thought” or “branching” to different ideas. This occurs especially in the early stages of the project, often referred to as the “fuzzy front end.” It therefore seems logical to infer that a firm is more likely to develop "meaningfully unique" and commercially successful new products if they are using highly innovative and imaginative people to manage the early stages of their NPD discipline.

Creativity and the MBTI Creativity Index (MBTI-CI): While perhaps few would argue against the desirability of placing creative people in NPD project analysis positions, the question of how a firm can accurately identify creative people has been less clear. One answer might be to use personality testing to assess the creativity of a firm's personnel. One such assessment tool that we have found to be particularly useful is the MBTI Creativity Index, or MBTI-CI. This index was developed by Harrison Gough, Ph.D., at the Institute for Personality Assessment and Research, or IPAR. (Gough also developed the California Psychological Inventory, or CPI.) IPAR’s samples of creative people were selected by peer nomination of creative people in creative fields (musicians, artists, scientists, architects, writers), as well as by IPAR evaluations [23,35]. The Myers-Briggs Type Indicator (or MBTI) is a widely used personality measurement instrument which is administered to over three million people a year [35]. The MBTI Creativity Index is calculated by taking a respondent's MBTI scores and placing them into a formula that has been developed based on 30 years of creativity research at the Institute for Personality Assessment and Research (IPAR) [23,42].

3/2/98 11

Gough's research on the MBTI Creativity Index suggests that with regard to Myers-Briggs personality types, creative individuals tend to be more intuitive (“N”) rather than sensory (“S”), more perceiving (“P”) rather than judging (J”), more extroverted (“E”) rather than introverted (“I”) and more thinking (“T”) rather than feeling (“F”) [42]. The most heavily weighted factor in the MBTI-CI is the preference for intuition. Twenty six additional studies of creativity involving the MBTI have all found correlations between a preference for intuition and creativity [35]. The average creativity index according to the MBTI data bank of 50,000 women and 39,000 men is 235.5 [35]. The potential range of MBTI-CI scores is from negative 84.5, to positive 547.5 for highly creative individuals. Gough estimated that individuals with Creativity Index scores less than 250 are less likely to demonstrate breakthrough creative talent, and those with scores above 350 are especially likely to show breakthrough creativity [23,35,42].

Hypotheses: The objective of the current study is to examine the relationship between an NPD analyst's MBTI Creativity Index and their effectiveness in analyzing early-stage NPD projects. If a significant relationship can be shown between the Creativity Index and NPD success, then it would support the view that creativity plays a crucial role in the NPD process. In addition such support would indicate that personality testing and creative assessment should play a more prominent role in the selection of NPD personnel. Overall, the main proposition of this study is that creativity, as measured using the MBTI Creativity Index, correlates positively with the effectiveness of the NPD analyst (provided that the analysts are all operating from within the framework of an excellent NPD discipline). NPD effectiveness will be measured using four separate performance variables. Hence, this main proposition will be formally tested using the following four research hypotheses: H1: The MBTI Creativity Index (CI) of an NPD analyst will be positively related to the number of new product analyses he/she will conduct (#NPD ANALYSES). H2: The MBTI Creativity Index (CI) of an NPD analyst will be positively related to the percentage of new product ideas that are given positive recommendations by the project analyst, (%POS.RECS). These recommendations typically were made by the individual analyst after Stage 4 of the NPD process, as defined in Figure 1 and Table 2.

3/2/98 12

H3: The MBTI Creativity Index (CI) of an NPD analyst will be positively related to the percentage of the original project ideas that are branched or spun off into new projects (%BRANCH). H4: The Creativity Index (CI) of an NPD analyst will be positively related to the cumulative amount of profits (PROFIT). (Profits resulted after Stage 7, Commercial Success, and were achieved by the business after implementing the analyst’s NPD project recommendations from Stage 4.)

Methodology: Data for this study were obtained from interviewing hundreds of personnel from a global Fortune 500 chemical company. The data were collected from a ten year time period, during which 267 separate NPD projects were evaluated within the company. Each of these projects was initially analyzed and overseen by one of 69 different NPD analysts who worked for the firm during this period. For each of the 69 analysts, two types of measures were collected: 1) their creativity, as measured by the MBTI Creativity Index and 2) their NPD effectiveness, as measured through the four separate performance variables. The results from well over 95% of the total number of projects conducted were measured. Only a few individuals chose not to participate, hence virtually the entire sample available was measured. The group contained numerous projects conducted in both Europe and North America. The research hypotheses were tested using linear regression/correlation analysis. NPD Project Analysis Methodology: The stage-gate business discipline used to train all of the analysts who conducted their project evaluations was the Planned Innovation Opportunity Analysis system of Bacon and Butler. The Planned Innovation approach is a staged process with periodic management reviews. It utilizes scientific reasoning to determine key requirements before making major expenditures. It does this by forming and testing hypotheses related to the following critical issues: determining the “fit” of the project within the organization, identifying unmet marketplace needs, identifying sources of value (both to the organization and down the value-chain), and determining competitive openings and competitive advantages. All analysts were rigorously trained and extensively coached in the same methodology. The training consisted of an intensive one week course, followed by one-on-one coaching which typically lasted from six months to two years. Coaching of the analysts being trained over one or

3/2/98 13 two projects was an essential part of the process, and allowed the analysts within the company studied to internalize the teaching; i.e. to become able to effectively and independently implement it [2,3]. It was not a “program of the month.” This was a serious and sustained program with top management support, as it would need to be to last for over 10 years.

Measures: Independent variable: Creativity Index (CI) This variable was measured using Gough's MBTI Creativity Index (MBTI-CI). This index is calculated from a participant’s scores on the four scales of the MBTI personality instrument. The Index is based on continuous MBTI scores which have 100 as their midpoint [35]. The formula for this index is presented below: MBTI CREATIVITY INDEX = 3SN + JP - EI - 0.5TF; where: SN = Sensory/Intuitive MBTI scale score; JP = Judging/Perceiving scale MBTI score; EI = Extroversion/Introversion MBTI score; TF = Thinking/Feeling MBTI score

Dependent variables: Measures of NPD Effectiveness #NPD ANALYSES: This variable indicates the total number of original new product development (NPD) ideas that an analyst evaluated during his/her tenure with the company. This was operationalized as the total number of NPD Analyses (or opportunity analyses, “OA's”) the analyst completed. %POS.RECS: This variable indicates what percentage of an analyst's NPD projects were positive recommendations to management for commercial development. This was measured by taking the number of NPD Analyses (or OA's) an analyst recommended to management be developed, as a percentage of the total number of NPD Analyses that he/she had completed. %BRANCH: This variable indicates what percentage of an analyst's original new product analysis projects were branched or spun off into new, more commercial projects by the analyst. This was operationalized by taking the number NPD Analyses that were branched as a percent of the total number of NPD Analyses the analyst conducted. PROFIT: This variable indicates the overall profits produced by the new products developed by an analyst. Profits were operationalized by calculating the return on sales generated by all the products developed (after Stage 7 of the NPD process as defined in Figure 1

3/2/98 14 and Table 2), which resulted from the analysts’ recommendations after Stage 4 of the NPD process. Return on sales is measured by taking sales profits that remain after subtracting all costs including the cost of capital, the costs of labor and raw materials. Thirty five percent of the total number of projects analyzed were recommended to be commercialized by the analysts (94/267 total = 35% “POS.RECS”). The businesses decided to commercialize 12.4% of the total projects analyzed (33/267 = 12.4%), or 35% of the “POS.RECS” (33/94 = 35%). These are the projects that went on to earn profits. (No attempt was made to commercialize the other positive recommendations from the analysts.) Cumulative profit determinations used throughout the study were determined from extensive interviews with analysts and business leaders that implemented the business opportunities identified. The profits were analyzed through December of 1994, and amounted to $213 million. Profits are still climbing rapidly, as several very large projects were in the early stages of becoming profitable.

Results and Discussion: Four simple regression analyses, each using the MBTI-Creativity Index as the independent variable, are presented in Table 3.

Table 3. Results of Four Simple Linear Regression Analyses of the Relationship Between the MBTI Creativity Index (CI) and NPD Effectiveness

Hypoth. Independent Dependent ß r Significance Support Variable (X) Variable (Y) (Beta, slope) (Pearson Level Correlation Coefficient) HI: Creativity Number of 0.01 0.31 0.008 Yes* Index (CI) NPD Analyses H2: Creativity % Positive NPD 0.09 0.30 0.012 Yes** Index (CI) Recommendations H3: Creativity % Branches 0.11 0.39 0.001 Yes* Index (CI) H4: Creativity Profit $24,906.70 0.29 0.017 Yes** Index (CI) n = 69, * p < .01, ** p < .05

The results indicate that all four research hypotheses are supported. The correlation factors range from r = 0.39 for %BRANCH, to r = 0.29 for PROFIT. The relationship between the

3/2/98 15

Creativity Index and two of the dependent variables studied (Profit, and % POS.RECS) are significant at >95% confidence level, while the other two (#NPD ANALYSES and % BRANCH) are significant at >99% confidence level. These results clearly indicate that creativity is positively correlated with all aspects of NPD performance which were measured. Additional correlations and descriptive statistics are shown in Table 7. A further illustration of this conclusion is provided in Tables 4, 5 and 6. These tables compare the average NPD performance between analysts with Creativity Indices above and below the median of the group studied. It should be noted that the median creativity index for this sample was 273 (and the mean was 287) which is well above 235.5, the average for the general population. Regardless, these tables strongly illustrate that analysts with high MBTI-CI's greatly outperformed their less creative cohorts on every criteria examined. In terms of branching and positive recommendations, analysts with high CI's had success rates more than double those of low CI's.

Table 4. Grouped Data on MBTI Creativity Index vs. Measures of Effectiveness

3/2/98 16

MBTI # # # % # % Profit Times % Ideas Creativity Analysts NPD Pos. Pos. Profit Profit Made Branch that Index (CI) Analyses Recs. Recs. Makers Makers $ MM Branched

62-122 10 24 3 13% 2 8% $2.0 0 0% 123-182 5 16 7 44% 4 25% $11.0 4 25% 183-242 11 36 2.5 7% 1 3% $2.0 3.5 10% 243-273 8 31.5 8.5 25% 3 10% $0.2 6.5 21% Sub Totals for Group with Below 34 107.5 21 20% 10 9% $15.2 14 13% Median Creativity

274-302 3 2.5 1.5 60% 0 0% $0.0 0.5 20% 303-362 11 51 19 37% 7 14% $27.9 17 33% 363-422 10 31 16 52% 6 19% $45.0 10 32% 423-482 9 40 18 45% 6 15% $105.6 14.5 36% 483-542 2 35 18.5 53% 4 11% $19.0 15 43% Sub Totals for Group with Above 35 159.5 73 46% 23 14% $197.5 57 36% Median Creativity

Totals 69 267 94 35% 33 12% $212.7 71 27% Table 5. Analysts with Above Median MBTI-CI’s: Did More Projects, Branched More, and Found More Positive Opportunities

Group With Group With Times Below Median Above Median More Creativity Creativity Effective MBTI-CI Š 273 MBTI-CI > 273 n=34 n=35 Number NPD 3.2 4.6 1.4 X Analyses Per Analyst % Ideas that 13.0% 36.0% 2.8 X Branched

% Positive 19.6% 46.0% 2.3 X Recommendations

3/2/98 17

Table 6. Analysts with Above Median MBTI-CI’s Created Higher NPD Profits

Group With Group With Times Below Median Above Median More Creativity Creativity Profitable MBTI-CI Š 273 MBTI-CI > 273 Overall n=34 n=35 Profit per $0.45 MM $5.64 MM 12.5 X Analyst, $MM

Profit per $0.14 MM $1.24 MM 8.9 X Project, $MM

Total Profit $15.2 MM $197.5MM 13.0 X $MM

Table 7. Results of 4 Separate Simple Linear Regression Correlations Using the MBTI Creativity Index (CI) as the Independent Variable, and Descriptive Statistics

Correlations Variables #1 #2 #3 #4 #5 Means Std. Creativity # NPD %POS. PROFIT % BRANCH Dev. Index (CI) ANALYSES RECS 1. CI (Creativity Index) 1.00 287 119 2. # NPD ANALYSES 0.32 1.00 3.87 3.97 3. %POS.RECS 0.30 0.04 1.00 35% 34 4. PROFIT 0.29 0.24 0.29 1.00 $3.04 MM $10.0 MM 5. % BRANCH 0.39 -0.05 0.43 0.09 1.00 27% 33

However, perhaps the most striking comparisons include the following: 1.) The mean “average” profit generated by analysts with high CI's was 12.5 times higher than those with low CI's ($5,642,000 vs. $445,000, Table 6). 2.) The group of 35 analysts with higher (above the median) MBTI CI’s provided $197.5 million of $213 million dollars in cumulative sales profits,

3/2/98 18 vs. $15.2 million for the 34 analysts with below the median CI’s. Hence, the group with higher CI’s found 13 times the profit ($197.5 million/$15.2 million = 13 times, Tables 4 and 6). The results in Tables 3-7 indicate a powerful relationship between the Creativity Index (CI) and profitability, as well as with the other three dependent variables studied. The ß, or slope, of the linear regression between the Creativity Index and Profit indicates that every one point increase in the Creativity Index correlates with approximately $24,900 additional sales profit earned (Table 3). We recognize that profitability associated with any particular project is impacted and determined by many factors in the commercial launch and marketplace. One might argue that such variable commercialization activity may be masking an even more powerful relationship. The following additional conclusions and recommendations are offered for further study. 1. All but one of the 33 positive new business development recommendations from the opportunity analysts (after Stage 4 of the NPD process) which were developed and commercialized the businesses in Stages 5-7 made money . The information developed was 97% accurate when going from Stage 4 to Stage 7 of the NPD process (as defined in Figure 1 and Table 2). 32 correct recommendations of 33 recommendations total = 97%. 2. The cumulative profits earned (as measured via ROS) using the NPD process described have exceeded $213 million over a ten year period, and are rapidly climbing.

3. Profits earned exceeded the costs of the analyses (through Stage 4) by a factor of over ten to one with the process “as implemented” (i.e. with no preselection for more creative individuals). If project analysts had been preselected for MBTI Creativity Indices above 273, the data show that the profits earned would have exceeded the costs of the analyses by a factor exceeding approximately twenty to one. This is because half of the effort would have resulted in almost the same profits earned. ($198 million of $213 million in profit was earned as a direct result of positive new business development recommendations from the group with above median creativity.) 4. In absolute numbers, Table 4 shows that 73 positive recommendations were made by the group with MBTI CI scores above the median, while 21 were made by the group with lower MBTI creativity. This is 3.5 times more positive recommendations from the more creative group.

5. In percentage terms, Tables 4 and 5 show that positive recommendations were made 46% of the time by the group with MBTI CI scores above the median, vs. 20% of the time made by the group with lower MBTI Creativity Indices. This is 2.3 times the frequency of positive recommendations from the more creative group (Table 5).

6. Those with above average MBTI creativity tend to seek out this kind of work more frequently, stay with it longer, and do more NPD studies per person. One hundred sixty NPD

3/2/98 19

analyses were done by 35 analysts with MBTI creativity above the median, for an average of 4.57 analyses/person. In comparison, 108 NPD analyses were done by 34 analysts with MBTI CI scores below the group median, for an average of 3.17 analyses/person.

7. What is observed is that those with MBTI CI’s below the median tend to “burn-out” doing this kind of work, while those with MBTI CI’s above the median almost can’t stop doing it. Many of the analysts with MBTI Creativity Indices above the median are still actively involved in various aspects of NPD, whereas few are still involved with lower CI’s. In short, the more creative group enjoys the work more than those with lower creativity. 8. Tables 3 and 7 also show that there are strong correlations and support for the hypothesized links between the MBTI Creativity Index, the degree of branching during a project evaluation, and NPD success. By “branching” what we mean is that the original idea was typically laid to rest, but a new, more commercially related idea was found (and often created) by the analyst. We interpret the results as meaning that given the low odds for any one project from the “universal success curve” (Figure 1), branching and leaps of thought are necessary to find commercial opportunities. The more creative analysts are generally better at making these “leaps” in the thought process, several of which are usually required during one project. For example, one act of creativity almost typically required in the “fuzzy front end” of NPD is to redefine the very problem being addressed. This can occur through branching. 9. In the MBTI Creativity Index, it appears that the most important personality preference in identifying positive NPD opportunities is intuition. For example, those with a preference for intuition identified 93% of the profit. This is exactly as predicted from the studies linking the MBTI to creativity [23,35]. Hence, if the project analyst or team leader involved in the early stages of the project is not intuitive, or at least is not constantly branching or reconfiguring the project when needed (which is most of the time), the odds are low that the project will succeed. Further analysis of the relative importance of each of the four personality traits measured by the MBTI is underway, as is a comparison with the KAI (Kirton Adaptor Innovator) instrument for measuring creativity. 10. The findings of this work strongly support the hypothesis that the NPD analyst or team leader needs to exhibit creativity in conjunction with mastering NPD business discipline. This results in the highest probability of both changing course from the original idea (which may be destined to fail), and finding another related idea with greater chances of providing real “product superiority” in the eyes of the customer.

11. A Nine-Fold Increase in NPD Productivity and Speed:

Others talk about “probability assessments” related to NPD portfolios [13]. Indeed, there can be no absolute guarantees of success. However, when analyzed according to the methodology used [2,3], these results show at least for the company evaluated that the probability of success can be understood with near certainty (97%) regarding which opportunities to pursue, and which not to pursue, even when commercializing substantially new products.

3/2/98 20

12. When individual creativity on the part of the analysts is combined with business discipline (i.e. training and coaching in an excellent NPD process) the results show that NPD profits occurred approximately 97% of the time when going from Stage 4 to Stage 7 (Figures 5 and 6) vs. approximately 9% of the time when using typical NPD processes (Figures 1, 3 and 5). This represents a nine fold improvement in NPD productivity.

13. It also means there need no longer be approximately eight failed development efforts for every one that succeeds (as shown when typically commercializing from Stage 4 of the “Universal Success Curve” in Figure 1). Therefore the new approach leads to profitable outcomes nine times faster than before. Hence, by increasing the quality of the results, the entire system is sped up by nearly an order of magnitude as depicted in Figure 5.

Clearly, this is a dramatic result, far exceeding the 20-40% improvements in speed that most organizations are seeking. However, it is surprisingly difficult to see and appreciate. The reason is that any single project done using this methodology may take just as long, or somewhat longer to complete than in typical stage-gate NPD processes. Yet, we find that the time required to complete an individual project becomes almost immaterial vs. getting the right answer that allows a company to make money. When this is achieved it eliminates the need (present in most NPD efforts) for an average of eight other projects that fail (from Stage 4, in Figure 1) before identifying one that is a money maker. Provides Profits/Unit Effort Nine Times Faster

Fuzzy Front End Development Sustained Sales Profits One NPD 97% of Effort Now: NPD Stages 1-4 NPD Stages 5-6 NPD Stages 7 Time

Replaces Fuzzy Front End Development Sustained Sales Profits Nine Efforts 11% of Typically: Time

Figure 5. Higher Accuracy from NPD Analyses Through Stage 4 of a 7-Stage NPD System Provides Profits Nine Times Faster, with Nine Times Less Effort

Another way of saying this is that while the time span of an individual NPD project may not be shortened, the average time span per unit of meaningful deliverables (i.e. for

3/2/98 21

identifying money making business opportunities) is shortened approximately nine times. The key is not in shortening the NPD time-line per project (which too often leads to accelerating the killing of projects in the name of “rapid progress”), but in shortening the total time and effort it takes to deliver profits. Moving from nine project time lines to one time line by identifying profitable outcomes nearly every time effectively accomplishes this (Figure 5).

14. We picture the subordination of “cause and effect” leading to typically successful NPD results as shown in Figure 6. It begins with personnel selection (for high creativity) coupled with training and coaching in NPD discipline. Another way of saying this is that one should bet on people (if properly trained and coached in NPD discipline) before betting on projects.

3/2/98 22

Suggested Root Causes Leading to NPD Success:

1. Appropriate hiring (high creativity), training & coaching Key personnel factors in NPD success

2. Excellent understanding of early stages of NPD market research & analysis

3. High quality early-stage NPD process #1 Company factor in NPD success

4. Product uniqueness #1 Project factor in NPD Success

5. 97% Successful NPD efforts Going from Stage 4 to Stage 7

Figure 6. Subordination of Root-Causes Leading to Success in NPD

Summary and Conclusions This article compares the NPD (New Product Development) commercial success rates for individuals having widely varying degrees of creativity, as measured by the MBTI-CI (Creativity Index), all of whom were working within an excellent NPD discipline. The results show that there is a very strong correlation between breakthrough creativity, non-linear branching thought, and NPD profits earned. When the human success factors are included with the best existing NPD thinking, the results show that the overall productivity and speed of the NPD system can be improved by approximately an order of magnitude vs. how NPD stage-gate systems are typically done today. We caution against applying these ideas in an overly simplistic fashion. There are many examples of largely failed new business development business efforts involving much creativity and inventiveness, but lacking in business discipline [21,34,36,37,40]. The “universal success curve” (Figure 1) further establishes the point that creative ideas are rarely commercial[41]. In other words, ample literature and our own extensive experience suggests that getting this only “half right” (i.e. by placing creative people in NPD roles without providing them the required

3/2/98 23 training and coaching in disciplined NPD processes to be consistently effective) would likely lead to destroying value instead of creating it [21,34,36,37,40]. Therefore we believe that selecting creative individuals to work in the early stages of NPD increases profitability (as described in this article) only when done within the framework of an excellent NPD system consisting of: 1. the right people, 2. the right training and coaching and 3. the right NPD process. This in effect forces business discipline on the creative mind. The evidence in this article shows that business discipline can be learned, while we believe that breakthrough creativity is virtually impossible to learn [32, 35, 42]. There are many opportunities for additional research suggested by our study. Although the results reported to date appear to be applicable in Europe and North America, replication of this study in other cultures and other industries would be very useful to determine the “universality” of these findings. It may also be that the creative individuals described in this article who are the best at identifying opportunities in the “fuzzy front end” of the NPD process, are not the most effective people in the later stages of the process involving development and commercialization. This hypothesis warrants further study. Additional publications are also planned to review the links between “nature and nurture” and personality, including one’s style of creativity. "Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution." Albert Einstein [22].

Acknowledgments

The authors wish to thank the PDMA for selecting this article as the “Outstanding Research Paper” of the 1997 PDMA International Research Conference. We also thank JPIM Editor Thomas P. Hustad, Ph.D., and the PDMA Research Conference Chairman L.W. (Bill) Murray, Ph.D. as well as the anonymous reviewers for their insightful comments and suggestions for improvements.

3/2/98 24

References

1. Albala, Americo. Stage approach for the evaluation and selection of R&D projects. IEEE Transactions on Engineering Management. EM22(4): 153-163 (November, 1975).

2. Bacon, Jr., Frank R. and Thomas W. Butler, Jr. Planned Innovation: A Dynamic Approach to Strategic Planning and the Successful Development of New Products. Ann Arbor, Michigan. Industrial Development Division, Institute of Science and Technology, The University of Michigan, 2200 Bonisteel Blvd. 1981.

3. Bacon, Jr., Frank R. and Thomas W. Butler, Jr. Achieving Planned Innovation; A Proven System for Success with New Products, The Free Press, an imprint of Simon and Schuster, NY, NY., ISBN 0-684-83990-3, 1997.

4. Barron, Frank. The disposition toward originality. The Journal of Abnormal and Social Psychology. 51(3): 478- 485. (November, 1955).

5. Booz-Allen & Hamilton Inc., Jones, Ralph W. Management of new products. The Journal of Industrial Engineering. IX (5): 429-435 (October, 1958).

6. Booz-Allen & Hamilton Inc. Management of new products. New York, New York. 1-28. 1968.

7. Booz-Allen & Hamilton Inc. New Products Management for the 1980's. New York, New York. 1-24. 1982.

8. Cooper, Robert G. Why new industrial products fail. Industrial Marketing Management. 4: 315-326. (1975)

9. Cooper, Robert G. Most new products do succeed. Research Management.: 20-25. (November - December 1983).

10. Cooper, Robert G. and Elko J. Kleinschmidt An investigation into the new product process: steps, deficiencies and impact. The Journal of Product Innovation Management. 3: 71-85 (1986).

11. Cooper, Robert G. Predevelopment activities determine new product success. Industrial Marketing Management. 17(3): 237-247 (August, 1988).

12. Cooper, Robert G. and Elko J. Kleinschmidt. New Products: The Key Factors in Success. Chicago, Illinois. American Marketing Association. 1-52, 1990.

13. Cooper, Robert G. The NewProd system: The industry experience. The Journal of Product Innovation Management. 9: 113-127 (1992).

14. Cooper, Robert G. Winning at New Products: Accelerating the Process from Idea to Launch. Second Edition. Reading, Massachusetts. Addison Wesley Publishing Company. 1993.

15. Cooper, Robert G. Personal communication, at McMaster University, Hamilton, Ontario. (June 10, 1994).

16. Cooper, Robert G. Third-generation new product processes. Journal of Product Innovation Management. 11. 3-14 (1994).

17. Cooper, Robert G. and Elko J. Kleinschmidt. Benchmarking the Firm’s Critical Success Factors in New Product Development. . The Journal of Product Innovation Management. 12: 374-391 (1995).

18. Crawford, C. Merle. 1977. Marketing research and the new product failure rate. Journal of Marketing 51-61, (April, 1977).

19. Crawford, C. Merle. New Products Management. The University of Michigan. Homewood, Illinois. Irwin Publisher. 1987

3/2/98 25

20. Creativity in Action. Buffalo, New York. The Creative Education Foundation. 5:247 (November 1994).

21. Dunn, Dan T. The rise and fall of ten venture groups. Business Horizon. 20: 32-41. October, 1977.

22. Gilman, John J. Inventivity; the Art and Science of Research Management. New York, New York. Van Nostrand Reinhold. 1992.

23. Gough, Harrison. Studies of the Myers-Briggs Type Indicator in a personality assessment research institute. Article presented at the Fourth National Conference on the Myers-Briggs Type Indicator, Stanford University, CA. (July, 1981)

24. Griffin, Abbie. Metrics for measuring product development cycle time. J. Prod. Innov. Manag. 10: 112-125 (1993).

25. Hurter, Arthur R. and Albert H. Rubenstein. Market penetration by new innovations: the technological literature. Technological Forecasting and Social Change. 11: 197-221 (1978).

26. Johnson, S. C. and Conrad Jones. 1957. How to organize for new products. Harvard Business Review. # 57305: 49-62 (May-June, 1957). (This article also has one of the first product-market matrices).

27. Kearney Inc., A. T. Best of the Best New Product Development. 1-78 (March, 1991).

28. Kirton, Michael J. Adaptors and innovators - why new initiatives get blocked. Long Range Planning. 17(2): 137-143 (1984).

29. Kirton, Michael J. Kirton Adaption-Innovation Inventory Manual. Herts, UK. Occupational Research Centre. 1987.

30. Kirton, Michael J. and R. M. McCarthy. Cognitive climate and organizations. Journal of Occupational Psychology. 61: 175-184 (1988).

31. Kirton, Michael J. Adaptors and Innovators: Styles of Creativity and Problem Solving. New York, New York. Routledge. 1989.

32. Kirton, Michael J. Kirton Adaption-Innovation Certification Course Handbook. 18-20 April. Wilmington, DE. Herts, UK. Occupational Research Centre. 1994.

33. McCrae, Robert R. Creativity, divergent thinking and openness to experience. Journal of Personality and Social Psychology. 52(6): 1258-1265 (1987).

34. McMurray, Scott. Changing a culture: DuPont tries to make its research wizardry serve the bottom line. The Wall Street Journal. A1-A4, March 27, 1992.

35. Myers, Isabel Briggs, and Mary H. McCaulley. Manual: A Guide to the Development and Use of the Myers- Briggs Type Indicator. Palo Alto, California. Consulting Psychologists Press. 1992.

36. Port, Otis. Rating R&D: How companies get the biggest bang for the buck. Business Week. 98, July 5, 1993

37. Power, Christopher. Flops: Too many new products fail. Here’s why, and how to do better. Business Week. 76- 82, August 16, 1993.

38. Rosenau, Jr., Milton D. Faster New Product Development: Getting the Right Product to Market Quickly. New York, New York. AMACOM Division of American Management Association. 1990.

3/2/98 26

39. Schnaars, Steven P. Megamistakes: Forecasting and the Myth of Rapid Technological Change. New York, New York. The Free Press Division of MacMillan, Inc. 1989.

40. Schrage, Michael. Innovation and Applied Failure. Harvard Business Review, 42-47 (November-December 1989) (A review of: Hounshell, David A. and John Kenly Smith, Jr. Science and Corporate Strategy: DuPont R&D, 1902-1980. Cambridge University Press. 1988.)

41. Stevens, Gregory A. and James Burley. 3000 raw ideas = 1 commercial success! Research•Technology Management, 40(3): 16-27 (May-June, 1997)

42. Thorne, Avril and Harrison Gough. Portraits of Type: An MBTI® Research Compendium. Palo Alto, California. Consulting Psychologists Press, Inc. 1991

3/2/98