Product design is cross-functional, knowledge-intensive work that has become increasingly important in today's fast-paced, globally competitive environment. It is a key strategic activity in many firms because new products contribute significantly to sales revenue. When firms are able to develop distinctive products, they have opportunities to command premium pricing. Product design is a critical factor in organizational success because it sets the characteristics, features, and performance of the service or good that consumers demand. The objective of product design is to create a good or service with excellent functional utility and sales appeal at an acceptable cost and within a reasonable time. The product should be produced using high-quality, low-cost materials and methods. It should be produced on equipment that is or will be available when production begins. The resulting product should be competitive with or better than similar products on the market in terms of quality, appearance, performance, service life, and price.
THE INCREASING IMPORTANCE OF PRODUCT DESIGN
Product design is more important than ever because in the twenty-first century, customers demand greater product variety and near-constant innovation. It is common for consumers to switch quickly to products with state-of the-art technology. The impacts of greater product variety and shorter product life cycles have a multiplicative effect on the number of new and derivative products that need to be designed. For example, just a few years ago, a firm may have produced four different products and each product may have had a life cycle of ten years. In this case, the firm must design four new products every ten years. Today, in order to be competitive, this firm may produce eight different products with a life cycle of only five years; this firm must introduce eight new products in five years. That represents sixteen new products in ten years or one product every seven and one-half months. In this fast-paced environment, product design ceases to be an ad hoc, intermittent activity and becomes a regular and routine action. For an organization, delays, problems, and confusion in product design shift from being an annoyance to being life threatening.
PRODUCT DESIGN AND SUPPLY CHAIN MANAGEMENT
Product design can also be an important mechanism for coordinating the activities of key supply chain participants. As organizations outsource the production of sub-assemblies and components, they also may be asking suppliers to participate in product design. As they out-source design capabilities it is essential that they manage and coordinate the flow of information among the supply chain participants. This can be especially important as firms outsource components to two or more suppliers. Now, there may be important design interfaces among two, three, or more suppliers. These interfaces must be properly managed to ensure cost effective and timely
designs. Clearly, information and communication technologies become important parts of this effort.
A recent development in maintaining supply-chain integrity while pursuing a vigorous strategy of product innovation is an increase in acquisitions that support a program of vertical integration. For example, in 2008 Apple acquired P.A. Semi, a small chip manufacturer that could supply exclusive new chips for Apple's line of iPods and iPhones. Microsoft pursued a similar strategy throughout the 2000s, acquiring software companies for technologies that could be incorporated into existing and developing Microsoft products. Successful companies such as these can turn their high cash-flow into acquisitions that improve the product-design and manufacturing processes.
PRODUCT DESIGN: A KEY TO ORGANIZATIONAL SUCCESS
Product design is an essential activity for firms competing in a global environment. Product design drives organizational success because it directly and significantly impacts nearly all of the critical determinants for success. As the authors of Product Development (2008) put it, “The key in new product development is the information that indicates what people want, what features of the product are considered absolutely essential, what price they are willing to pay for it, what features are desirable but can be sacrificed for a lower price, [who are the] current and potential competitors, and [what are the] likely changes in the market size.”
In the fast-paced, high-technology business environment of the twenty-first century, customers demand greater product variety and are quick to shift to new, innovative, full-featured products. The sudden success of Apple's iPhone is an excellent case in point. Introduced for the first time in 2007, Apple sold 270,000 iPhones during the first thirty hours of their availability. Over a million iPhones were sold in less than three months, giving the iPhone over a quarter of the U.S. smartphone market. Only a year later, Apple released the iPhone 3G, the next generation of this extremely popular product line, and once again customers lined up early. Apple's corporate strategy is driven by its introduction of such market-changing products as the iPhone—and earlier, the iMac and iPod—and other companies are eager to duplicate this success.
In addition, customers make purchase decisions based on a growing list of factors that are affected by product design. Previously, customers made purchase decisions based primarily on product price and/or quality. While these factors are still important, customers are adding other dimensions such as customizability, order-to-delivery time, product safety, and ease and cost of maintenance. Environmental concerns are expanding to include impacts during production, during the product's operating life, and at the end of its life (recycle-ability). In addition, customers demand greater protection from defective products, which leads to lower product liability losses. Safer and longer-lasting products lead to enhanced warrantee provision, which, in turn, impact customer satisfaction and warrantee repair costs.
Programs and activities are being put in place so organizations can cope with these dimensions. Organizations are embracing concepts such as mass customization, design for manufacturing and assembly, product disposal, quality function deployment, and time-based competition. They are using technology such as rapid prototyping and computer-aided design to examine how products function, how much they may cost to produce, and how they may impact the environment. Firms are searching for and implementing new technologies to determine ways to design better products. They are examining legal and ethical issues in product design as well as the impact of product design on the environment.
Mass customization is the low-cost, high-quality, large volume delivery of individually customized products. It is the ability to quickly design and produce customized products on a large scale at a cost comparable to non-customized products. Customization, cost effectiveness is the ability to produce highly differentiated products without increasing costs, significantly. Consumers expect to receive customized products at close to mass-production prices. Customization volume effectiveness is the ability to increase product variety without diminishing production volume. As markets become more and more segmented and aggregate demand remains constant or increases, firms must continue to design and produce high volumes across the same fixed asset base. Customization responsiveness is the ability to reduce the time required to deliver customized products and to reorganize design and production processes quickly in response to customer requests. It would be counter-productive to pursue mass customization if a customized product takes too long to produce. Speed in product design and production is an indispensable criterion for evaluating an organization's mass customization capability.
DESIGN FOR MANUFACTURING AND ASSEMBLY
Improving manufacturability is an important goal for product design. A systems approach to product design that was developed by two researchers from England, Geoffrey Boot-hroyd and Peter Dewhurst, is called design for manufacturability and assembly (DFMA). It can be a powerful tool to improve product quality and lower manufacturing cost. The
approach focuses on manufacturing issues during product design. DFMA is implemented through computer software that identifies design concepts that would be easy to build by focusing on the economic implications of design decisions. These decisions are critical even though design is a small part of the overall cost of a product because design decisions fix 70 to 90 percent of the manufacturing costs. In application, DFMA has had some startling successes. With the DFMA software, Texas Instruments reduced assembly time for an infrared sighting mechanism from 129 minutes to twenty minutes. IBM sliced assembly time for its printers from thirty minutes to three minutes.
Firms are recognizing that the concept behind DFMA can also be extended beyond cost control to design products that are easy to service and maintain. To do this effectively, service and maintenance issues should be considered at the earliest stages of the design. Also, firms will be required to examine disposal during product design as they become liable for recycling the products they make. It can be easier to recycle products if those factors are part of the product design paradigm.
DISPOSAL AND PRODUCT DESIGN
Disposal is becoming an increasingly important part of product design. The European Union is taking the lead by requiring that most of an automobile is recycled by the year 2010. This requirement has a major impact on product design. The most obvious effect is to change the notion that a consumer is the final owner for a product. With this approach, the product returns to the manufacturer to be recycled and the recycling process should begin in product design. Vehicles should be designed so they can be disassembled and recycled easily. The designers should avoid exotic materials that are difficult to recycle. For example, parts that have plastic and metal fused together should not be used in applications where they are difficult to separate. The designers should determine which parts can be refurbished and reused, and which can be discarded, broken down, and recycled. All this should be done without adding costs or reducing product quality.
QUALITY AND QUALITY FUNCTION DEPLOYMENT
Product design shapes the product's quality. It defines the way that good and service functions. Quality has at least two components. First, the product must be designed to function with a high probability of success, or reliability; that is, it will perform a specific function without failure under given conditions. When product reliability increases, the firm can extend the product's warranty without increasing customer claims for repairs or returns. Warranties for complex and expensive items such as appliances are important selling points for customers. Second, quality improves when operating or performance characteristics improve even though reliability does not. The goals of product design should be greater performance, greater reliability, and lower total production and operating costs. Quality and costs should not be viewed as a trade-off because improvements in product and process technologies can enhance quality and lower costs.
Quality function deployment is being used by organizations to translate customer wants into working products. Sometimes referred to as the house of quality, quality function deployment (QFD) is a set of planning and communication routines that focus and coordinate actions and skills within an organization. The foundation of the house of quality is the belief that a product should be designed to reflect customers' desires and tastes. The house of quality is a framework that provides the means for inter-functional planning and communications. Through this framework, people facing different problems and responsibilities can discuss various design priorities.
Engineering and operations combine to develop models of products called prototypes. These may be working models, models reduced in scale, or mock-ups of the products. Where traditional prototype development often takes weeks or months, the technology for rapid prototyping has become available. Some companies are using the same technology that creates virtual reality to develop three-dimensional prototypes. Other firms employ lasers to make prototypes by solidifying plastic in only a few minutes; this process can produce prototypes with complex shapes. Prototyping should increase customer satisfaction and improve design stability, product effectiveness, and the predictability of final product cost and performance.
Currently, business managers and engineers perceive computer-aided design (CAD) as a tool to assist engineers in designing goods. CAD uses computer technology and a graphic display to represent physical shapes in the same way that engineering drawings have in the past. It is used in the metalworking industry to display component parts, to illustrate size and shape, to show possible relationships to other parts, and to indicate component deformation under specified loads. After the design has been completed, the engineer can examine many different views or sections of the part and finally send it to a plotter to prepare drawings. This capability greatly reduces engineering time and avoids routine mistakes made in analysis and drawing. It significantly increases productivity and reduces design time, which allows faster delivery.
Applications of CAD systems are not limited to producing goods. While it is true that services do not have
physical dimensions, the equipment and facilities used to produce services do. For example, the service stalls in an automotive center or rooms in an emergency medical center have physical characteristics that can be represented by the interactive graphics capabilities of a CAD system.
LEGAL AND ETHICAL ISSUES IN PRODUCT DESIGN
What is the responsibility of an organization and its managers to see that the goods and services they produce do not harm consumers? Legally, it is very clear that organizations are responsible for the design and safe use of their products. Consumers who believe they have been damaged by a poorly designed good or service have legal recourse under both civil and criminal statutes. Often, however, only the most serious and obvious offenses are settled in this way.
More difficult ethical issues in product design result when the evidence is not as clear. For example, what responsibilities does a power tool manufacturer have with respect to product safety? Does a power saw manufacturer have the responsibility to design its product so that it is difficult for a child to operate? Suppose a parent is using a power saw and is called away to the telephone for a few minutes. A ten-year-old may wander over, press the trigger, and be seriously injured. Designing the saw so it has a simple and inexpensive lockout switch that would have to be pressed simultaneously when the trigger is pressed would make it more difficult for the accident to happen. What is the responsibility of the parent? What is the responsibility of the company?
PRODUCT DESIGN AND THE ENVIRONMENT
Organizations consider product design a critical activity to the production of environmentally-friendly products. Organizations increasingly recognize that being good corporate citizens increases sales. Fast-food restaurants have begun recycling programs and redesigned packaging materials and systems in response to customer concerns. In other cases, being a good corporate citizen and protecting a company's renewable resources go well together; there are win-win opportunities where an organization can actually design products and processes that cut costs and increase profits by recapturing pollutants and reducing solid waste.
By the late 2000s many firms had adopted environmentally-friendly and -responsible mission statements. Hewlett-Packard's statement is typical: “Our policy is to design products and services that are environmentally sound and safe throughout their life cycle.” This significantly impacts the product-design process, as Apple's statement indicates: “Apple strongly believes that reducing the environmental impact of our business starts with the design of our products. We set high standards—based on our own requirements and those set by programs such as ENERGY STAR—in an effort to create products that offer excellent environmental performance throughout their life cycle.” These efforts have spread throughout the corporate community quite rapidly and are a common feature of the product design process in the twenty-first century.
OVERVIEW OF PRODUCT DESIGN PROCESS
Product design time can be reduced by using a team approach and the early involvement of key participants including marketing, research and development, engineering, operations, and suppliers. Early involvement is an approach to managing people and processes. It involves an upstream investment in time that facilitates the identification and solution of downstream problems that would otherwise increase product design and production costs, decrease quality, and delay product introduction.
Time-based competitors are discovering that reducing product design time improves the productivity of product design teams. To reduce time, firms are reorganizing product design from an “over-the-wall” process to a team-based concurrent process. Over-the-wall means to proceed sequentially with the limited exchange of information and ideas. When this approach is used, problems are often discovered late because late-stage participants are excluded from decisions made early in the process. As a result, poor decisions are often made.
Product design is a labor-intensive process that requires the contribution of highly trained specialists. By using teams of specialists, communications are enhanced, wait time between decisions is reduced, and productivity is improved. Participants in this team-based process make better decisions faster because they are building a shared knowledge base that enhances learning and eases decision-making. By sharing development activities, design decisions that involve interdependencies between functional specialists can be made more quickly and more effectively. This reorganized process creates a timely response to customer needs, a more cost-effective product design process, and higher-quality products at an affordable price.
There are several reasons why early involvement and concurrent activities bring about these improvements. First, product design shifts from sequential—with feedback loops that occur whenever a problem is encountered—to concurrent, where problems are recognized early and resolved. The ability to overlap activities reduces product design time. Second, when a team of functional specialists works concurrently on product design, the participants learn from each other and their knowledge base expands. People are better able to anticipate conflicts and can more easily arrive
at solutions. As a result, the time it takes to complete an activity should decline. Third, fewer changes later in the process results in faster and less expensive product design. When problems are discovered late, they take more time and money to solve.
Product design requires the expertise and decision-making skills of all parts of the organization. Marketing, engineering, operations, finance, accounting, and information systems all have important roles. Marketing's role is to evaluate consumer needs, determine potential impact of competitive pressure, and measure the external environment. Engineering's role is to shape the product through design, determine the process by which the product will be made, and consider the interface between the product and the people. Operations' role is to ensure that the product can be produced in full-scale production. Finance's role is to develop plans for raising the capital to support the product in full-scale production and to assist in the evaluation of the product's profit potential. Accounting and information systems provide access to information for decision-making. Cross-functional team-work and knowledge sharing are thus keys to success.
SEE ALSO Computer-Aided Design and Manufacturing; Pricing Policy and Strategy; Product Life Cycle and Industry Life Cycle; Product-Process Matrix; Quality and Total Quality Management; Reverse Supply Chain Logistics; Supply Chain Management
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New Product Development
New Product Development
TYPES AND SOURCES OF NEW PRODUCTS
NEW PRODUCT DEVELOPMENT PROCESS
FACTORS INFLUENCING NEW PRODUCT DEVELOPMENT
CONSUMERS AND NEW PRODUCT DEVELOPMENT
IMPROVING SPEED, EFFICIENCY, AND QUALITY
The dynamics of markets, technology, and competition have brought changes to virtually every market sector and have made new product development one of the most powerful business activities. The monumental changes that constantly impact commerce have forced companies to innovate with an increasing amount of speed, efficiency,
and quality. In turn, this has made new product development one of the most complex and difficult business functions. However, firms must innovate in order to survive. The power of innovation is revealed in numerous studies, which show that companies leading their industries attribute about half of their revenues to products developed in the most recent five years. By comparison, companies at the bottom of their industries achieve approximately one-tenth of their sales from new products.
In a larger sense, new product development can be seen as a facet of “creative destruction.” Companies that fail to innovate will eventually be toppled by those that do.
A firm's new product development efforts are shaped by its size, as well as the nature of the industry in which it operates. New products may be defined as any product, service, or idea not currently made or marketed by a company, or which the consumer may perceive as new. Many types of new products exist, from never-seen-before products like Apple's personal communicator, to repositioned standards like Sears's shift to Sears Brand Central. Various studies suggest that between 50 and 80 percent of new products fail—the greater the rate of new product development, the higher the failure rate. New Product News predicts that more than 36,000 new products will be brought to market in 2005. Although there are numerous reasons why new products fail, faulty management and planning are at the core of most failures. Therefore, managing the new product development process is a key to a healthy organization.
Ford Motor Company provides the classic cautionary tale for new product development. After numerous attempts, Ford found success with its Model T in the early twentieth century. The Model T was reliable, and Ford nearly perfected the production process (so much so that “Fordism” became the model for production for much of the twentieth century). Through this production process, Ford was able to produce a reliable product as well as reduce production costs, allowing the company to offer the Model T at increasingly lower cost.
However, during this time the company did not offer any new products, focusing completely on the Model T. This left an opening for Ford's competitors; notably, General Motors was able to segment the automobile market in the United States by offering a range of makes and models. Furthermore, General Motors (under the leadership of Alfred P. Sloan) introduced annual model changes, in effect making new product development a large part of its overall strategy. As a result, Ford lost its vaunted position, and was forced to introduce newer products in the 1920s.
New product development became key following World War II. After experiencing wartime shortages of goods, Americans were eager to buy the many new products manufactured during the post-war era. Engineers, who were more product-oriented than consumer-oriented, designed new products that might or might not find places in consumers' hearts and minds. This was a product-oriented process in which the market was considered the receptacle for products that emerged from the firm's research and development efforts. This is known as the product-oriented or technology-pushed stage.
However, competition escalated and consumers became more skeptical and selective about the types of products they purchased. Marketers found it increasingly difficult to rely on persuasive sales techniques to move products. Retailers grew restless when these products did not move off shelves as quickly as planned. Companies had to know more about their target markets. What were the wants and needs of the people who were buying their products? How could their firm satisfy these wants and needs?
The second stage was marked by the emergence of the market as the driver of innovation. Instead of being technology-driven, new product development evolved into a market-led process in which new products emerged from well-researched customer needs. The new product development process was placed in the hands of marketers who knew consumers' wants and needs. Customer demand “pulled” the product through the development process.
Modern new product development is a blending of these two orientations into a “dual-drive” approach to innovation. Companies recognize that innovation is a complex process that requires sound investment in research and development, as well as significant marketing expertise that focuses on satisfying consumers' wants and needs.
The rapid pace of change that engulfed businesses toward the end of the twentieth century put an even greater burden on companies to build adaptive capabilities into their organizations. Global competition means there are more competitors capable of world-class performance. This has made competition more intense, rigorous, and aggressive than ever before. Fragmenting and more sophisticated markets mean that consumers demand more from products in terms of quality, differentiation, and “meaningfulness.”
New technologies have had two important outcomes in regards to innovation. First, new technologies are responsible for this new market sophistication in which consumers have more choices and are thus more demanding. Secondly, new technology has increased manufacturers' capabilities for rapid response to shifting market needs.
Finally, product life cycles have become more compressed as the skills required for developing new products increase in complexity. For example, consider the development of a new type of computer software. The expertise needed to develop the software from conception to commercialization might take years. The product's life cycle in such a competitive and turbulent environment might last only a few months. Therefore, companies have embraced the view that new products are transient, whereas the skills and expertise needed to develop these products are a much more persistent requirement for success. Instead of the mono-approach, in which technology or markets drive innovation, new product development now requires a convergence of technology, marketing, product design, engineering, and manufacturing capabilities. Speed, efficiency, and quality in product development are the challenges that new product development faces in today's intense competitive environment.
There are five categories of new products. New-to-the-world products or services are new inventions like in-line skates and health maintenance organizations. New category entries, such as sport utility vehicles, are products or services that are new to a firm. Additions to product lines add products or services to a firm's current markets. For example, when a powder laundry detergent offers a liquid version, it is considered a line extension. Product improvements are another type of new product and are common to every product category. Repositionings target products to new markets or for new uses.
Firms also employ what is known as “planned obsolescence.” Here, a firm plans a specific shelf-life for a product. The concept was described in 1959 by the author Vance Packard in The Waste Makers. In high-technology markets, this term can sometimes refer to the idea of updating and improving a product. While the product might not be functionally obsolete, like earlier instances of planned obsolescence, the updated product will constitute a dramatic improvement over the old one.
Firms can obtain new products internally or externally. External sourcing means the company acquires the product or service, or obtains the rights to market the product or service, from another organization. Internal development means the firm develops the new product itself. This is riskier than external development because the company bears all of the costs associated with new product development and implementation. Collaborations, which include strategic partnerships, strategic alliances, joint ventures, and licensing agreements, occur when two or more firms work together on developing new products.
Historically, the new product development process has been conceived in discrete terms with a beginning and an end. Different companies and different industries may alter this seven-step process for different products, or the steps themselves may become blurred as companies become engaged in several stages at the same time.
The process begins with idea generation. For every successful new product, many new product ideas are conceived and discarded. Therefore, companies usually generate a large number of ideas from which successful new products emerge.
Idea screening, the second step, considers all new product ideas in the idea pool and eliminates ones that are perceived to be the least likely to succeed. Not only should the firm's manufacturing, technology, and marketing capabilities be evaluated at this stage, but also how the new idea fits with the company's vision and strategic objectives.
The third stage, concept development and testing, requires formal evaluations of the product concept by consumers, usually through some form of marketing research. New product ideas with low-concept test scores are discarded or revised. While the Internet is making it easier to gather consumer data, there are limitations. As people get deluged with an increasing number of surveys and solicitations, it is possible that they will grow tired of helping marketers.
The business analysis stage is next. At this point the new product idea is analyzed for its marketability and costs. After passing the first three stages an idea may be discarded once marketing and manufacturing costs are analyzed, due to limited potential for profitability or commercial success. Throughout these four stages, the new idea has remained on paper requiring relatively small investment.
The fifth stage, prototype development, is the first stage where new product costs begin to escalate. Because of this, many companies have placed greater emphasis on the first four stages and reduced the proportion of new products that reach the prototype stage from about 50 percent to around 20 percent. At this stage the concept is converted into an actual product. A customer value perspective during this phase means the product is designed to satisfy the needs expressed by consumers. Firms may use quality function deployment (QFD) as they develop the prototype. QFD links specific consumer requirements such as versatility, durability, and low maintenance with specific product characteristics (for example, adjustable
shelves, a door-mounted ice and water dispenser, and touch controls for a refrigerator). The customer value perspective requires the new product to satisfy customer needs and meet desired quality levels at specified production costs.
Test marketing tests the prototype and marketing strategy in simulated or actual market situations. Because of the expense and risks associated with actual test markets, marketers use them with caution. Products that test poorly are pulled back and reconceptualized or discarded.
Commercialization, the final stage, is when the product is introduced full scale to the marketplace. The level of investment and risk are highest at this stage. Consumer adoption rates, timing decisions for introduction, and coordinating efforts with production, distribution, and marketing should be considered.
The seven-step process assumes a definite beginning and end. However, studies suggest that what goes on before and after new products are introduced is as important as the process itself. Organizational structure, leadership, and team building influence the speed and efficiency with which new products are introduced. Structure influences efficiency, autonomy, and coordination. New product innovation requires structure that optimizes direction and guidance. Structure that facilitates internal information exchange, decision-making, and material flow is essential. A “fast-cycle” structure allows more time for planning and implementing activities to gain competitive advantage. This type of structure also cuts costs because production materials and information collect less overhead and do not accumulate as work-in-process inventory.
Autonomy refers to the amount of decision-making allowed at lower levels of management. The coordination of the engineering, product design, manufacturing, and marketing is vital in the new product development process.
Leadership influences strategy, culture, and the firm's overall ability to undertake new product development. Top management can demonstrate involvement in the development process by providing career advancement for entrepreneurial skills and encouraging broad employee participation. Clarity and vision are crucial to ensuring that new product ideas are good strategic fits for the company. The degree to which leadership allows trial and error and promotes individual initiative positively influences the development of new products. This acceptance of risk and support for an entrepreneurial spirit within the organization are crucial in order for innovation to flourish. New products emerge in a variety of ways and their development does not always proceed in rational and consistent manners. It is necessary for leadership to view the process as iterative and dynamic, and to foster adaptation and flexibility. Management flexibility and responsiveness to change also are needed. This type of leadership is particularly important to the project manager who must coordinate and integrate the various parts of the new product development process so that a coherent system emerges that produces a product with compelling value. Initiative encourages creativity and problem-solving skills.
Teams provide mechanisms for breaking down functional biases created by a strict adherence to structure. The amount of interdepartmental conflict in the organization, the social cohesion among team members, and the frequency and directionality of interdepartmental communication influence team building. Through shared understanding of the objectives and purposes of the project, as well as the tasks required in the development process, teams can shape the project and influence how work gets done in the organization.
In many ways, consumers have played an active role in new product development. The business historian Regina Lee Blaszczyk has shown that as early as the eighteenth century, companies and manufacturers have had to learn what it is consumers wanted from a product. By simply rejecting or purchasing a product, consumers play a vital role in the production process. As the twentieth century progressed, companies developed ways to discover consumer tastes and used this information in product design.
The rise of software in the late twentieth century provided an even greater role for the consumer in new product development. Kevin Kelley has noted that releasing beta versions and open source software for free can aid in product development. Savvy potential users will find and fix bugs in the product. GNU/Linux is a well-known example of software that has been developed using an open-source method.
Though open-source software has sometimes been seen as the province of hobbyists and computer programmers, open-source strategies can be used in other types of product development. Advanced Micro Devices (AMD) is one example. In 2007 AMD switched to an open-source graphics driver, a move that made its customers an essential part of the development process.
New products often fail because of unanticipated market shifts that result in missed opportunities and misused channels of distribution. Failures also occur because companies miscalculate their own technological strengths or the product's technological challenges. These potential problems often crop up in the latter stages and result in delays, redesigns, or poor quality products.
Companies are constantly seeking ways to avoid these pitfalls. One solution is new product development maps that chart the evolution of a company's product lines. This historical perspective helps the firm to identify and analyze functional capabilities in a systematic, repetitive fashion that allows for the development of linkages and the identification of resources for new endeavors. These maps can direct the firm to new market opportunities and point out technological challenges.
Aggregate plans for projects offer another solution. Rather than viewing each new product development project individually, they consider all of the new product development projects under consideration by the firm. This is particularly important in firms with hundreds of new product development projects going on at the same time. Projects are categorized according to resources required and contribution to the firm's bottom line. Aggregate project plans enable management to improve the handling of new product development by providing greater control over resource allocation and utilization. These plans help to point out where capabilities need to be improved, how sequencing projects may help, and how projects fit with the firm's development strategies.
Return maps graphically represent the contributions of all team members to product success in terms of time and money. Their focus is on the point at which product sales generate sufficient profit so that the firm's initial investment in development is returned. Return maps show team members the time and money needed to complete their tasks in the development process so that they may estimate and re-estimate their investment in the
process. In doing this return maps illustrate the impact of their actions on the project's overall success.
Another way to improve the speed and efficiency with which new products are introduced is to involve purchasing in the development process. When purchasing expertise is introduced into the development project team, quality may increase, time to market entry may decrease, investment in inventory may diminish, and costs may significantly decrease.
Technology continues to change and create new opportunities and threats. Customer requirements and expectations continue to shift and create new demands. Old channels of distribution are becoming obsolete and new channels are opening new opportunities. Some competitors are falling by the wayside while others are surging to the forefront by making new and unexpected moves to gain advantage. The very structure of industry is changing. A key to success in this tumultuous environment will continue to be the ability to sustain a competitive advantage through innovation. However, speed, efficiency, and quality in product development will be paramount. Building capabilities in all aspects of product creation and implementation, overcoming uncertainty and facilitating decision-making, ensuring these innovations are strategically linked to the firm's vision, and doing this on a continuous basis is the challenge of new product development in the next century.
SEE ALSO Innovation; Product Design; Product Life Cycle and Industry Life Cycle
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"New Product Development." Encyclopedia of Management. . Encyclopedia.com. (April 27, 2017). http://www.encyclopedia.com/management/encyclopedias-almanacs-transcripts-and-maps/new-product-development
"New Product Development." Encyclopedia of Management. . Retrieved April 27, 2017 from Encyclopedia.com: http://www.encyclopedia.com/management/encyclopedias-almanacs-transcripts-and-maps/new-product-development
Product development may be understood generically as all the things that happen from the initial conception or invention of a product to the point when a product is launched into the market. It can also be understood as a method, a discipline, and a formal process followed by a company as it does the same thing. In the modern business literature, the authors typically mean the latter, a "corporate process," and they are typically talking about the undertakings of large corporations in which equally massive teams are involved. As a formalized process with distinct aspects, product development can be disassembled for analysis, discussion, and comment. In actual experience, and especially in the small business environment, product development tends to be many other things; the process is likely to be more creative and hence also chaotic; the activity may be carried by a single individual or a small team. Small businesses rarely have new product managers or departments, and this activity is closer to invention than to engineering and more likely to be led by a charismatic figure—Thomas Edison comes to mind in technical invention or Gabrielle "Coco" Chanel in fashion design.
CONTEXT AND HISTORY
Product development is closely tied to creativity, invention, and insight—and follows the flash of an idea. Thus what we nowadays call a knife was the consequence of some prehistoric human's insight that a flat stone with one sharp edge could cut: the rest was product development.
According to Michael McGrath (in Next Generation Product Development ) conscious focus on the development process began late in the 19th century. McGrath divides the time since then into "generations" of product development emphasis. In the first, ending in the 1950s, the focus was on commercialization of inventions; in the second, formalization of product development as a process began, and this emphasis lasted until the 1980s. In the third "generation" of product development, corporate management focused on getting product to market faster. In the 21st century, according to McGrath, emphasis had shifted to R&D-based development.
McGrath, of course, was talking about trends and emphases as taking place in big-corporation culture and as illustrated by waves of products reaching the market—the vast majority of which were modified or adapted products rather than radical inventions. But the most dramatic and revolutionary product introduction of the latter-half of the 20th century did not obey the rules. It was the personal computer, slapped together by an inspired technical man, Steve Wozniak, and sold by a visionary entrepreneur, Steve Jobs. The product was the Apple computer, and the product development process consisted of the two Steves agonizing together in a garage. They didn't even intend to sell computers—just mother boards. They "evolved" the product by trial and error.
The many other inventions that burst on the market as the U.S. and then the world embraced small computers again illustrated (if proof was needed) the unruly nature of the creative process. It cannot be reduced to a recipe, algorithm, or bureaucratic procedure. All types of approaches to product development continue to exist side-by-side. As in gambling, no "system" guarantees success.
Product development is an iterative fusion of different disciplines in order to meet a specific goal. The disciplines are design, engineering, manufacturing, distribution, market positioning, marketing, distribution, and sales. A company developing a product must envision every stage of the process from the final perspective, that of the ultimate buyer, backward, and then from the design forward. Thus the process can readily become repetitive.
For example, initial estimates are made using prototypes; the prototypes are used to envision manufacturing processes and to establish a price range based on estimated production cost. But exposure of the prototypes to customers may elicit suggestions for improvement and negative reactions to features; sometimes suggestions come from dealers or retailers. Market research will often unearth reactions to competing products—or even their unsuspected presence. After this early exposure, flaws must be removed, advantages exploited, competitive challenges met. Redesign, reengineering, and new production estimates may be required. Iteration can also come later as problems are encountered. Some element of the product may be too costly to produce and the problem can only be overcome by changing the product. If the change is substantial enough, talking to customers becomes necessary again.
How much iteration is sensible? The answer depends on the ultimate size of the market and the projected product life. The resources of the company are also an issue. Most small businesses can only afford limited market research. The natural substitute is to consult the intuitive reactions of family and friends—in effect to use a much smaller sample than a global company would.
Product development is typically led by a product manager assisted by a small team representing basic specialties: engineering, manufacturing, marketing, and finance. It is the responsibility of the team to interact effectively with their counterpart in the company in order to obtain services, estimates, and feedback.
PLANNING VERSUS CREATIVITY
In product development, there tends to be a see-saw movement between formality and process and openness and innovation. This is illustrated by comments from two books on the subject. The first comes from a book by Edward K. Bower entitled Specification-Driven Product Development. Bower said: "Small companies typically conduct their development programs in an informal, hit-or-miss fashion, intuitively managing the process on a day-by-day basis. After agreement has been reached on the general nature of the desired new product, its design begins. The detailed features of the product evolve as side effects of implementation decisions. As market considerations are discovered, changes are made to the product's goals, leading to redesign. This unpredictable process leads to schedule and budget overruns, and produces products whose structure wasn't coherently planned, but evolved as requirements changed."
The second comments come from David M. Anderson's book, Design for Manufacturability & Concurrent Engineering. Anderson wrote: "For creative product development, start with a creative, open-minded, receptive team that is stimulated by the challenge. The team should be diverse in knowledge as well as cultural and thinking styles. The team should be fired up…. Creativity is enhanced when people really want to invent something…. Do not start creative product development discussing administrative issues…. This will immediately stifle creativity and shift attention to meeting deadlines and budgets."
The two quotes, although seemingly emphasizing opposite tendencies, actually both quite accurately highlight important aspects of product development. It requires the right mix of disciplined implementation and yet adaptive openness. Existing systems must be used to create a new product. This must happen as rapidly and as inexpensively as possible. Concentrated attention to process and detail and openness to possibilities are both necessary for success.
NEW PRODUCT DEVELOPMENT FOR SMALL COMPANIES
As business experts, analysts, executives, and entrepreneurs all know, there is no one way to organize a company for effective new product development. Nonetheless, analysts point to several factors fairly universal in determining whether a business will enjoy measurable success in new product development efforts. These include comprehensive market and cost analysis, top management commitment, enthusiasm among workers, clear lines of authority, and past experience. Concentration, funding, and leadership are key legs that hold up the structure.
Concentration. First, a small business needs to focus on its goals. Limited time and resources mean that hard decisions must be made and a strategic plan needs to be developed. Companies should "do the right things right" by using the best information available to choose the right technologies and decide on what new products to invest in. Growing companies are easily tempted to do too many things at once and finish none. Companies needing diversification are tempted to repeat the customary and therefore never establish that "second front" they need. Concentration on the goal will help keep the focus clearly on a well-thought out plan.
Funding. Another key to new product development for small businesses is to secure the resources and skills needed to create and market the new product. Small companies may lack the in-house resources needed to create a new product, making it seem out of reach, but analysts note that small business owners have other avenues that they can often pursue. If the product idea is good enough, the company may decide to look outside its own walls for partnership and outsourcing opportunities. Sometimes "funding" takes the form of assigning a highly talented person who knows the company well to the "new venture" though he or she will be sorely missed in his or her leadership position.
Leadership. The third and final pillar for building new products is to find the leadership needed to bring a new product from the idea stage to completed product. This leader will often take the form of a "product champion" who can bring both expertise and enthusiasm to the project. (In small business environments, this product champion will often be the entrepreneur/owner himself.) A strong product champion will be able to balance all the issues associated with a product—economic factors, performance requirements, regulatory issues, management issues, and more—and create a winning new product.
The product champion has to guide the project through a predetermined series of viability tests—checkpoints in the development process at which a company evaluates a new product to determine if the product should proceed to the next development stage. If it is determined that the market has shifted, or technology has changed, or the project has become too expensive, then the product must be killed, no matter how much money has already been poured into it. This is where a strong product champion makes the difference—he or she has to have the honesty and authority to make the call to kill the product and convey the reasons for that decision to the product development team. If goals were clearly defined, resources properly allocated, and leadership was strong, then the decision to kill a project should not be a difficult one.
LAUNCHING A NEW PRODUCT
Once the product-line architecture has been established and a new product is being developed, it is time for a company to think about how to successfully launch the product in its target market. This is the stage where an advertising or public relations agency can come into play, especially for small businesses without the internal resources to handle such a job themselves. When using an outside agency to launch a product, a company should:
- Have a well-defined product concept (which is where product-line architecture comes into play).
- Provide the agency with background information on its products and goals.
- Conduct necessary patent research, applying for new patents as needed.
- Have the manufacturing process in place and ready to go, either internally or via outsourcing.
- Have a formal business plan in place that defines funding of the project.
- Determine who will approve the marketing or advertising plan that the agency creates (the fewer people communicating with the agency, the better).
- Determine the proper timing for the launch.
SPEED-TO-MARKET AND PRODUCT DEVELOPMENT
In today's technology-fueled business environment, the always-important speed-to-market factor has become perhaps the most critical factor in new product development. Today, however, speed-to-market is perhaps the most crucial part of product development. Improved communication (especially the Internet), increased globalization, and rapid changes in technology have put tremendous pressure on companies to get their product to market first. To improve speed-to-market, a company should first make sure that it is making the best possible use of available technology. If it is, then there are other steps that can be taken to speed product development through efficient, market-oriented product planning that takes the customer into account:
SERVICE COMPANIES AND NEW PRODUCTS
Service companies should take a disciplined, analytical approach to developing new services, relying on targeted customer input just as companies outside the service sector do. Companies in the service industry know that they are competing for customers based on perceived value as much as actual price. If a customer feels he or she is getting better treatment, or more service options, or more "free" services as part of his or her purchase, he or she is more likely to remain a client of that company. If, however, a company stops innovating and adding new services to its core business, then the service becomes a commodity and clients look at only one thing—price—when deciding on what company to choose.
Service companies should routinely ask themselves a series of questions:
- Could current services be presented in a different way?
- Could they be offered to new customer groups?
- Are there little things that can be tweaked to freshen or update a service?
- Could services be improved or changed?
Because by their very nature services are easy to copy (no materials or product knowledge is needed), service companies actually face more pressure to innovate and develop new products than manufacturers. By continually asking the above questions and by following the same models manufacturing companies follow when pursuing product development, service companies can stay ahead of their competitors and make their services clearly identifiable to consumers.
PITFALLS TO PRODUCT DEVELOPMENT
Finally, when embarking on the product development process, try to remember in advance what the obstacles to success are. These pitfalls are many and varied, and can include:
- Inadequate market analysis.
- Inadequate cost analysis.
- Strong competitor reaction.
- Undue infatuation with your company's own technology and expertise.
- Overreaching to make products beyond your company's financial and knowledge grasp.
- Technical staff too attached to a project and too proud to admit defeat, even when a project can not be justified according to pre-established criteria.
- Problems with patent, license, or copyright issues.
- No real criteria for deciding if a project is good or bad.
- Changes in strategy at the corporate level are not conveyed to the product development team.
- Low product awareness.
- Money and staff allocated to a project are hidden in the budget of another project.
- Company decision-makers blinded by the charisma or charm of the person presenting the new product idea.
- Project accepted on the basis of who gets it first.
see also Prototypes
Anderson, David M. Design for Manufacturability & Concurrent Engineering. CIM Press, 2004.
Bower, Edward K. Specification-Driven Product Development. iUniverse, 2003.
Brandt, John R. "Our New-Product Plan: Keep Out: Involving customers and others is a pain. So is worrying about manufacturability and marketing." Industry Week. January 2006.
Kanellos, Michael. "The 64-bit Question: Why is no one buying?" Computer Shopper. May 2006.
McGrath, Michael. Next Generation Product Development. McGraw-Hill, 2004.
Teresko, John. "New Products Faster." Industry Week. January 2004.
"Who's Who: The Eco-Guide." Time. Summer 2006.
"The World's Most Innovative Companies: Their creativity goes beyond products to rewiring themselves." Business Week. 24 April 2006.
Hillstrom, Northern Lights
updated by Magee, ECDI
"Product Development." Encyclopedia of Small Business. . Encyclopedia.com. (April 27, 2017). http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/product-development
"Product Development." Encyclopedia of Small Business. . Retrieved April 27, 2017 from Encyclopedia.com: http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/product-development