MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS

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MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS

• Rajshree Agarwal

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Agenda

• What are the objectives of the new product
  development process?
• What are the different stages in new product
  development?
• What are some ways to increase the efficiency of
  the NPD process?
• How might NPD differ over the different stages of
  the industry life-cycle?

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Some dismal facts

• Despite the intense attention paid to innovation,
  failure rates are still very high.
• More than 95 of new product development projects
  fail to earn an economic return.

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The objectives of NPD

• Maximize fit with customer requirements
• Value proposition should be clear
• Better features or lower costs
• Minimize development cycle time
• First mover advantages
• Reduced costs and risk of preemption
• Controlling development costs
• To make profits, costs of development cannot
  exceed potential revenues!
• Higher margins

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The NPD Process
4. Development
5. Test marketing
6. Commercialization
3. Business Analysis
2. Idea Screening
1. Idea Generation
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Where do ideas come from?

• Employees
• Customers (users)
• Suppliers
• Competitors/Complementors
• Ideas often evolve due to interaction among the
  above groups

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NPD Process
4. Development
5. Test marketing
6. Commercialization
3. Business Analysis
2. Idea Screening
1. Idea Generation
Employees, customers, suppliers, competitors
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NPD Process
4. Development
5. Test marketing
6. Commercialization
3. Business Analysis
2. Idea Screening
Reduce quickly
1. Idea Generation
Many -- employees, customers, suppliers,
distributors, competitors
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Back to decision making under uncertainty

• At early stages of idea development, significant
  uncertainty about potential success
• Use of both qualitative and quantitative methods
  are important
• Qualitative methods may help yield insights,
  while quantitative methods validate
• Strategic, Financial, and Customer focus
• All three need to be examined

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NPD Process
4. Development
5. Test marketing
6. Commercialization
3. Business Analysis
S/F/C criteria decision making under uncertainty
2. Idea Screening
Reduce quickly
1. Idea Generation
Many -- employees, customers, suppliers,
distributors, competitors
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Sequential versus Party Parallel Development
Processes

• Before mid-1990s, most US companies used
  sequential NPD process now many use partly
  parallel process.
• Partly parallel process shortens overall
  development time, and enables closer coordination
  between stages.
• In some situations, however, a parallel
  development process can increase risks.

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Real optionsuse of stage gate process

• Utilize tough go/kill decision points in the
  development process help filter out bad projects.

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NPD Process
4. Development
5. Test marketing
Processes for reducing costs
6. Commercialization
3. Business Analysis
S/F/C criteria decision making under uncertainty
2. Idea Screening
Reduce quickly
1. Idea Generation
Many -- employees, customers, suppliers,
distributors, competitors
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Test Marketing
Standard Test Market
Costs Brand Equity -Jamming -Duplication
Introduction in a small market supported by a
full-fledged marketing campaign
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NPD Process
Experiment with small numbers
4. Development
5. Test marketing
Processes for reducing costs
6. Commercialization
3. Business Analysis
Launch new product!!
S/F/C criteria decision making under uncertainty
2. Idea Screening
Reduce quickly
1. Idea Generation
Many -- employees, customers, suppliers,
distributors, competitors
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Product Life Cycles
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Introduction Stage of the PLC
Summary of Characteristics, Objectives,
Strategies
Sales
Low sales
Costs
High cost per customer
Profits
Negative or low
Innovtn Objectives
Build product awareness stimulate trial
primary demand
Product vs process
Offer a basic product mainly product
Price
Usually is high
Distribution
High distribution expenses
Promotion
Build product awareness among early adopters
thro mass-media
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Growth Stage of the PLC
Summary of Characteristics, Objectives,
Strategies
Sales
Rapidly rising sales
Costs
Decreasing cost per customer relative to intro
stage
Profits
Rising profits - Highest
Maximize sales
Innovtn Objectives
Both product and process
Product vs. process
Price
Lower price (relative to intro stage)
Distribution
Increase number of distribution outlets
Promotion
Mass market advertising word of mouth from
adopters in the intro stage.
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Maturity Stage of the PLC
Summary of Characteristics, Objectives,
Strategies
Sales
Peak sales (growth slows, levels off)
Costs
Low cost per customer
Profits
Decreasing profits
Defending market share
Innovtn Objectives
Product vs. process
Diversify brand (many line extensions) More
usage More uses
Price
Lower price to match or best competitors
Build more intensive distribution
Distribution
Promotion
Stress brand differences and benefits Sales
promotions
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Some misconceptions about product life cycles

• At the level of the category and not the brand
  Cell phones not CINGULAR wireless.
• Different products go through the stages
  differently.
• Timing of stages may vary substantially.

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Tools for Measuring New Product Development
Performance

• Measuring performance of NPD process can help
  company improve its innovation strategy and
  process.
• Measures of NPD performance can help management
• identify which projects met their goals and why,
• benchmark the organizations performance compared
  to that of competitors, or to the organizations
  own prior performance,
• improve resource allocation and employee
  compensation, and
• refine future innovation strategies
• Important to use multiple measures to provide
  fair representation

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Some yardsticks of overall innovation performance

• What is the firms return on innovation?
• ratio of the firms total profits from new
  products to total costs (including RD costs, the
  costs of retooling and staffing production
  facilities, and initial commercialization and
  marketing costs.) 
• What is the percentage of projects that achieve
  their sales goals?
• What percentage of revenues are generated by
  products developed within the last five years?
• What is the firms ratio of successful projects
  to its total project portfolio?

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Key Takeaways

• New product development is risky, but can provide
  high returns
• Not engaging in NPD will surely result in failure
• Managing the various stages of the NPD process is
  critical
• NPD projects should be cognizant of the industry
  life cycle
• NPD initiatives should be evaluated using
  multiple yardsticks