MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS

Rajshree Agarwal

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?

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.

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 To make profits, costs of development cannot exceed potential revenues! Higher margins
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Controlling development costs

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

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 All three need to be examined
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Strategic, Financial, and Customer focus

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. parallel process shortens overall development time, and enables closer coordination between stages.

Partly

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

Processes for reducing costs

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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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
4. Development
Experiment with small numbers

Processes for reducing costs

5. Test marketing
6. Commercialization
Launch new product!!

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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Product Life Cycles

Introduction

Growth

Maturity

Decline Industry Sales

Dollars

Industry Profits

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Time

Introduction Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Costs Profits Innovtn Objectives Product vs process Price Distribution Promotion
Low sales High cost per customer Negative or low Build product awareness & stimulate trial primary demand Offer a basic product; mainly product Usually is high High distribution expenses Build product awareness among early adopters thro mass-media
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Growth Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Costs Profits
Innovtn Objectives Rapidly rising sales Decreasing cost per customer relative to intro stage Rising profits - Highest Maximize sales Both product and process Lower price (relative to intro stage) Increase number of distribution outlets Mass market advertising & word of mouth from adopters in the intro stage.
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Product vs. process

Price
Distribution Promotion

Maturity Stage of the PLC

Summary of Characteristics, Objectives, & Strategies
Sales Costs Profits
Innovtn Objectives Peak sales (growth slows, levels off) Low cost per customer Decreasing profits Defending market share

Product vs. process Price Distribution Promotion

Diversify brand (many line extensions); More usage; More uses

Lower price to match or best competitors Build more intensive distribution 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
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Important to use multiple measures to provide fair representation

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 R&D 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

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