New product development
In business and engineering, new product development (NPD) is the complete process of bringing a new product to market. New product development is described in the literature as the transformation of a market opportunity into a product available for sale and it can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief). A good understanding of customer needs and wants, the competitive environment and the nature of the market represent the top required factors for the success of a new product. Cost, time and quality are the main variables that drive the customer needs. Aimed at these three variables, companies develop continuous practices and strategies to better satisfy the customer requirements and increase their market share by a regular development of new products. There are many uncertainties and challenges throughout the process which companies must face. The use of best practices and the elimination of barriers to communication are the main concerns for the management of NPD process.
The product development process typically consists of several activities that firms employ in the complex process of delivering new products to the market. Every new product will pass through a series of stages from ideation through design, manufacturing and market introduction. The development process basically has three main phases:
- Fuzzy front-end (FFE) is the set of activities employed before the formal and well defined requirements specification is completed. Requirements are a high-level view of what the product should do to meet the perceived market or business need.
- Product design is the development of both the high-level and detailed-level design of the product: which turns the what of the requirements into a specific how this particular product will meet those requirements. On the marketing and planning side, this phase ends at pre-commercialization analysis stage.
- Product implementation is the phase of detailed engineering design of mechanical or electrical hardware, or the software engineering of software or embedded software, or design of soft goods or other product forms, as well as of any test process that may be used to validate that the prototype objects actually meet the design specification and the requirements specification that was previously agreed to.
- Fuzzy back-end or commercialization phase represent the action steps where the production and market launch occur.
The front-end marketing phases have been very well researched, with valuable models proposed. Peter Koen et al. provides a five-step front-end activity called front-end innovation: opportunity identification, opportunity analysis, idea genesis, idea selection, and idea and technology development. He also includes an engine in the middle of the five front-end stages and the possible outside barriers that can influence the process outcome. The engine represents the management driving the activities described. The front end of the innovation is the greatest area of weakness in the NPD process. This is mainly because the FFE is often chaotic, unpredictable and unstructured. Engineering design is the process whereby a technical solution is developed iteratively to solve a given problem The design stage is very important because at this stage most of the product life cycle costs are engaged. Previous research shows that 70% - 80% of the final product quality and 70% of the product entire life-cycle cost are determined in the product design phase, therefore the design-manufacturing interface represent the greatest opportunity for cost reduction. Design projects last from a few weeks to three years with an average of one year. Design and Commercialization phases usually start a very early collaboration. When the concept design is finished it will be sent to manufacturing plant for prototyping, developing a Concurrent Engineering approach by implementing practices such as QFD, DFM/DFA and more. The output of the design (engineering) is a set of product and process specifications – mostly in the form of drawings, and the output of manufacturing is the product ready for sale. Basically, the design team will develop drawings with technical specifications representing the future product, and will send it to the manufacturing plant to be executed. Solving product/process fit problems is of high priority in information communication design because 90% of the development effort must be scrapped if any changes are made after the release to manufacturing.
New Product Development Models
Conceptual models have been designed in order to facilitate a smooth process. The concept adopted by IDEO, a successful design and consulting firm, is one of the most researched processes in regard to new product development and is a five-step procedure. These steps are listed in chronological order:
- Understand and observe the market, the client, the technology, and the limitations of the problem;
- Synthesize the information collected at the first step;
- Visualise new customers using the product;
- Prototype, evaluate and improve the concept;
- Implementation of design changes which are associated with more technologically advanced procedures and therefore this step will require more time.
One of the first developed models that today companies still use in the NPD process is the Booz, Allen and Hamilton (BAH) Model, published in 1982. This is the best known model because it underlies the NPD systems that have been put forward later. This model represent the foundation of all the other models that have been developed afterwards. Significant work has been conducted in order to propose better models, but in fact these models can be easily linked to BAH model. The seven steps of BAH model are: new product strategy, idea generation, screening and evaluation, business analysis, development, testing, and commercialization.
A pioneer of NPD research is Robert G. Cooper. Over the last two decades he conducted significant work in the area of NPD. The Stage-Gate model developed in the 1980s was proposed as a new tool for managing new products development processes. The 2010 APQC benchmarking study reveals that 88% of U.S. businesses employ a stage-gate system to manage new products, from idea to launch. In return, the companies that adopt this system are reported to receive benefits such as improved teamwork, shorter cycle time, improved success rates, earlier detection of failure, a better launch, and even shorter cycle times – reduced by about 30%. These findings highlight the importance of the stage-gate model in the area of new product development.
Over the last few years, the Lean Startup movement has grown in popularity, challenging many of the assumptions inherent in the stage-gate model.
There have been a number of approaches proposed for analyzing and responding to the marketing challenges of new product development. Two of these are the eight stages process of Koen and a process known as the fuzzy front end.
The eight stages
- Idea Generation is often called the "NPD" of the NPD process.
- Ideas for new products can be obtained from basic research using a SWOT analysis (Strengths, Weaknesses, Opportunities & Threats). Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features.
- Lots of ideas are generated about the new product. Out of these ideas many are implemented. The ideas are generated in many forms. Many reasons are responsible for generation of an idea.
- Idea for new product can come from many sources, such as customer, scientists, competitors, employees, channel member, and top management.
- customer need and wants are the logical place to start the search.
- Idea Generation or Brainstorming of new product, service, or store concepts - idea generation techniques can begin when you have done your OPPORTUNITY ANALYSIS to support your ideas in the Idea Screening Phase (shown in the next development step).
- Idea Screening
- The object is to eliminate unsound concepts prior to devoting resources to them.
- The screener should ask several questions:
- Will the customer in the target market benefit from the product?
- What is the size and growth forecasts of the market segment / target market?
- What is the current or expected competitive pressure for the product idea?
- What are the industry sales and market trends the product idea is based on?
- Is it technically feasible to manufacture the product?
- Will the product be profitable when manufactured and delivered to the customer at the target price?
- Idea Development and Testing
- Develop the marketing and engineering details
- Product Idea - It is an idea for a possible product that the company can see itself offering to the market.
- Product Concept - when idea is developed in every aspect so as to make it presentable, it is called a concept.
- Product Identity - It is the way business perceive an actual or potential product.
- Investigate intellectual property issues and search patent databases
- Who is the target market and who is the decision maker in the purchasing process?
- What product features must the product incorporate?
- What benefits will the product provide?
- How will consumers react to the product?
- How will the product be produced most cost effectively?
- Prove feasibility through virtual computer aided rendering and rapid prototyping
- What will it cost to produce it?
- Testing the Concept - Random people belonging to the target group are chosen to test the concept. Information is provided and questions are asked. Their answers and reactions are noted for further improvement of concept.
- Business Analysis
- Estimate likely selling price based upon competition and customer feedback
- Estimate sales volume based upon size of market and such tools as the Fourt-Woodlock equation
- Estimate profitability and break-even point
- Beta Testing and Market Testing
- Produce a physical prototype or mock-up
- Test the product (and its packaging) in typical usage situations
- Conduct focus group customer interviews or introduce at trade show
- Make adjustments where necessary
- Produce an initial run of the product and sell it in a test market area to determine customer acceptance
- Technical Implementation
- New program initiation
- Finalize Quality management system
- Resource estimation
- Requirement publication
- Publish technical communications such as data sheets
- Engineering operations planning
- Department scheduling
- Supplier collaboration
- Logistics plan
- Resource plan publication
- Program review and monitoring
- Contingencies - what-if planning
- Commercialization (often considered post-NPD)
- New Product Pricing
- Impact of new product on the entire product portfolio
- Value Analysis (internal & external)
- Competition and alternative competitive technologies
- Differing value segments (price, value and need)
- Product Costs (fixed & variable)
- Forecast of unit volumes, revenue, and profit
These steps may be iterated as needed. Some steps may be eliminated. To reduce the time that the NPD process takes, many companies are completing several steps at the same time (referred to as concurrent engineering or time to market). Most industry leaders see new product development as a proactive process where resources are allocated to identify market changes and seize upon new product opportunities before they occur (in contrast to a reactive strategy in which nothing is done until problems occur or the competitor introduces an innovation). Many industry leaders see new product development as an ongoing process (referred to as continuous development) in which the entire organization is always looking for opportunities.
For the more innovative products indicated on the diagram above, great amounts of uncertainty and change may exist which makes it difficult or impossible to plan the complete project before starting it. In this case, a more flexible approach may be advisable.
Because the NPD process typically requires both engineering and marketing expertise, cross-functional teams are a common way of organizing projects. The team is responsible for all aspects of the project, from initial idea generation to final commercialization, and they usually report to senior management (often to a vice president or Program Manager). In those industries where products are technically complex, development research is typically expensive and product life cycles are relatively short, strategic alliances among several organizations helps to spread the costs, provide access to a wider skill set and speeds up the overall process.
Because both engineering and marketing expertise are usually critical to the process, choosing an appropriate blend of the two is important. Observe (for example, by looking at the See also or References sections below) that this article is slanted more toward the marketing side. For more of an engineering slant, see the Ulrich and Eppinger, Ullman references below.
A new product pricing process is important to reduce risk and increase confidence in the pricing and marketing decisions to be made. Processes have been proposed to break down the complex task of new product pricing into more manageable elements.
Fuzzy Front End
The Fuzzy Front End (FFE) is the messy "getting started" period of new product engineering development processes. It is in the front end where the organization formulates a concept of the product to be developed and decides whether or not to invest resources in the further development of an idea. It is the phase between first consideration of an opportunity and when it is judged ready to enter the structured development process (Kim and Wilemon, 2007; Koen et al., 2001). It includes all activities from the search for new opportunities through the formation of a germ of an idea to the development of a precise concept. The Fuzzy Front End phase ends when an organization approves and begins formal development of the concept.
Although the Fuzzy Front End may not be an expensive part of product development, it can consume 50% of development time (see Chapter 3 of the Smith and Reinertsen reference below), and it is where major commitments are typically made involving time, money, and the product's nature, thus setting the course for the entire project and final end product. Consequently, this phase should be considered as an essential part of development rather than something that happens "before development," and its cycle time should be included in the total development cycle time.
- Opportunity Identification
- Opportunity Analysis
- Idea Genesis
- Idea Selection
- Idea and Technology Development
- The first element is the opportunity identification. In this element, large or incremental business and technological chances are identified in a more or less structured way. Using the guidelines established here, resources will eventually be allocated to new projects.... which then lead to a structured NPPD (New Product & Process Development) strategy.
- The second element is the opportunity analysis. It is done to translate the identified opportunities into implications for the business and technology specific context of the company. Here extensive efforts may be made to align ideas to target customer groups and do market studies and/or technical trials and research.
- The third element is the idea genesis, which is described as evolutionary and iterative process progressing from birth to maturation of the opportunity into a tangible idea. The process of the idea genesis can be made internally or come from outside inputs, e.g. a supplier offering a new material/technology or from a customer with an unusual request.
- The fourth element is the idea selection. Its purpose is to choose whether to pursue an idea by analyzing its potential business value.
- The fifth element is the idea and technology development. During this part of the front-end, the business case is developed based on estimates of the total available market, customer needs, investment requirements, competition analysis and project uncertainty. Some organizations consider this to be the first stage of the NPPD process (i.e., Stage 0).
The Fuzzy Front End is also described in literature as "Front End of Innovation", "Phase 0", "Stage 0" or "Pre-Project-Activities".
A universally acceptable definition for Fuzzy Front End or a dominant framework has not been developed so far. In a glossary of PDMA, it is mentioned that the Fuzzy Front End generally consists of three tasks: strategic planning, idea generation, and, especially, pre-technical evaluation. These activities are often chaotic, unpredictable, and unstructured. In comparison, the subsequent new product development process is typically structured, predictable, and formal. The term Fuzzy Front End was first popularized by Smith and Reinertsen (1991). R.G. Cooper (1988) describes the early stages of NPPD as a four-step process in which ideas are generated (I), subjected to a preliminary technical and market assessment (II) and merged to coherent product concepts (III) which are finally judged for their fit with existing product strategies and portfolios (IV).
- Technical assessment
- Source-of-supply assessment: suppliers and partners or alliances
- Market research: market size and segmentation analysis, VoC (voice of the customer) research
- Product idea testing
- Customer value assessment
- Product definition
- Business and financial analysis
These activities yield essential information to make a Go/No-Go to Development decision.
- product strategy formulation and communication
- opportunity identification and assessment
- idea generation
- product definition
- project planning
- executive reviews
Economical analysis, benchmarking of competitive products and modeling and prototyping are also important activities during the front-end activities. The outcomes of FFE are the:
- mission statement
- customer needs
- details of the selected idea
- product definition and specifications
- economic analysis of the product
- the development schedule
- project staffing and the budget
- a business plan aligned with corporate strategy
- Phase 1: Environmental screening or opportunity identification stage in which external changes will be analysed and translated into potential business opportunities.
- Phase 2: Preliminary definition of an idea or concept.
- Phase 3: Detailed product, project or service definition, and Business planning.
The gates are:
- Opportunity screening
- Idea evaluation
- Go/No-Go for development
The final gate leads to a dedicated new product development project. Many professionals and academics consider that the general features of Fuzzy Front End (fuzziness, ambiguity, and uncertainty) make it difficult to see the FFE as a structured process, but rather as a set of interdependent activities ( e.g. Kim and Wilemon, 2002). However, Husig et al., 2005  argue that front-end not need to be fuzzy, but can be handled in a structured manner. In fact Carbone showed that when using the front end success factors in an integrated process, product success is increased. Peter Koen argues that in the FFE for incremental, platform and radical projects, three separate strategies and processes are typically involved. The traditional Stage Gate (TM) process was designed for incremental product development, namely for a single product. The FFE for developing a new platform must start out with a strategic vision of where the company wants to develop products and this will lead to a family of products. Projects for breakthrough products start out with a similar strategic vision, but are associated with technologies which require new discoveries.
- Incremental products are considered to be cost reductions, improvements to existing product lines, additions to existing platforms and repositioning of existing products introduced in markets.
- Breakthrough products are new to the company or new to the world and offer a 5-10 times or greater improvement in performance combined with a 30-50% or greater reduction in costs.
- Platform products establish a basic architecture for a next generation product or process and are substantially larger in scope and resources than incremental projects.
- Product Development and Management Association (PDMA)
- Association of International Product Marketing & Management
- ISPIM (The International Society for Professional Innovation Management)
- Society of Concurrent Product Development (SCPD)
- Lean product development
- Design for six sigma
- Flexible product development
- Quality function deployment
- Phase–gate model
- User-centered design
Managing New Product Development
- CUSTOMER CENTERED New Product Development. Focuses on:
- Finding new ways to solve customer problems.
- Create more customer-satisfying experience
- Companies often rely on technology, but the real success comes from understanding customer needs and values.
- The most successful companies were the ones that:
- Differentiated from others
- Solved major customer problems
- Offered a compelling customer value proposition
- Engaged customer directly
- TEAM BASED New Product Development
- An approach:
- To deserving new products in which various company's departments work closely together overlapping the steps in the product development process in order to:
- Save time
- Increase effectiveness
- Company departments work closely together in cross functional teams overlapping the steps in the product development process (to save time and increase effectiveness).
- Those departments are: legal, marketing, finances, design and manufacturing, suppliers and customer companies.
- If there is a problem, all the company can work.
- SYSTEMATIC New Product Development
- Development process should be holistic (alternative) and systematic not to good ideas die.
- This process is installed on Innovation Management System that collect, review, evaluate new product ideas and manage
- the company appoints to a senior person to be the Innovation Manager who encourage all the company
- employees, suppliers, distributors and dealers to become involved in finding and developing new products.
- Then, there is a Cross-Functional Innovation Management Committee which:
- Evaluate new products ideas
- Help bringing good ideas
- To sum up, New-Product success requires:
- New ways to create valued customer experience, from generating and screening new product ideas to create and roll out want-satisfying products.
- New Product Development IN TURBULENT TIMES
- When we are in a tough economic situation usually management reduces spending on: new-product development. Usually it is done from a short-sighted.
- Though times might call for even:
- Greater new-product development, offering changing customer needs and tastes.
- Innovation helps
- Making the company more competitive
- Positioning it better for future.
- Virtual Product Development
- Uses collaboration technology to remove need for co-located teams
- Reduces G&A overhead costs of consulting firms
- Advent of 24-hour development cycle
- Choice Modelling
- Conceptual economy
- Product lifecycle
- Pro-innovation bias
- Requirements management
- Social design
- Time to market (TTM)
- Market penetration
- Virtual Product Development
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