NEW PRODUCT DEVELOPMENT AND MANAGING NEW PRODUCT DEVELOPMENT

PROCESS

SELMA SARIOĞLUN.NİHAN ÇELİKN. ECE ÖZF. SÜMEYYE DURAK

NEW PRODUCT DEVELOPMENT(NPD)

INNOVATION MANAGEMENT AND NPD

• To many people new products are the outputs of the innovation process, where the new product development (NPD) process is a subprocess of innovation.

• New product development concerns the management of the disciplines involved in the development of new products.These disciplines have developed their own perspectives on the subject of NPD.

• For example; the production management examines the development of new products from a manufacturing perspective.

• The lack of common approach to the development of new products is due to this multiple perspective.

NEW PRODUCTS AND PROSPERITY

• The potential rewards of NPD are enormous.• One only has to consider the rapid success of

companies such as Microsoft and Compaq in the rapidly growing home computer industry.

CONSIDERATIONS WHEN DEVELOPING A NPD STRATEGY

• Establishing a direction for a business and the selection of the strategies to achieve its goals form an on-going, evolving process that is frequently subject to change.

• This situation is particularly evident at the production strategy level.

• The process of product strategy is the creative process of recognising genuine business opportunities that the business might be able to exploit.

ON-GOING CORPORATE PLANNING

• In large organisations this can be a very formal activity involving strategic planners and senior managers with responsibility for setting the future direction of the business.

• In smaller organisations this activity may be undertaken by the owner of the business.

• For many businesses it is somewhere in the middle of this two extremes.

• The effects of any corporate planning may be important and long-term.

ON-GOING MARKET PLANNING

• Decisions by market planners may have equally significant effects.

• For example; the realisation that a competitor is about to launch an improved tennis shoe may force the business to establish five new product development projects.Two of these projects may be established to investigate the use of new materials, one could be used to develop a series of new materials, one for alternative fastening and and one could be used to reduce production costs.

ON-GOING TECHNOLOGY MANAGEMENT

• In most science and technology intensive industries such as pharmaceutical and computer software industries, this activity is probably more significant than on-going market planning.

• Technology awareness is very high• The contunial analysis of internal R&D projects

and external technology trawling will lead to the numerous technical opportunities.

OPPORTUNITY ANALYSIS/SERENDIPITY

• Some other inputs are often labelled miscellaneous or put down to serendipity.

• The vice-president of 3M remarked that ‘ chaos is a necessary part of an innovative culture.It’s been said that 3M’s competitors never know what we are going to come up with next.The fact is neither do we.’

NPD AS A STRATEGY FOR GROWTH

• The interest expressed by many companies in the subject of developing new products is hardly surprising given that the majority of businesses are intent on growth.

• The development of the new products provides an opportunity for growing the businesses.

• One of the clearest way of identifying the variety of growth options available to a business is using Ansoff’s (1965,1968) directional policy matrix.

• This well-known matrix combines two of the keys variables that enable a business to grow: an increase in market opportunities and an increase in product opportunities.

• Within this matrix new product development is seen as one of four available options.

NPD AS A GROWTH STRATEGYMarket Penetration:Increasing the market share of

a business’s existing products by exploting the full range of marketing-mix activities is the common approach adopted by many companies.

This may be include branding decisions.Market Development:In this instance the company

maintains the security of its existing products but opts to develop and enter new markets.Market development can be achieved by opening up new segments.Similarly, companies may decide to enter new geographic areas through exporting.

NPD AS A GROWTH STRATEGYProduct Development:Ansoff proposes that growth

opportunities exist through offering new or improved products to existing markets.Virtually all companies try to ensure that their products are able to compete with the competition by regularly imroving and updating their existing products.

Diversification:The selection of this option would be significant in that the business would move into product areas and markets in which it currently does not operate.Many companies try to utilise either their existing technical or commercial knowledge base. Additional opportunities for diversified growth exist through forward, backward and horizontal diversification.

A Range of Product Development and Opportunities: A development of Ansoff’s directional policy matrix was

Johnson and Jone’s matrix for product development strategies.This matrix replaces Ansoff’s product variable with technology.It builds on Ansoff’s matrix by offering further clarification of the range of options open to a company contemplating product decisions. In particular, the use of technology as a variable better illustrates the decisions a company needs to consider.

• Similarly, the market-newness scale offers a more realistic range of alternatives.

• The range of product development strategies that are open to a company introduces the notion that a new product can take many forms.

WHAT IS A NEW PRODUCT?

• Attempting to define what is and what is not a new product is not a trivial task.

• It is important to note that a product is a multidimensonal concept.It can be defined differently and can take many forms.Some dimensions will be tangible product features and others intangible.Does the provision of different packaging for a product constitute a new product? Surely the answer is no- or is it?

• New packaging coupled with additional marketing effort, especially in terms of market communications, can help to reposition a product.

• If we accept that a product has many dimesions, then it must follow that it is theoretically possible to label a product ‘new’ by merely altering one of these dimensions for example packaging.

DEFINING NEW PRODUCT

• Newness is a relative term.In the case of a new product it is relative to what preceded the product.

• Research in this area suggests that only 10 percent of new products introduced are new to both the market and the company.New to the company means that the company has not sold this type of product before, but other firms could have.New to the market means that the product hs not appeared before in the market.

CLASSIFICATIONS OF NEW PRODUCT

• There have been many attemps to classify new products into certain categories.Very often the distinction between one category and another is one of degree and attempting to classify product is subject to judgment.

• New-to-the-world products: These represent a small proportion of all new products introduced.They are the first of their kind

and create a new market.They are inventions that usually contain a significant development in technology. For example; Kodak’s digital camera.

• New product lines: Although not new to the marketplace, these products

are new to the particular company.They provide an opportunity for the company to enter an established market for the first time.For example;Samsung and Sony Ericson have entered the cell phone market.

• Additions to existing lines: This category is a subset of new product

lines.The distinction is that while the company already has a line of products in this market, the product is significantly different from the present product offering but not so different that it is a new line.For example; Hewlett-Packard’s colour ink-jet printer was an addition to its established line of ink-jet printers.

• Improvements and revisions to existing products:

These new products are replacement of existing products in a firm’s product line.For example; Hewlett-Packard’s ink-jet printer has received numerous modifications over time and, with each revision, performance and reliability have been improved. This classification represents a significant proportion of all new product introduces.

• Cost reductions: This category of products may not be viewed as new from a marketing perspective largely because they offer no new benefits to the consumer other than possibly reduced costs.The ability to offer similar performance while reducing production costs provides enormous added-value potential.Improved manufacturing processes and the use of different materials are key contributing factors.

OVERVİEW OF

NEW PRODUCT DEVELOPMENT

New product development is a crucial process for the survival of firms

Five phases guide the new product development process for small businesses.

IDEA GENERATION Some of the sources for new product ideas include the business customers, competitors, newspapers, journals, employees and suppliers.

SCREENING

In product screening, poor, unsuitable or otherwise unattractive ideas are weeded out fromfurther actions.

CONCEPT TESTING

Concept testing presents theconsumer with a proposed product and measures attitudes and intentions at this early stage of development.

BUSINESS ANALYSISBusiness and financial analysis for the remaining product concepts is much more detailed than product screening.

Stages are:

•Demand projections•Cost projections•Competition•Required invesment•Profitability

PRODUCT DEVELOPMENT

Product development converts a product idea into a physical form and identifies a basic marketing strategy.

It involves product construction, packaging and usage testing

TEST MARKETİNG

The test market ideally aims to duplicate "everything" - promotion and distribution as well as "product" - on a smaller scale.

COMMERCIALIZATIONCommercialization involves implementing a total marketing plan and full production.

MODELS OF

NPD

• DEPARTMENTAL-STAGE MODELS

Departmental-Stage model based around the linear model of innovation, where each department is responsible for certain tasks.

ACTIVITY-STAGE MODELS AND CONCURRENT ENGINEERING

CROSS-FUNCTIONAL MODELS (TEAMS)

Common problems that occur within the product development process centre around

communications between different departments.

The cross-functional teams (CFT) approach removes many of these limitations by having a dedicated project team representing people from a variety of functions.

DECISION-STAGE MODELS Decision-stage models represent the new product

development process as a series of decisions that need to be taken in order to progress the project

CONVERSION-PROCESS MODELS

As the name suggests, conversion-process models view new product development as numerous inputs into a ‘black box’ where they are converted into an output.

RESPONSE MODELS

Response models are based on the work of Becker and Whistler who used a behaviourist approach to analyse change.

NETWORK MODELS

MANAGING NEW PRODUCT DEVELOPMENT

PROCESS

NEW PRODUCTS AS PROJECTThe previous chapters have outlined some of the conditions that are necessary for innovation to occur and have shown various representations of the new product development process. However, while these conditions are necessary, they are insufficient in themselves to lead to the development of new products. This is because, as with any internal organisational process, it has to be managed by people. The concepts of strategy, marketing and technology all have to be coordinated and managed effectively. This is where the attention turns from theoryand representation to operation and activities.

NEW PRODUCTS AS PROJECTSWe have seen that a product idea may arise from a variety of sources. We have also seen that, unlike some internal operations, NPD is not the preserve of one single department. And it is because a variety of different functions and departments are involved that the process is said to be complicated and difficult to manage. To be successful new product development needs to occur with the participation of a variety of personnel drawn from across the organisation.

NPD TERMINOLOGY

THE KEY ACTIVITIES THAT NEED TO BE MANAGED

ASSEMBLING KNOWLEDGEWithout the continual accumulation of knowledge, an organisation will be hindered in its ability to create new product ideas. Figure shows a wide range of activities that together help to maintain a company’s knowledge base.

THE GENERATION OF BUSINESS OPPORTUNITIESYou should be aware of the concept, even if the process is not fully clear. This stage in the NPD process is also referred to as opportunity identification (OI). It is the process of collecting possible business opportunities that could realistically be developed by the business into successful products. This definition contains several caveats, which helps to explain the difficulty that faces businesses.

DEVELOPING PRODUCT CONCEPTThis activity involves transforming a list of ideas into potential product concepts. For a product idea to become a new product concept, three inputs are required: form, technology and need.Form: This is the physical thing to be created . It may still be vague and not precisely defined.Technology: In most cases there is one clear technology that is at the base of the innovation.Need: The benefits gained by the customer give the product value.

A NEW PRODUCT CONCEPT

In this case, the product concept could be an opportunity in the yellow spreads market for a low-fat spread that can be applied like soft margarine (an emulsion of fat droplets in water), which has a buttery taste.

THE SCREENING OF BUSINESS OPPORTUNITIES Do we have the necessary commercial knowledge and experience? Do we have the technical know-how to develop the idea further? Would such a product be suitable for our business ? Are we sure there will be sufficient demand ?

DEVELOPMENT OF PRODUCT PROTOTYPESThis is the phase during which the item acquires finite form and becomes a tangible good. It is at this stage that product designers may develop several similar prototypes with different styling. Manufacturing issues will also be discussed such as what type of process to use. During this activity numerous technical developments will occur.

TECHNICAL TESTING

MARKET INTRODUCTIONCommercialisation is not necessarily the stage at which large sums of money are spent on advertising campaigns or multi-million-pound production plants, since a company can withdraw from a project following the results of test marketing.

NPD ACROSS DIFFERENT INDUSTRIES

TEAMS AND PROJECT MANAGEMENTNew product project teams in small to medium-sized organisations are usually comprised of staff from several different functions who operate on a ‘part-time’ basis.Membership of the project team may be just one of the many roles they perform. In larger organisations, where several projects are in progress at any one time, there may be sufficient resources to enable personnel to be wholly concerned with a project.Ideally, a project team will have a group of people with the necessary skills, who are able to work together, share ideas and reach compromises.This may include external consultants or key component suppliers.

FUNCTIONAL STRUCTURESCommon approach used by many large manufacturing companies is to organise the company by product type. Each product has its own functional activities.Some functions, however, are centralised across the whole organisation. This is to improve efficiency or provide common features. This type of structure supports the notion of product platforms where a generic group of technologies are used in a variety of products. Sony, Philips and Nokia all have centralised R&D activities where the majority of products are developed allowing for a high degree of technology transfer between product groups.

MATRIX STRUCTURESThe matrix structure is an organizational design that groups employees by both function and product.

• Provision of additional channels of communication. • Increase in informal communication channels. • Increase in information loads.• Increase in diversity for individuals.

MATRIX STRUCTURE

Strengths of a matrix structure:1. The cross functional teams of a matrix structure reduce the functional

barriers between departments, and increase the integration of functions.2. The matrix structure makes it possible to assign specialized resources to

projects when needed.Weaknesses of a Matrix Structure:3. A matrix structure lacks the effectiveness of bureaucracy, and will

potentially not work if the organization does not need to react swiftly to changes

4. The flat hierarchy may be the cause of conflict, and different stakeholders may pursue entirely different goals.

5. The great focus on integration between functional areas requires a great amount of lateral communication, and it may require great resources to get information distributed efficiently between team members.

CORPORATE VENTURING

• Corporate venturing offers interesting options, from investment to partnerships. Ideally, they should be given high-level sponsorship from senior management, but must be able to manage their own relationships with other companies. Many large organisations such as Nokia, IBM and General Electric have a long experience of corporate venturing stretching back to the 1960s. However, following some high-profile failures, most notably by Shell in the mid-1980s, corporate venturing fell out of favour.

PROJECT MANAGEMENTProject management is the discipline of planning, organizing, motivating, and controlling resources to achieve specific goals.

PROJECT MANAGEMENT

The Process Champion is universally known throughout the organization and is respected and admired by company personnel. He or shepushes the NPD Process as a vehicle for Product, Service, and Program innovation.

Process Sponsors are typically pulled from the ranks of Divisional or Departmental Managers. He or she delivers resources (time, money,people, and/or equipment) to the NPD Projects

The keeper of the NPD Process is theProcess Manager. He or she is a process expert with primary responsibility to promote and improve the NPD Processes.

REDUCING PRODUCT DEVELOPMENT TIMES THROUGHCOMPUTER-AIDED DESIGN

• For example, the aerospace and automobile industries have been using computer-aided design (CAD) for more than 15 years.

THE MARKETING/R&D INTERFACE

• This introduces a common difficulty: the need to manage communication flows across the marketing and R&D boundaries. This problem was first recognised as important in the 1970s and remains a critical issue in new product development.

REASONS FOR NEW PRODUCT FAILURE1. Product offers nothing new or no improved performance2. Inadequate budget to develop ideas or market the product3. Poor market research, positioning, misunderstanding consumer needs4. Lack of top management support5. Did not involve customer6. Exceptional factors such as government decision 7. Market too small, either forecasting error with sales or insufficient demand8. Poor match with company’s capabilities, company has insufficient experience of

the technology or market9. Inadequate support from channel 10. Competitive response was strong and competitors were able to move quickly to

face the challenge of the new product Internal organisational problems, often associated with poor communication

11. Poor return on investment forcing company to abandon project12. Unexpected changes in consumer tastes/fashion