NEW PRODUCT DEVELOPMENT AND
MANAGING NEW PRODUCT
DEVELOPMENT PROCESS
SELMA SARIOĞLU
N.NİHAN ÇELİK
N. ECE ÖZ
F. 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 STRATEGY
Market 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 STRATEGY
Product 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; HewlettPackard’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.
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 ANALYSIS
Business 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.
COMMERCIALIZATION
Commercialization involves implementing a total marketing plan and full production.
• 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 PROJECT
The 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 theory
and representation to operation and activities.
NEW PRODUCTS AS PROJECTS
We 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 KNOWLEDGE
Without 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 OPPORTUNITIES
You 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 CONCEPT
This 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
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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 PROTOTYPES
This 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 INTRODUCTION
Commercialisation 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 MANAGEMENT
New 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 STRUCTURES
Common 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 STRUCTURES
The matrix structure is an organizational design that groups employees by both
function and product.
•
•
•
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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:
1. A matrix structure lacks the effectiveness of bureaucracy, and will
potentially not work if the organization does not need to react swiftly to
changes
2. The flat hierarchy may be the cause of conflict, and different
stakeholders may pursue entirely different goals.
3. 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 highprofile failures, most notably by Shell in the mid-1980s, corporate venturing fell
out of favour.
PROJECT MANAGEMENT
Project 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 she
pushes 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 the
Process Manager. He or she is a
process
expert
with
primary
responsibility to promote and improve
the NPD Processes.
REDUCING PRODUCT DEVELOPMENT TIMES THROUGH
COMPUTER-AIDED DESIGN
•
For example, the aerospace and automobile industries have been using computeraided 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 FAILURE
1.
2.
3.
4.
5.
6.
7.
8.
Product offers nothing new or no improved performance
Inadequate budget to develop ideas or market the product
Poor market research, positioning, misunderstanding consumer needs
Lack of top management support
Did not involve customer
Exceptional factors such as government decision
Market too small, either forecasting error with sales or insufficient demand
Poor match with company’s capabilities, company has insufficient experience of
the technology or market
9. 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
project
1. Unexpected changes in consumer tastes/fashion