978-1259539060 Chapter 11 Lecture Notes

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Instructor’s Manual

Chapter 11

Managing the New Product Development Process

SYNOPSIS OF CHAPTER

For the new product development process to be successful, the objectives of maximizing fit with

customer requirements, minimizing time-to-market, and controlling development costs must be

achieved. This chapter overviews some of the best practices for improving both the effectiveness

and efficiency of new product development. First, many firms have succeeded in reducing costs

and shortening development time by using a parallel development process instead of a sequential

process. Including all functions in the process and anticipating project needs reduces the need for

costly and time-consuming iterations. Second, the new product development process can also be

improved by involving customers or suppliers in the design process, and by using project

champions. Third, firms can utilize tools such as stage-gate processes, quality function

deployment, design for manufacturing and CAD/CAM systems. Finally, firms should measure

their performance at new product development to identify opportunities for improvement. While

the role of new product development teams is also extremely important to the new product

development process, the richness and complexity of that discussion warrants covering them in a

separate chapter — the constitution and management of new product development teams is

covered in Chapter 12.

TEACHING OBJECTIVES

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1. Highlight the three objectives new product development projects must achieve in order to be

considered a success: maximize fit with customer objectives, minimize time-to-market, and

control development costs.

2. Familiarize students with the strengths and weaknesses of “best practices” used in managing

the new product development process.

3. Provide an understanding of the metrics used to evaluate new product effectiveness and

innovation performance.

LECTURE OUTLINE

I. Overview

a. While successful new product development is one of the key factors in firm success, the

high failure rate for such projects underscores the importance of identifying the most

effective process for managing new product development.

b. Key objectives of the new product development process are maximizing fit with

customer requirements, minimizing cycle time, and controlling development costs.

c. The means by which these objectives may be accomplished include adopting parallel

development processes, using project champions, involving customers and suppliers

in the process, and using tools that may improve the process include a Stage-gate process

with Go/Kill decision points, design targets with Quality Function Deployment, Design

for Manufacturing and CAD/CAM systems, and assessing process performance.

II. Objectives of the New Product Development Process

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a. Maximizing fit with customer requirements requires knowing which features are

most important to customers, what a customer is willing to pay, and how to resolve

competing customer desires.

i. Apple’s Newton Message Pad and Philips CD-i are examples of products that

were well designed with excellent features, but failed to meet customer

expectations. Newton’s size made it untenable as a handheld device and, at twice

the price of alternative game systems the CD-i’s cost outweighed the value in

customer’s minds.

b. Minimizing development cycle time can afford a firm the opportunity to be first to

market with a new product (i.e. better opportunity to build brand loyalty, capture

scarce assets, build customer switching costs, and develop complementary goods). A

shorter development process is also required to minimize costs (including providing a

longer period of time over which to amortize costs).

c. Controlling development costs is also important because even if products are a good fit

with customer requirements and are brought to market quickly, if development costs are

uncontrolled the firm will have a difficult time recouping its expenses.

III. Sequential versus Partly Parallel Development Process

a. Prior to the mid-1990’s, most businesses conducted development in a sequential process;

with a decision-making “gate” at the end of each step where managers would determine if

the process should continue, be revised or stopped. Working this way often resulted in

multiple product revisions and lengthy cycle times.

b. In a partly parallel development process the development states overlap, both

shortening overall cycle and enabling developers to communicate requirements in the

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next phase. There are some disadvantages, however, to partly parallel processes. If later

stages proceed too early, it is possible that the project will have to be reworked if design

features are later revealed to be ineffective.

IV. Project Champions

a. Assigning a senior executive to champion a new product development project can

shorten cycle time and ensure that the product attributes match customer

requirements by facilitating the allocation of resources to the project and by ensuring

proper communication and cooperation among the different functional groups needed

on the project.

i. Zantac’s project champion was able to gain approval for a change in the testing

process that ultimately enabled Glaxo Holdings to bring the product to market in

half the normal time and capture the number one spot for this type of drug.

b. Risks of Championing include the loss of objectivity by the project champion that can

result in an inability to admit when a project has no future and if the champion occupies a

senior level position in the organization others may be reluctant to express their true

thoughts regarding the value of the project. To counteract these risks, firms may create

the role of “anti-champion” to play devil’s advocate.

c. Stephen Markham and Lynda Aiman-Smith identified five myths about product

champions.

i. Projects with champions are more likely to be successful in the market.

Empirical data indicates projects with champions are just as likely to fail as to

succeed in the marketplace.

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ii. Champions get involved because they are excited about the project, rather

than from self interest. Champions are more likely to choose projects that will

benefit their own department.

iii. Champions are more likely to get involved with radical innovation projects.

Incremental projects are championed just as often as radical developments.

iv. Champions are more likely to be from high (or low) levels in the

organization. Champions are equally likely to come from all levels of the

organization.

v. Champions are more likely to be from marketing. Champions may come

from many functions.

d. It is worth noting to students that while Stephen Markham and Lynda Aiman-Smith

observed that champions are equally likely to come from all levels of the organization, many

of the advantages arising from using a champion are linked to the champion’s seniority (e.g.,

access to resources, ability to communicate well with multiple parts of the organization,

sustain momentum in the face of resistance, etc.)

V. Involving Customers and Suppliers in the Development Process

a. Involving customers and suppliers in the development process may ensure that products

fulfill customer performance/price requirements, and help control costs while speeding

up development.

i. Involving customers often involves beta testing early version of a product by

customers to get early feedback. Reliance on “lead users” (i.e. those who often

recognize a need in advance of the general market) may more effective and

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practical than relying on a random sample of users. Some firms are even involving

customers in the “cocreation” of products (see the OhMyNews example in the text).

ii. Involving suppliers can improve the new product development process by

sourcing information regarding alternative inputs and by improving coordination

between the firm and its suppliers that should result in the timely availability of

inputs. Evidence shows firms that involve suppliers produce new products in less

time, at lower cost and with higher quality.

iii. Crowdsourcing is a distributed problem-solving model whereby a design problem

or production task is presented to a group of people (for example, through a platform

such as InnoCentive, TopCoder, Yet2.com) who voluntarily contribute their ideas and

effort in exchange for compensation, intrinsic rewards, or a combination thereof.

Advances in information technology have made this a popular method to tap the ideas

of much larger groups of people than was previously possible.

iii.

VI. Tools for Improving New Product Development Process

a. The Stage-Gate Process applies a tough multi-functional review at the end of each

stage of the design process to ensure that only those projects demonstrating increasing

certainty with regard to success move forward. Prior to moving to the next stage the

project must clear a Go/Kill gate at which three components are reviewed: deliverables

(i.e. results of the previous stage and inputs for the review), criteria (i.e. questions or

metrics used to make Go/Kill decision) and outputs (i.e. results of the gate review

process). This is important since risks and costs escalate as a project proceeds.

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Show figures 11.2 and 11.3

i. Quality Function Deployment or the “House of Quality” was developed in

Japan as a comprehensive process for improving communication and

coordination between engineering, marketing and manufacturing personnel. The

house of quality maps customer requirements and product attributes and

provides a common language and framework, through which teams can

understand the relationship between product attributes and customer

requirements, identify design tradeoffs, highlight the competitive shortcomings

of existing products and identify the steps to improve them. Steps in the process

are as follows:

Show Figure 11.5

ii. Identify customer requirements.

iii. Weight customer requirements in terms of relative importance to the customer.

iv. Identify engineering attributes that drive product performance.

v. Enter correlations between the different engineering attributes to assess the

degree to which one characteristic may positively or negatively affect another.

vi. Complete the body of the matrix, indicating the relationship between an

engineering attribute and a customer requirement.

vii. Calculate the relative importance of each engineering attribute by multiplying

the customer importance rating by the feature’s relationship to an engineering

attribute.

viii. Evaluate the competition by rating their success in meeting customer

requirements.

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ix. Determine target values for each design requirement by comparing the relative

importance ratings (step vi) to the competitor’s score (step vii).

x. Evaluate the new design by assigning a score measuring how well the design

meets each customer requirement.

b. Design for manufacturing ensures that issues of manufacturability are considered

early in the design phase. It is usually done by engineering and manufacturing

agreeing on a set of design rules. When the rules are followed, products are easier to

manufacture, development cycle time is shortened, costs are reduced and quality

increases, all with a concurrent increase in customer satisfaction.

Show Figure 11.6

c. Failure Modes and Effects Analysis is a new product development method that focuses

on identifying and prioritizing potential product failures. It was initially developed for

use in industries in which failures could be catastrophic (e.g., the Apollo Space Program),

but now is in use in a wide range of industries.

d. Computer Aided Design (CAD)/Computer Aided Manufacturing (CAM) enable engineers

to build a “virtual” prototype of a new product that is much less expensive and faster

than building actual prototypes. Computer aided manufacturing utilizes

machine-controlled processes to increase flexibility and speed.

VII. Tools for Measuring New Product Performance

a. While the means used to conduct an assessment may vary, many firms use some means of

evaluating the new product development process in order to identify which projects

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met their goals and why, and to benchmark performance against competitors or

historical experience. Results of the assessment are used to improve resource allocation,

employee compensation and to refine future innovation strategies.

b. Multiple measures must be used so the result is not skewed by the vantage point of a

particular measurement. Also, it is essential that the assessment be viewed within the

context of reasonable expectations for a firm in the same industry, the firm’s strategy

and other environmental circumstances.

c. New product development process metrics include:

i. What was the average cycle time (time to market)? How did this vary for

projects characterized as breakthrough, platform or derivative?

ii. What percentage of development projects undertaken within the last five years

met all of most of the project deadlines, stayed within budget and resulted in a

completed project?

d. Overall Innovation Performance measures include:

i. What is the return on innovation (i.e. ratio of firm’s total profits from new

products to total expenditures, including R&D, retooling and staffing production

facilities, and initial commercialization and marketing)?

ii. What percent of projects achieve sales goals?

iii. What percent of revenues are generated by products developed within the last

five years?

iv. What is the firm’s ratio of successful projects to its total project portfolio?

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