DEAS ! ier Pome et uae At the end of this module, I can: 1. Understand the fundamentals of product development. a. Develop a product or service description. b. Create a prototype of the product or service. c. Test the product prototype. 4. Validate the service description of the product with potential customers to de- termine its market acceptability. 2. Describe the 4Ms (method, manpower, machine, materials) of operations in relation to the business opportunity. ‘a. Select/pinpoint potential suppliers of raw materials as well as technology/ machine requirements and other inputs necessary for the production of the product or service. b. Discuss the value/supply chain in relation to the business enterprise. c. Recruit qualified people for one’s business enterprise. Develop the business model. Forecast the revenues of the business. Forecast the costs to be incurred. ‘Compute for profits. Create the company’s five-year projected financial statements. ee nave ‘The business plan will not be complete if the operations and financial plan are not included. These two play a crucial role in ensuring that the business is operationally feasible ‘and financially viable. Even if the marketing plan looks promising, the business will not be ‘successful without a detailed operations and financial plan. These two will tell if the big idea generated through product development process is realistic. This module will introduce you to the fundamentals of product development and the operational requirements of a business represented by the 4/Ms—manpower, method, machine, ‘and materials. You should learn the methods before commercializing a product or service. You ‘will understand how to identify and comply with the business requirements before running an enterprise. You will also know the importance of crafting a business model as a blueprint ofthe business operations. Last, you will be taught on how to account actual and future performance ‘of'a business enterprise through preparation and analysis of financial statements. Fundamentals of Product Development Before commercializing a new product or service, the entrepreneur must focus first on refining the product or service and validate its market acceptability. This new product does not have to be a totally new product. It can be a new product line from the existing business of the entrepreneur, a product line extension, an enhancement, or a repositioning of an existing product. Product development is the process of developing, testing, and commercializing @prodiiet or service with the ultimate objective of solving the problem of the primary target market. [tis composed of four sequential steps: (1) developing a product ot service descripti (2) creating a prototype, (3) testing the prototype, and (4) validating the market. Product or Service Description The product or service description simply describes how a product or service works and how it benefits the customers. A clear product or service description is important because this will serve as the blueprint of all business operations. Therefore, the entrepreneur has to take note of the following regarding the product or service description: 1, It should directly address the primary target market in a personal manner using everyday language. The entrepreneur should put himself or herself in the customer’s shoes, where the product description will be addressed to. 2. It should highlight the features that will cater to the customer's needs or address the customer’s problems. 3. _ Realistic superlatives should be used for the product description. Motherhood statements such as “world-class service or product excellence” may not matter to the customers at all. Creating a Prototype of the Product or Service Alter defining the product or service, you may now proceed with one of the most exciting but also very challenging parts of product or service development: the creation of a prototype. A prototype is a preliminary model or sample of a new product or service that is created to test a product concept or service process. This is an exciting process for the entrepreneur because he or she will be able to see that his or her ideas will soon become a tangible reality. The entrepreneur's creativity and ingenuity will be used in creating the prototype. According to Entrepreneur (www.entrepreneur.com), creating a prototype lessens implementation/commercialization risks and provides the entrepreneur a bunch of advantages as follows: 1. Creating aprototype enables the entrepreneur to engage in trial-and-error, provides room for improvements, and refines the functionality of the product design or service process. It is very expensive and risk-intensive to commercialize a product without creating a prototype. 2. Creating a prototype provides the entrepreneur a window to test the performance and specifications of various materials and service processes. Every detail of the product or service should be serutinized carefully, and all flaws be addressed right away before commercialization. 3. A prototype helps the entrepreneur effectively describe the product or service to the product team. Members of the product team include marketing, operations, engineers, suppliers, business partners, and legal and human resources. It provides the product team the information needed to create the right product or service as planned. BBY, eee Fig mak att che ent hoy int ent wil the— eo 8 we oa aaah an ns es or ce he ht iS, es Creating a prototype elicits respect from key stakeholders and customers. At the same time, aprototype gives credibility o the entrepreneur. Some entrepreneurs only present vague and big ideas but no details as to its feasibility and implementation. Fig. 41. Companies such as Lexus (left) and Hendo Hover (right) are now creating prototype designs forthe first set of hoverboards. “Creating a prototype is the stage where the entrepreneur can experiment, develop, and make some improvements in the potential product or service. The objective of the entrepreneur at this stage is to verify if the product or service concept will work at the simplest, fastest, and cheapest way. One technique for creating the best prototype is by studying the competitor's product or service. The entrepreneur will try to scrutinize the parts and funetions, as well as the design and other attributes of that produet, in hopes that he or she will be able to address some problems in the competitor’s products and come up with the most efficient and effective prototype. As for the services, the entrepreneur may try availing the competitor's services and ‘will take note of their operations, such as service delivery, location, facilities, and ambiance. He or she will then take note of the pros and cons of the service to create the prototype, simulate the service by trying it with his or her friends or relatives, and then get their feedback. Some entrepreneurs create a video presentation or a miniature prototype, so they will be able to explain the details, if the product is to be viewed by a panel of specialists (e.g., engineers, developers, scientists). The scope should be related to the entrepreneur's budget. ‘After creating the prototype, he or she should be ready to test it. Creating a prototype lessens implementation or ‘commercialization risks. Testing the Product Prototype [All the efforts exerted in the creation of a prototype will be put to waste if the prototype will not be tested. Testing the prototype is a vital process before an actual product or service is Jaunched to the market. Testing the prototype will uncover the final loopholes that need to be fixed before commercialization. It gives the entrepreneur a leeway to examine and scrutinizethe prototype and provide feedback as to what can be improved before the launch, These improvements and changes must be completed first before moving forward to the next step. For a prototype that has already been refined, testing it for the last time after the changes have been made will validate its readiness for commercialization, The following testing methods are applied by the entreprene 1, Focus group discussion ~ The participants will provide relevant insights about the new product or service. The objective of the FGD is to identify errors, deficiencies, and issues that may impede the success of the product. Participants also need to provide suggestions and practical solutions on how to improve these deficiencies. 2. Legality and ethical test — Prior to launching, the entrepreneur must ensure that the product or service complies with all relevant laws and regulations and has a * necessary license or permit to operate a particular business. For example, food products must be cleared first with the Bureau of Food and Drugs (BFAD) before they are offered to the public. The entrepreneur must also make sure that the ‘manufacturing/production of goods or offering of the service does not generate ethical issues such as being threats to health, safety, and environment, 3. Safety test ~ The entrepreneur must ensure that the product is safe to use, safe to be consumed (food and beverages), and safe to be applied (cosmetic products). The produet should not in any way harm the customer or put the customer in Peculiar situations. In services, the entrepreneur must ensure that the processes to be performed by the service provider must not be detrimental to the safety and health of the customer. 4. Product costing test ~ The entrepreneur must examine every stage of the manufacturing process or every process of the service blueprint to evaluate and finalize the costs involved. This is the time when the entrepreneur can match the expected costs versus his or her budget, Modification in the manufacturing process or service blueprint can still be made at this point to align with the cost objective of the entrepreneur, * 5, Component test — Each component of the product or service must be tested independently to identify component failures for goods or service failures for services. Any failure identified must be redesigned and tested again until it becomes fully operational and functional. 6. Competitors’ product / service test ~The entrepreneur must test a similar line of Products or the competitors’ product or service itself to compare and get the best practices to be applied to the new product or service. Testing the product prototype is mandatory to ensure that the product or service will not. fail the customers and will deliver its definitive purpose. This will elicit customer satisfaction and, eventually, customer loyalty and retention. This is the time to prove that the concept formulated by the entrepreneur will work and is feasible in real life. All the mistakes accounted for and the improvements to be fixed should be performed first prior to commercialization of the product or service. Jo : actiestes EV v= e 9 BRS eg Reflect Upon Based on what you have observed, do you think Philippine entrepreneurs test their products or services first before launching them to the public? Why? Validation of Market Acceptability Validation of market acceptability is the process of finding out if the intended primary target market will be buying the product or availing the service. Market acceptability isa critical factor that the entrepreneur must validate before launching the product or service, because this can strongly suggest if the business will be successful or not.4t either validates or disconfirms the perception of the entrepreneur about the suitability of the chosen primary target market. It also tests whether the value proposition and unique selling proposition are appropriate or there’s a need to improve on them. This is also the time to deeply understand the value that the product or service brings to the customer and their prospective purchase behavior, because it helps the entrepreneur build a more relevant and meaningful product or service. This process is the last step before the product or service can be introduced to the market. The following objective questions are more likely to be answered in the whole process of market acceptability validation: 1, Will the primary target market like the product or service? 2, Will the primary target market buy the product or service when itis already in the market? “These questions can easily be answered if the entrepreneur will perform the following acivities. 1. Use the most strategic marketing research tool (FGD, survey, observation, interview, online survey, e-mail, or a combination of these research tools), wherein the entrepreneur can get the most relevant answers in the cheapest way possible. 2. Prepare relevant open-ended questions that answer the objectives above. Do not, go around the bush and be straight to the point. Keep the questions to a minimum ‘Decause the Larget market might get bored and not finish the whole questionnaire. %. Find market experts whe also target the same market but are not directly competing with the entrepreneur. For instance, a market expert sells cars to a specific market segment and it so happens that an entrepreneur sells real estate. The entrepreneur can leverage on the knowledge of the market expert regarding that market ‘segment because they almost have the same demographic data requirements. The entrepreneur can use these data to improve the product or service. 4, Collate all the data, analyze them, and prepare a summative report that answers the objective questions that were mentioned earlier. NeRRC todd Assume that you have available capital that can finance any original product or service you have in mind. Using your original product or service, apply what you have learned in produet development. 1. Prepare a product or service description. 2. What will be your game plan for your product or service prototype? How will ‘you test it? 3. How will you execute your market acceptability validation? i tana cous Read this article written by Ezra Ferraz of Rappler entitled “10 Filipino Entrepreneurs to Inspire You” from http://www.rappler.com/business/features/67753 -executive-edge-inspiring-filipino-entrepreneurs (last accessed on 27 October 2015). Choose one Filipino entrepreneur who really inspired you on the aspect of product management, Did he or she create a prototype of the product or service and validated the market before commercialization? Cite his or her best product management practices. ————— | The 4Ms of Operations The operations plan is an important part of the business plan because it simply states the details in operating the business. Operations management, on the other hand, controls the implementation of the business plan. A strong operations plan should have the four operational aspects—called the 4Ms of operations: the methods, or the processes to be followed in effectively manufacturing or delivering a product or service; the manpower, or the right human resources who will handle certain business operations; the machines, or the technology used in efficiently operating the business, and the materials to be used in creating a product or performing a service, which includes supply chain management. Methods. ‘The methods aspect represent the day-to-day operations of a business. It describes how an entrepreneur will run the business from all facets of the business such as th service delivery process, distribution of goods and services, logistics for delivery of goods, and inventory management, to name a few. The entrepreneur has to be very detailed in formulating these processes and must ensure that the customer experience will be pleasant and seamless. Internally, the processes must also abide with industry standards and policies where the business belongs (¢.g., ISO certification). com envi Mar‘The entrepreneur must also set standard operating procedures (SOPs) both in manufacturing goods and rendering of services. These SOPs must be monitored to validate compliance. The entrepreneur must also critically consider the effects of these processes to the environment and to the public. : “Manufacturing of Goods (Schaper and Volery, 2004) ‘The entrepreneur who will engage in producing his or her own products will have to ] consider the basic guidelines and principles in manufacturing. Manufacturing is the process of . translating raw materials into finished goods that are acceptable to the customer's standards. It ! ; consists of three elements: + Inputs the materials or ingredients to be used in creating the product + Process — the transformation phase where inputs are processed by manpower and ‘machines to come up with the final product + Output — the final product of the process stage, which is intended to be sold to target customers Here is an example for the production of palay or tice. t e es he nal in an or ow ing sof jin a Harvesting ere Fig. 4.2, Sample methods used in the production of rice. ‘Adapted from hitp:/nww.platinumglobal.co.ukiwp-contentuploads/2013/08/rice-growing process. jpg Dovelping a sina.The entrepreneur must also consider the most efficient manufacturing site in which the ‘manufacturing process will take place. Depending on the entrepreneur’s objective and financial capacity, he or she can opt to have any of the following manufacturing sites: + Home-based - Most startups do not have financial capacity to establish a manufacturing site. Thus, their only option is to manufacture goods at home. This option is the cheapest and highly flexible. The entrepreneur can start with products that are usually manageable to be processed at home such as food products and customized clothes, + Commercial space for rent -Thisis advisable if the business really requires a commercial space for the processing of goods and if the home option is not viable anymore. A commercial space gives the entrepreneur a more specialized and suited manufacturing site than manufacturing at home, However, this is more expensive than manufacturing athome and requires long-term commitment because the entrepreneur will need to sign a lease agreement. + Commercial space purchase ~ This option requires the biggest amount of capital expenditure, but it also provides the entrepreneur substantial freedom and flexibility to” design and run the commercial space. Compared with renting, purchasing a commercial space is considered more of an investment than an expense Once the entrepreneur has chosen a manufacturing site, he or she should consider location, where the delivery of raw materials and finished goods will be conducted. The transportation routes from or to the manufacturing site should be efficient, so that the delivery of raw materials and finished goods will be seamless. The location should also be accessible to major types of - transport vehicles. Last, the location must operate in an environment-friendly manner so as not to contribute to various types of pollution in the environment. The internal layout or the floor plan of the manufacturing site must also be critically done by the entrepreneur because it affects the efficiency of the business operation. Each space should be maximized to save on manufacturing costs (specifically overhead costs). An efficient floor plan illustrates how raw materials and finished goods can efficiently be transferred, processed, and released from one processing unit to another. There are two options for the floor plan: (1) the product-based layout, where the facilities are prearranged according to the flow of the manufacturing operations, and (2) the process-based layout, where the facilities are grouped according to their function, Last, the entrepreneur must prepare a manufacturing process flow, which serves as a step-by-step guide of the employees and the manufacturing equipment. The objective of the process flow is to ensure that the right inputs are properly used in production, that the process is performed according to the set standards, and that acceptable outputs are produced. Not having a process flow will result in inconsistencies in the process, high expenses, and disagreements among employees. The entrepreneur’s ultimate objective for all the operational processes is to ensure that maximum efficiency are met—from the requisition of materials to processing them into finished g00ds up to the distribution to the customers. Ser con wa: effi ser bar ser Disee a == Service Delivery Process ‘The entrepreneur who will engage in a service business must be more meticulous when it ‘comes to the service delivery process. This is because services are intangible, and the only way the customer can appreciate the service is by remembering how pleasant his or her experience was. Moreover, a seamless service saves the entrepreneur a huge chunk in operational costs. Service entrepreneurs must prepare a detailed flowchart of the service business, which is also called a service blueprint. Every process in the blueprint must be relevant to the service business to minimize wastage. The service bottlenecks must be addressed immediately to avoid customer complaints. Bottleneck is a part of the process where there is an apparent inefficiency and where the customer waits longer. The service entrepreneur must develop scripts that the service provider will follow to serve the customers better and to establish standard processes. In terms of the floor plan, the service entrepreneur must design it according to the most efficient way in performing the service, which can be based on the intemal structure of the service business, service delivery requirements, or customer requirements. For example, a barber shop should place the receptionist in front so that customers can easily inquire of the service that they will avail. Distribution Method One of the basic processes to be considered thoroughly is the distribution process. Distribution is the process of bringing the products or services to customers. In selling physical goods, the entrepreneur must plan the location, the processes, and the distribution ofthe products to the customers. The entrepreneur may also buy the finished goods from the manufacturers and plan how to distribute them efficiently to target distribution centers or the customers. Distribution is not a straight process from the entrepreneur to customers; thus, the term supply chain ot distribution channel was coined. The manufacturer will deliver the products to the distributors, to the wholesalers, to the retailers, and then finally to customers. Each member in the supply chain will have a fair share in the profits, which may be squeezed if the supply chain ‘grows longer. This is why there is a tendency to impose higher markups on the product price. It is now up to the entrepreneur on what distribution channel strategies he or she will employ depending on the product or service he or she will offer. ‘As mentioned, there are certain people involved in the supply chain. First is the manufacturer. The manufacturer handles the invention, development, and production of the product or service. Entrepreneurs can be manufacturers of a product or service. Most often, budding entrepreneurs become manufacturers when they introduce a new product. Most established products or services in the market are owned by top corporations. The great thing about being a manufacturer is that entrepreneurs can manage the entire supply chain. Manufacturers take charge of acquiring materials, production and delivery schedules, product quality, and inventory or safety management. Manufacturers also handle product delivery, marketing, and selling. Because of this, manufacturers often seek the help of distributors or agents for the distribution of goods. Distributors are entrepreneurs who often buy products or services to the manufacturers and sell them at a markup price to either wholesalers or retailers. Distributors buy the products in bulk for a discounted price. The bought products or services are now owned by the distributors, Developingso any damage, spoilage, or other liabilities to the product will be their sole responsibility. Distributors become wholesalers when they sell the product to another distributor. ‘Agents, on the other hand, don’t own the products or services because they do not buy these from the manufacturer. Instead, they negotiate with buyers as to how much or how many are to be sold, so the manufacturer will be able to deliver the goods directly to the buyer. ‘Agents get the commission for every product sold. Some agents do consignment, wherein agents get the products in advance to demonstrate them live to the customers. If unsold, agents just return the merchandise to the manufacturers, They are not held liable for any damages or losses incurred. Manufacturers turn to distributors when they have limited resources or they don’t have people with expertise in selling the product. The distributor or agent can assist the entrepreneur! ‘manufacturer in the following: (1) sharing industry knowledge, behavior, and activities of the primary target market, (2) pertinent rules and regulations imposed by the government, (3) best practices in marketing and selling the produet, (4) best practices in operating the business, and (5) their respective sticky relationship with business associates such as suppliers, financial institutions, or retailers, to name a few. Payment Process The entrepreneur must also establish a seamless payment process. Generally, there are no problems if the customers pay in cash. But there are instances when they do not want to pay in cash and are usually attracted by flexible and customer-friendly payment terms such as credit cards, installment plans, or a simple accounts payable or paufang. The entrepreneur must ensure that credit payments are seamless and that the customers are aware of the terms and conditions of the credit. ‘Some entrepreneurs put point-of-sale (POS) machines in their shops to accommodate those who will pay through their eredit or debit cards. For traditional ones, they put the credit purchase in a ledger and indicate the due dates. Once the due date arrives, the entrepreneur has to collect payments from the customers. The objective for all entrepreneurs is to ensure efficient collection of accounts receivables and avoid bad debts. He or she must conduct due diligence first before allowing a customer to purchase via credit. Fig. 4.3. Nowadays, many business establishments use the POS machines to get payments for cardholders. ‘Source: http:/adel-sys.comv/img/product/cc-machine jpg MEY / Enveprenourstin Man hers But: oper the s of or a po qual ane Job incl a jol entr cont sala the leve com desc able driv sche Em; follManpower At the beginning of the entrepreneur's business, he or she usually maximizes himself or herself, his or her partner, or his or her family members to handle all the aspects of the business. But as it grows, the entrepreneur will need the expertise of qualified employees that can handle operational functions, so that he or she will be free from daily activities and can thus focus on the strategic and management functions of the business. The entrepreneur needs to plot a table of organization based on his business objectives. Each position has to be relevant, To verify if a position is really necessary, the entrepreneur must devise a detailed job description and job qualifications of the future employee. This will be his or her basis in deciding whether to hire an employee or not. The entrepreneur must be very keen in selecting and hiring an employee. He or she must ensure that due diligence is performed to check the background of the applicant. Manpower is one of the highest costs of operating a business but is also the most instrumental to its success, Having the right people encompasses a myriad of advantages. Job Description Job description enumerates the duties and responsibilities of the potential employee, including the scope, limitations, and terms and conditions of employment. The heading of a job description is the job title, which is the summary of what the employee will do. The entrepreneur should devise a respectable and decent job title because the title boosts the self- confidence of the employee. ‘After the job title is the compensation and benefit range, which details the potential salary and benefits that the employee will get. Next are the duties,.which clearly describe the job that the employee will assume with allowance for flexibility. Duties are usually high- level descriptions only. Responsibilities and accountabilities follow next, which must be ‘communicated well to the employee so that he or she knows what to expect with the job. Work schedules, including work hours, must also be clearly indicated in the job description. The specific days and working hours must be written so that the employee will be able to align the work schedule with his or her personal schedule. Work schedules are highly driven by business requirements (e.g., a security agency business will need to indicate the work schedules of the security guards it will hire). . Employee Qualification In hiring suitable employees for the job needed, entrepreneurs will have to look for the following crite: 1. Educational background ~ This gives the entrepreneur an idea on the degree of the candidate's knowledge of basic things. However, it is not the sole factor in selecting a candidate. 2. Work experience ~ This will tell him or her what to expect from the applicant and what he or she can potentially contribute to the business based on his or her past positions and experiences. This will also establish the training needs of the candidate, Developing « Business Pat) UH3. Specific skill or knowledge — This one is important especially on technical jobs that require high proficiency. It will be easy for entrepreneurs to place highly skilled people into specialized jobs because they can help right away. This is also less expensive because entrepreneurs don’t have to train them thoroughly to acquire such skills. Examples of potential candidates that have specific skills or knowledge are engineers, architects, scientists, accountants, and information technology specialists. 4. Work attitude — This deals with the worker's integrity and how he or she deals with his or her coworkers, bosses, and customers. Entrepreneurs also need people with relationship skills because communication is important in applying their expertise. A good work attitude involves being punctual, having good leadership and communication skills, being a team player, making ethical decisions, obeying superiors, and being passionate and dedicated to the company. Entrepreneurs, however, will decide what they are looking for in selecting the best candidate. Preparatory Selection of Job Applicants Once the job description and employee qualifications are finalized by the entrepreneur, he or she now preselects a set of candidates for the positions required. When the business is already sizeable, entrepreneurs usually establish a human resource (HR) department that will handle the selection and recruitment of candidates. The entrepreneur can initially choose from his or her personal list of trustworthy people whom he or she thinks can contribute to the business venture. If this list does not exist, he or she can turn to employment agencies or * ‘manpower agencies that can do the job. Headhunters help companies find a set of people suited for their requirements, They usually chargea finder’s fee once the entrepreneurhas decided to accept an applicant. Manpower agencies, on the other hand, recruit temporary employees under a short contract, usually on a six-month period. The entrepreneur can also opt to advertise job vacancies via print such as general circulation newspapers or other publications if the intention is to promptly get a candidate from the public. If the intention is to hire candidates with specific knowledge or skills, the entrepreneur must tun to magazines or publications of the specific industry where the prospect belongs (e.g., The magazine BiuPrint if the entrepreneur wants to hire architects), One viable option is to consider recommendations and referrals from friends, relatives, or business partners with an untainted reputation, Recommendations from those with doubtful characters should of course not be considered by the entrepreneur, Another move is to look for his or her business networks, or the people whom the entrepreneur has worked with in the past. This is a better way of preselecting the employee than the traditional way (interviews) because the entrepreneur already knows the work ethics and qualifications of the potential employee. Last, one of the revolutionary ways of preselecting potential employees is through digital ‘media, With the power of the Intemet, an entrepreneur can easily post job vacancies through his or her Web site, social media accounts, e-mails, online affiliates, search engines, podcasts, or blogs. He or she can also choose to advertise via mobile through either short message service (SMS) or mobile application, or simply mobile apps. Sele task sere qua gett Log test com the