Chapter 1 The strategic elements of product development

Many managers realize that radical innovation is critical to future growth and even the survival of
the firm

- Radical innovation: innovation that displaces or makes obsolete current products and/or
creates totally new product categories

The reason fi rms invest this much in new products is that they hold the answer to most firms’
biggest problems.

Competitors do the most damage when

- there is so little product differentiation that price-cutting takes everyone’s margins away or
- when they have a desirable new item that we don’t

Ready-fire-aim approach: A firm doesn’t do the required homework before beginning development

Business firms get a high percentage of their sales and profits from new products

Globalization and new product development

- Product development has become more challenging due to globalization

- New product management is seen as a global process in order to take advantage of
worldwide opportunities and increase their efficiency and effectiveness in innovation.
- Other countries can have cheaper people, creative people or are used to get accepted and
penetrate the new markets
- Global new products teams (R&D in Germany, manufacturing in Asia etc.) are setup,
although this is very hard due to differences in cultures
- Firms with the most global innovation culture are the most effective in global new product
programs.
o Having a global innovation culture means that a fi rm is open to global markets,
mindful of differences in customer needs and preferences, and respectful of
different national cultural and business environments
o Firms with such a corporate culture are able to recognize the specialized skills,
resources, and ideas they possess in different subsidiaries around the world.
o They are better at integrating its global knowledge can better manage the R&D tasks
associated with the new products process, and has an advantage in implementing
global launches. All of these factors contribute to improved global new product
performance.

How product development is different

- A new product team ideally is cross-functional, compromising personnel from different

departments (from marketing, R&D, engineering, manufacturing, production, design). Its
about how you interact with people from other fields of study Because product development
is a joint effort
- The tough creation is how to best develop and market new products. We travel unmarked
roads.
- Often use heuristics: rules of thumb that firms found work for them. Another option is gut
feel/ simple tuition. The book is dealing with people under intense pressure.
 o Heuristics sometimes leave us holding an empty bag; but without them, projects just
won’t move forward fast enough
- Product vs process innovation
o The term process innovation usually applies to functions, especially the
manufacturing or distribution process, and every new product benefits from this
type of innovation.
o The term product innovation applies to the total operation by which a new product
is created and marketed, and it includes innovation in all of the functional processes
o he last difference worth noting here is in application. Sometimes the new product
process is accidental, or serendipitous

Different types of new products -> 35

- New-to-the-world products/ really new products: inventions that create a whole new
market.
o Incorporate consumer learning and/or incorporate a very new technology.
o Manufacturers have to overcome perceived risks, incompatibility with prior
experience or other barriers to customer adoption.
o Start of this type of innovation must start at the highest management levels.
o Risks and uncertainty faced by the firm are higher as are associated costs with
development and launch
- New-to-the-firm product (new product lines): products that take a firm into a category new
to it. The products are not new to the world, but are new to the firm
o Risks and uncertainty faced by the firm are higher as are associated costs with
development and launch
- Additions to existing product lines: Line extensions, designed to flesh out the product line as
offered to the firm’s current markets. Mostly used.
- Improvements and revisions to existing products: Current product made better.
- Repositioning: Products that are retargeted for a new use or application.
- Cost-reduction: New products that simply replace existing product in the line, providing the
customer similar performance at a lower cost.

All the categories are considered as new products, but the risks and uncertainties differ, and the
categories need to be managed differently

 New-to-the-world products and cost-reduction outperform the others.

 Value adding is the key concept to keep in mind as you travel the new product highway.

Does This Field of Activity Have a Unique Vocabulary?

Yes for two reasons

- One, it is an expanding field, taking on new tasks and performing them in new ways
- Second, it is a melting pot field, bringing in the language of scientists, lawyers, marketing
people, accountants, production people, corporate strategists, and many more.
- Because many of these people talk about the same event but using different terms,
communication problems abound.
- There is sometimes confusion over the terms invention and innovation
o To managers invention refers to the dimension of uniqueness—the form,
formulation, function of something. It is usually patentable.
 o Innovation refers to the overall process whereby an invention is transformed into a
commercial product that can be sold profitably.

Does the Field of New Products Offer Careers? -> career tips 38
The specific jobs in this field are three

- First is functional representative on a team. Represents a specific function An example is a

marketing researcher or a production planner
- Project manager/ team leader: leader of a team of people representing the functions that
will be required
- New product process manager: Responsible for helping project managers develop and use
good new product processes.

The Strategic Elements of Product Development

There are three strategic elements that provide a framework to guide management through product
development and help them focus on what is important. All three elements must be in place and
coordinated and supported with all the others.

- New product process: procedure that takes the new product idea through concept
evaluation, product development, launch and post launch.
o Takes on a phased process
- Product innovation charter: strategy for new products.
o It ensures that new product team develops products that are in line with firm
objectives and strategies and that address marketplace opportunities.
o Developed by senior manager and provides guidance to all functional areas involved
in innovation. Helps to set up boundaries and where to focus their efforts.
- Well-managed product portfolio: help the firm assess which new products would be the
best additions to existing product lines, given both financial and strategic objectives.

The basic new products process

The idea behind the new products process is that the phases represent activities that are
conducted by the new product team; between the phases are evaluation tasks, or decision points.
It is at these points that the hard Go/No Go decisions need to be made (that is, whether the project
looks promising enough to go on to the next phase).

- Phase 1: Opportunity identification and selection: Generate new product opportunities as

spinouts of the ongoing business operation, new products suggestions, changes in marketing
plan, resource changes and new needs/want in the market place.
- Phase 2: Concept generation: Select high potential opportunity and begin customer
involvement.
- Phase 3: Concept/ project evaluation: evaluate new product concepts on technical,
marketing and financial criteria.
- Phase 4: Development: Technical and marketing tasks
- Phase 5: Launch: commercialize plans and prototypes from development phase and manage
the program to achieve the goals and objectives in the PIC.
 The goal is to manage down the risk and uncertainty as one passes throughout the phases.
Each additional phase means greater financial investments and greater commitment of
human resources. Phases are overlapping. There is much pressure to accelerate time to
market. Very effective communication is needed. Product development is multifunctional
  Activities are not sequential in reality but overlapping
 There is much pressure for fi rms to accelerate time to market for new products, and a
certain amount of phase overlapping is an important tool in speeding new products to
market. -> for this to happen product team members from different functional areas need to
communicate very effectively
 The team must become involved as early as possible in the new products process
 Another way that fi rms have been able to avoid delays and speed up time to market is to
streamline the evaluation tasks.
 An evaluation task that includes conditional Go (go for now but can be halted at a later
phase) decisions is sometimes called a fuzzy gate
o Fuzzy gates speed up the process because time is not wasted in obtaining complete
information before the decision is made.
o Related problem is the hollow-gate problem which results in many problems. (full
go decision, but fail to commit any resources to the project)
o Gates without teeth, hollow gates, special treatment for executives or hidden
agendas can still hinder effectiveness of the new product process, but all are
identifiable and avoidable.

The Other Strategic Elements

- Product innovation charter: assessment and opportunity identification

o The PIC is developed by senior management and provides guidance to all functional
areas involved in innovation.
o It defines a scope of activity for new product development, helping the product
team identify what opportunities lie within the boundaries and where they should
focus their efforts.
- VOC: voice of the customers