NEW PRODUCT DEVELOPMENT AND MANAGING NEW PRODUCT DEVELOPMENT PROCESS SELMA SARIOĞLU N.NİHAN ÇELİK N. ECE ÖZ F. SÜMEYYE DURAK
INNOVATION MANAGEMENT AND NPD • Tomanypeoplenewproductsaretheoutputs of theinnovationprocess, wherethenewproductdevelopment (NPD) process is a subprocess of innovation. • New productdevelopmentconcernsthemanagement of thedisciplinesinvolved in thedevelopment of newproducts.Thesedisciplineshavedevelopedtheirownperspectives on thesubject of NPD. • Forexample; theproductionmanagementexaminesthedevelopment of newproductsfrom a manufacturingperspective. • Thelack of commonapproachtothedevelopment of newproducts is duetothismultipleperspective.
NEW PRODUCTS AND PROSPERITY • Thepotentialrewards of NPD areenormous. • Oneonly has toconsidertherapidsuccess of companiessuch as Microsoft andCompaq in therapidlygrowinghomecomputerindustry.
CONSIDERATIONS WHEN DEVELOPING A NPD STRATEGY • Establishing a directionfor a businessandtheselection of thestrategiestoachieveitsgoals form an on-going, evolvingprocessthat is frequentlysubjecttochange. • Thissituation is particularlyevident at theproductionstrategylevel. • Theprocess of productstrategy is thecreativeprocess of recognisinggenuinebusinessopportunitiesthatthebusinessmight be abletoexploit.
ON-GOING CORPORATE PLANNING • Inlargeorganisationsthis can be a veryformalactivityinvolvingstrategicplannersandseniormanagerswithresponsibilityforsettingthefuturedirection of thebusiness. • Insmallerorganisationsthisactivitymay be undertakenbytheowner of thebusiness. • Formanybusinesses it is somewhere in themiddle of thistwoextremes. • Theeffects of anycorporateplanningmay be importantandlong-term.
ON-GOING MARKET PLANNING • Decisionsby market plannersmayhaveequallysignificanteffects. • Forexample; therealisationthat a competitor is abouttolaunch an improvedtennisshoemayforcethebusinesstoestablishfivenewproductdevelopmentprojects.Two of theseprojectsmay be establishedtoinvestigatetheuse of newmaterials, onecould be usedtodevelop a series of newmaterials, oneforalternativefasteningandandonecould be usedtoreduceproductioncosts.
ON-GOING TECHNOLOGY MANAGEMENT • Inmostscienceandtechnologyintensiveindustriessuch as pharmaceuticalandcomputer software industries, thisactivity is probablymoresignificantthan on-going market planning. • Technologyawareness is veryhigh • Thecontunialanalysis of internal R&D projectsandexternaltechnologytrawlingwillleadtothenumeroustechnicalopportunities.
OPPORTUNITY ANALYSIS/SERENDIPITY • Someotherinputsareoftenlabelledmiscellaneousor put downtoserendipity. • Thevice-president of 3M remarkedthat ‘ chaos is a necessarypart of an innovativeculture.It’sbeensaidthat 3M’s competitorsneverknowwhatwearegoingtocomeupwithnext.Thefact is neither do we.’
NPD AS A STRATEGY FOR GROWTH • Theinterestexpressedbymanycompanies in thesubject of developingnewproducts is hardlysurprisinggiventhatthemajority of businessesareintent on growth. • Thedevelopment of thenewproductsprovides an opportunityforgrowingthebusinesses. • One of theclearestway of identifyingthevariety of growthoptionsavailableto a business is usingAnsoff’s (1965,1968) directionalpolicymatrix. • Thiswell-knownmatrixcombinestwo of thekeysvariablesthatenable a businesstogrow: an increase in market opportunitiesand an increase in productopportunities. • Withinthismatrixnewproductdevelopment is seen as one of fouravailableoptions.
NPD AS A GROWTH STRATEGY MarketPenetration:Increasingthe market share of a business’sexistingproductsbyexplotingthefullrange of marketing-mixactivities is thecommonapproachadoptedbymanycompanies. Thismay be includebrandingdecisions. Market Development:Inthisinstancethecompanymaintainsthesecurity of itsexistingproducts but optstodevelopandenternewmarkets.Market development can be achievedbyopeningupnewsegments.Similarly, companiesmaydecidetoenternewgeographicareasthroughexporting.
NPD AS A GROWTH STRATEGY ProductDevelopment:Ansoffproposesthatgrowthopportunitiesexistthroughofferingneworimprovedproductstoexistingmarkets.Virtuallyallcompaniestrytoensurethattheirproductsareabletocompetewiththecompetitionbyregularlyimrovingandupdatingtheirexistingproducts. Diversification:Theselection of thisoptionwould be significant in thatthebusinesswouldmoveintoproductareasandmarkets in which it currentlydoes not operate.Manycompaniestrytoutiliseeithertheirexistingtechnicalorcommercialknowledgebase. Additionalopportunitiesfordiversifiedgrowthexistthroughforward, backwardandhorizontaldiversification.
A Range of ProductDevelopmentandOpportunities: A development of Ansoff’sdirectionalpolicymatrixwasJohnson andJone’smatrixforproductdevelopmentstrategies.ThismatrixreplacesAnsoff’sproductvariablewithtechnology.Itbuilds on Ansoff’smatrixbyofferingfurtherclarification of therange of optionsopento a companycontemplatingproductdecisions. Inparticular, theuse of technology as a variablebetterillustratesthedecisions a companyneedstoconsider. • Similarly, the market-newnessscaleoffers a morerealisticrange of alternatives. • Therange of productdevelopmentstrategiesthatareopento a companyintroducesthenotionthat a newproduct can takemanyforms.
WHAT IS A NEW PRODUCT? • Attemptingto define what is andwhat is not a newproduct is not a trivialtask. • It is importanttonotethat a product is a multidimensonalconcept.It can be defineddifferentlyand can takemanyforms.Somedimensionswill be tangibleproductfeaturesandothersintangible.Doestheprovision of differentpackagingfor a productconstitute a newproduct? Surelytheanswer is no- or is it? • New packagingcoupledwithadditional marketing effort, especially in terms of market communications, can helptoreposition a product. • Ifweacceptthat a product has manydimesions, then it mustfollowthat it is theoreticallypossibletolabel a product ‘new’ bymerelyalteringone of thesedimensionsforexamplepackaging.
DEFINING NEW PRODUCT • Newness is a relativeterm.Inthecase of a newproduct it is relativetowhatprecededtheproduct. • Research in thisareasuggeststhatonly 10 percent of newproductsintroducedarenewtoboththe market andthecompany.New tothecompanymeansthatthecompany has not soldthistype of productbefore, but otherfirmscouldhave.New tothe market meansthattheproducths not appearedbefore in the market.
CLASSIFICATIONS OF NEW PRODUCT • Therehavebeenmanyattempstoclassifynewproductsintocertaincategories.Veryoftenthedistinctionbetweenonecategoryandanother is one of degreeandattemptingtoclassifyproduct is subjecttojudgment.
New-to-the-worldproducts: Theserepresent a smallproportion of allnew productsintroduced.Theyarethefirst of theirkindandcreate a new market.Theyareinventionsthatusuallycontain a significantdevelopment in technology. Forexample; Kodak’sdigitalcamera. • New productlines: Although not newtothemarketplace, theseproductsarenewtotheparticularcompany.Theyprovide an opportunityforthecompanytoenter an established market forthefirst time.Forexample;Samsungand Sony Ericsonhaveenteredthecellphone market.
Additionstoexistinglines: Thiscategory is a subset of newproductlines.Thedistinction is thatwhilethecompanyalready has a line of products in this market, theproduct is significantlydifferentfromthepresentproductoffering but not sodifferentthat it is a newline.Forexample; Hewlett-Packard’scolourink-jet printer was an additiontoitsestablishedline of ink-jet printers.
Improvementsandrevisionstoexistingproducts: Thesenewproductsarereplacement of existingproducts in a firm’sproductline.Forexample; Hewlett-Packard’sink-jet printer has receivednumerousmodificationsover time and, witheachrevision, performanceandreliabilityhavebeenimproved. Thisclassificationrepresents a significantproportion of allnewproductintroduces.
Costreductions: Thiscategory of productsmay not be viewed as newfrom a marketing perspectivelargelybecausetheyoffer no newbenefitstotheconsumerotherthanpossiblyreducedcosts.Theabilitytooffersimilarperformancewhilereducingproductioncostsprovidesenormousadded-valuepotential.Improvedmanufacturingprocessesandtheuse of differentmaterialsarekeycontributingfactors.
OVERVİEW OF NEW PRODUCT DEVELOPMENT
Some of thesourcesfornewproductideasincludethebusinesscustomers, competitors, newspapers, journals, employeesandsuppliers. IDEA GENERATION
SCREENING Inproductscreening, poor, unsuitableorotherwiseunattractiveideasareweededoutfromfurtheractions.
CONCEPT TESTING Concepttestingpresentstheconsumerwith a proposedproductandmeasuresattitudesandintentions at thisearlystage of development.
BUSINESS ANALYSIS Businessandfinancialanalysisfortheremainingproductconcepts is muchmoredetailedthanproductscreening. • Stagesare: • Demandprojections • Costprojections • Competition • Requiredinvesment • Profitability
PRODUCT DEVELOPMENT Productdevelopmentconverts a product idea into a physical form andidentifies a basic marketing strategy. Itinvolvesproductconstruction, packagingandusagetesting
TEST MARKETİNG The test market ideally aims to duplicate "everything" - promotion and distribution as well as "product" - on a smaller scale.
COMMERCIALIZATION Commercializationinvolvesimplementing a total marketing plan andfullproduction.
MODELS OF NPD
DEPARTMENTAL-STAGE MODELS Departmental-Stage model based around the linear model of innovation, where each department isresponsibleforcertaintasks.
CROSS-FUNCTIONAL MODELS (TEAMS) Common problems that occur within theproduct development process centre aroundcommunicationsbetweendifferentdepartments. The cross-functional teams (CFT) approachremoves many of these limitations by having a dedicated project team representingpeople from a variety offunctions.
DECISION-STAGE MODELS Decision-stage models represent the new product developmentprocess as a series ofdecisions 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 asnumerous inputs into a ‘black box’ where they are converted into an output.
RESPONSE MODELS Response models are based on the work of Beckerand Whistler who used abehaviourist approachto analyse change.
NEW PRODUCTS AS PROJECT The previous chapters have outlined some of the conditions that are necessaryfor innovation to occur and have shown variousrepresentations of the new productdevelopment process. However, while these conditions are necessary, they are insufficientin themselves to lead to the development of new products. This is because, aswith any internal organisational process, it has to be managed by people. The concepts ofstrategy, marketing and technology all have to be coordinated and managed effectively.This is where the attention turns from theory and representation to operationandactivities.
NEW PRODUCTS AS PROJECTS We have seen that a product idea may arise from a variety of sources. We have alsoseen 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 involvedthat the process is said to be complicated and difficult to manage. To be successful new product development needs to occurwith the participation of a variety of personnel drawn from across the organisation.