6 Innovative Production Strategies 6.1 New Product Development Methods

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6.Innovative Production Strategies

6.1 New Product Development Methods
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Innovative Production Strategies
6.1
New Product Development Methods
Keywords: New product development, NPD, product design, stage-gate

This component aims to present you a detailed process for better managing the
new product development process. Although several methods are discussed the
most popular which is the stage-gate process with all its success factors is
described in detail. Readers will get an insight into how companies manage to successfully
introduce new products and services to the market by following New Product Development
(NPD) processes. After reading the component you will be aware of:
The importance of following an NPD process
The necessary steps to implement the stage-gate process and the success factors of
each step
How an NDP process can support you to minimise risks and maximise profits.
The estimated time to go through this module is about 30 minutes.
Introduction
All business organisations face the challenge of innovation. Their survival and growth
depends upon their capacity to renew what they offer the world (product/service
innovation) and the ways in which they create and deliver that offering (process
innovation).1 New products are critical to successful growth and increased profitability for
most Small and Medium Enterprises (SMEs). As most European SMEs dont have a
typical R&D (Research and development) department, SMEs who play and win the
innovation game, not only sustain themselves in their sector but also tend to distinguish
themselves as market leaders.
Basic marketing theory suggests that all products have a life cycle consisting of
introduction, growth, maturity, and decline. In the maturity or decline stage it is
vital that an organisation consider:
(1) expanding the product line to extend the life cycle
(2) or redesigning the product to maintain its competitive superiority
(3) or developing a new product to maintain revenue and profitability.
Tidd, J., J. Bessant, and K. Pavitt, 2001
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There are rewards for successful innovation and punishment for failing to innovate. But the
new product development process must be managed properly so that the risks are
minimised and profits are maximised. This text is designed to help you understand the
NPD methods necessary to introduce successful new products.
6.1.1 What are new product development methods?

To avoid development of a new product that will not be a success in a market and to
minimise the costs of such a development, a NPD roadmap can be used.
Generally speaking NPD methods are tools providing a roadmap that can help
companies and organisations to successfully develop new products or upgrade
existing ones through a series of logical steps, starting from the process of idea
generation and ending at the launch of the product into a market.
The most popular NPD method is called Stage-GateTM and contains a series of activities
called Stages and control points between two stages called Gates. Each stage contains
information and well-defined series of activities concerned with the particular stage of the
development and each gate is a decision point where senior management can keep on or
stop funding the process. In more detail, a stage contains all the information and tools that
are needed to successfully complete the particular stage and a gate contains the required
questions or specifications or mandates to which the results of the previous stage are
compared to so that a go / kill or hold decision can be made.
Figure 1: Stage-Gate method roadmap2[p1]

Now stop and think if you have ever used this kind of procedure in your
organisation while developing a new product or upgrading an existing one.
6.1.2 Why new product development methods are important?

Partly as a consequence of the increasing rate of new product introductions but also
because of the drive of technology advances, product life cycles are shortening. As a
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result, companies and especially SMEs are increasingly dependent on revenues from new
products to drive their growth and sometimes sustain their existence. The rapid
development of new technologies, the shift change in customer needs and attributes, and
the gradual increase of the competition in the knowledge economy has forced all
businesses and particularly the innovative sectors to adopt NPD as a necessary and
unavoidable business practice. However, NPD is a complex and time-consuming process,
which cannot be taken lightly, since it holds more perils than first meets the eye. According
to David S. Hopkins and Earl L. Baily, research has shown that 40% of new consumer
products, 20% of new industrial products and 18% of new services related products have
failed completely as products3.
Did you know that in most markets and especially those relating to consumer
products, the number of new product introductions per annum has increased
dramatically? For example, a study into the consumer packaged goods market
showed that new product introductions had increased around tenfold over an 18-year
period.4 Driven by consumer demand and fuelled by advances in technology, SMEs have
to bring more and more products to market in order to remain competitive. SMEs best able
to execute NPD will clearly have an advantage and this is partly about reducing time to
market but also about making effective use of scarce internal resources.
6.1.3 Where can NPD methods be applied?

NPD methods could be applied by anyone involved in new-product development process
including executive directors, marketing directors, business development, and R&D
directors, manufacturing engineers, start-up directors, development engineers, quality
managers, customers' service and support staff, and procurement managers. Obviously all
companies create and renew their products. Therefore, there is not any particular business
sector where an NPD process cannot be applied. However, SMEs who renew their product
portfolio quite often should take advantage of a systematic process such as NDP to
organise their methods and reduce their cost. In addition, the use of NPD provides
companies with many benefits in cases where the design, development and introduction of
a new product to the market generate high costs.
6.1.4 How NPD can be applied?

The product development funnel is one of the NPD process frameworks.5 The funnel
concept illustrates how customer needs and technological possibilities influence concept
Tidd, J., J. Bessant, and K. Pavitt, 2001
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generation and selection and how projects then evolve through the subsequent steps of
product design, prototyping and testing, and pilot production to end up in manufacturing
ramp-up and release, all taking place under decreasing levels of uncertainty which
simultaneously means reduced flexibility- as the development phases unfold over time.
One of the most widespread and well-accepted conceptual descriptions of the NPD
process is that of Clark & Fujimoto (1991) who identify five successive but overlapping
stages of the process:
Concept Generation where designers and product planners define the character of the
product from a customer's perspective.
Product Planning where the concept is translated into specifics for detailed design,
including major specifications, technical choices and cost targets.
Product Engineering where product plans are transformed into blueprints or CADdrawings then into prototypes and ultimately into real parts and components.
Process Engineering where the manufacturing tools that will realise the product are
developed and material flows, plant lay out, work organisation and tasks are defined.
Production Process where final products are made and assembled for the end
customer. The NPD process then ends with feedback into the product and process
engineering steps from ramp-up production and pre-series.
Figure 2: Funnel concept of New Product Development 6[p2]
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Another widely used model is the stage-gate model of new product development (Cooper
et al, 2002) which we introduced in 6.1.1. It identifies a series of development stages,
similar to the ones described above, but complements these models by explicitly
identifying a series of evaluation gates through which a new product project has to pass
from idea to commercial launch. The stage-gate model creates discipline in the NPD
process by requiring periodic systemic review of projects at multiple milestones in the
development cycle.
Hughes & Chafin (1996) propose a final complementary dimension they call the value
proposition process (VPP), consisting of keeping managers focused on four critical
issues/questions: capturing market value (answering the question "does the customer
care?"); developing business value (answering "do we care?"); delivering winning solution
(answering "can we beat the competition?"); and applying project and process planning
(answering "can we do it?").
Keeping these questions on the top of the development agenda, calls for continuous
performance monitoring from a customer satisfaction-, a financial-, a strategic
management-, and a process management perspective. Figure 2 illustrates the product
development process integrating and building on the steps of Clark & Fujimoto, the
product development funnel, the stage-gate model, and the value proposition process.
Has any of the above mentioned NPD methods been used in your
organisation? In your opinion, what benefits would arise from adapting New
Product Development methods for your organisation?
Required definitions
The stages7: Stages are where the action occurs. The members of the project
team undertake key tasks to gather information needed to advance the project
to the next gate or decision point. Stages are cross-functional: There is no R&D
or marketing stage. Rather each stage consists of a set of parallel activities undertaken by
people from different functional areas in the firm, working together as a team and led by a
project team leader.
To manage risk via a stage gate method, the parallel activities in a certain stage must be
designed to gather vital information - technical, market, financial, operations in order to
drive down the technical arid business risks. Each stage costs more than the preceding
one, so that the game plan is based on incremental commitments. As uncertainties
decrease, expenditures are allowed to mount and risk is managed.
John Wiley and Sons, 1995
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The gates:8 Preceding each stage is an entry gate or go/kill decision point,
shown in the diagram. Effective gates are central to the success of a fast-paced,
new product process:
Gates serve as quality control checkpoints: Is this project being executed in a quality
fashion?
Gates also serve as Go/Kill and prioritisation decision points. Gates provide the funnels
where mediocre projects are successively culled.
Finally, gates are where the path forward for the next stage is decided, along with resource
commitments. Gate meetings are usually staffed by senior managers from different
functions, who own the resources, the project leader and team required for the next stage.
These decision-makers are called gatekeepers.
Gates have a common format and include the following 3 elements:

Deliverables: These are the inputs into the gate review-what the project leader and
team deliver to the meeting. They are the results of the actions of the previous stage and
are based on a standard menu of deliverables for each stage.
Criteria: These are questions or metrics on which the project is judged in order to make
the Go/Kill and prioritisation decision.
Outputs: These are the results of the gate review-a decision (Go/Kill/Hold/Recycle). An
action plan is approved and the date and deliverables for the next gate are agreed on.
The stage-gate reviews should have a well-defined entry criteria, review objectives and
agendas for each review.
Success Factors
In order for a product launch to be successful, 7 different factors9 have to come together in
just the right way. If one is wrong, its likely the whole launch will fail.
Seven Actionable Critical Success Factors
1. Solid up-front homework to define the product and justify the project
2. Voice of the customer a slave-like dedication to the market and customer inputs
throughout the project
3. Product advantage differentiated, unique benefits, superior value for the customer
4. Sharp, stable and early product definition before Development begins
5. A well-planned, adequately resourced and proficiently executed launch
8
9
John Wiley and Sons, 1995

SAP A.G, 2004
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6. Tough go/kill decision points or gates funnels not tunnels

7. Accountable, dedicated, supported cross-functional teams with strong leaders.
The challenge of NPD is to make sure that all of these things are achieved all of
the time. NPD is difficult to manage. One of the often-heard comments is that
the NPD process is difficult to manage and this is certainly true for two reasons:
At the beginning of a project, the outcome and the work that will have to be undertaken are
often uncertain. For many groups in the company, such as supply chain management and
manufacturing, NPD is disruptive, causing them to interfere with processes that have been
painstakingly optimised.
Following is a case study of how the Stage Gate new product development process has
helped an energy company become highly competitive in a newly deregulated energy
market.
6.1.5 Case study10

ENERGEX is one of the Australias electricity, natural gas and LPG retailers. It is
leveraging its experience and expertise to develop and deliver innovative energy solutions
to a market place that is undergoing significant change. Energex's customer base
consists of more than a million commercial and domestic consumers. The company is
committed to offering a broad range of energy options and is positioning itself as an
innovative multi-fuel retailer. This strategy has put significant focus on its product
development capabilities. ENERGEX products today include domestic and commercial
electricity, natural gas and LPG supply.
Typical of the innovative, high value-added new products is EMP the companys energy
monitoring program, says Roman Meister, ENERGEX Retail Marketing Manager. EMP
packages hardware and software into one product which monitors all energy inputs and
costs, providing instant access to information on energy usage, power quality, billing
verification, on-charging and greenhouse gas emissions. Managers can have access to
volumes of data but still lack quality information about one of their most critical operating
costs their energy consumption levels. EMP changes this situation.
ENERGEX responded to the challenge of deregulation by creating ENERGEX Retail, a
fast-moving market-focused corporation that concentrates on developing and marketing
energy-based products to commercial and residential customers. It recruited some of the
best people in the industry so that it could act swiftly to meet the changing needs of the
evolving energy market.
The Challenge
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This team needed a product development process that would help them manage critical
risk without slowing them down. According to a business consultant who helped
ENERGEX, We were initially surprised by the call from ENERGEX - energy retailing is a
long way from our usual customers in manufacturing. After initial discussions, the product
development environment at ENERGEX was reviewed. This involved structured interviews
with both the users and customers of the current product development process. A review
or audit of the existing environment is always a critical starting point for any product
development process. Any issues can be brought to light and the existing process
elements can be captured and related to the organisations objectives.
According to the business consultant the results of the ENERGEX Retail review were
positive. We found high-energy teams passionate about their industry, their business and
the need to move at lightning speed in a fast-paced industry. We also found product
development processes that had much in common with those of our traditional
customers. While much of the existing process was very thorough, it had two significant
characteristics. Firstly there was a mismatch with the fast-moving culture of ENERGEX,
and secondly there were inefficient mechanisms for filtering and prioritising projects and
allocating precious resources.
In addition, Product Managers and the Product Development Manager were dissatisfied
with the quality of pre-development homework and wanted improvements in the quality of
product definition and specification before committing to development of new products.
6.1.6 Summary of key points

The nature of all work tasks involved in the new product development process is
characterised by high complexity, unpredictability and multilevel decision-making.
Nowadays there are several New Product Development methods available and each of
them should be used and applied following all required steps. The criteria to decide if and
when to use a NPD method are cost and risk related although special needs like type of
product, production method, etc should be taken into consideration. For SMEs to be
successful with the NPD process they need to have a framework/roadmap to base their
decisions on and to reduce NPD costs and risk.
The main objective of this component was to present you with some of the main
New Product Development methods and their main steps. The widely used
Stage-Gate method with all its steps, actions, stages and gates as well as the
relative success factors were presented. You have also learnt what is involved in each
stage and gate step, and how you should implement it to reduce costs, risks and improve
your quality design. Finally we presented you with a case study to see how Stage-Gate
NPD method changes and innovation in production units can improve flexibility and quality!
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BIBLIOGRAPHY
Tidd, J., J. Bessant, and K. Pavitt, (2001), Managing innovation (2nd edition)
John Wiley and Sons, (1995), Product Design: Fundamentals and Methods, Chichester
SAP A.G, (2004), New Product Development & Introduction
Dr. Robert G. Cooper, (2001), Doing right-Winning with New Products, Stage Gate Inc,
Product Development Institute
B2B International, last viewed 01 December 2008,
<http://www.b2binternational.com/case8.html>
QMI Solutions, 2008, last viewed 01 December 2008, <http://www.qmisolutions.com.au>
InnoSupport: Supporting Innovations in SME. 6.1 New product development methods,
2005, viewed 18th November 2008, <http://archive.innosupport.net>
GLOSSARY
Stage-GateTM process: A widely employed product development process that divides the
development effort into distinct time-sequenced stages or phases separated by
management decision gates. Product teams must successfully complete a prescribed set
of related activities in each stage prior to obtaining management approval to proceed to
the next stage of product development. The framework of the Stage-Gate process
includes work-flow and decision-flow paths and defines the supporting systems and
practices necessary to ensure the processs ongoing smooth operation.
Stage: One group of concurrently-accomplished tasks, with specified outcomes and
deliverables, of the overall product development process.
Gate: The decision point, often a meeting, at which a management decision is made to
allow the product development project to proceed to the next stage, to recycle back into
the current stage to better complete some of the tasks, or to terminate. The number of
gates varies by company.
Gatekeepers: The group of managers who serve as advisors, decision-makers and
resource allocators in a stage-gate process. They use established criteria to review
product development projects at each gate. This multifunctional group is generally most
visible at these gate meetings. See: Stakeholders.

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CAD: Computer Aided Design, a technology that allows designers and engineers to use
computers for their design work. Also termed CAID (industrial design), and CAE
(engineering).
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