The Challenges of New Product Development
This article first identifies challenges in New Product Development then describes practices to address several of these challenges at once. New Product development challenges fall into three major categories:
• Definition of product specifications
• Time and resources issues
• Interactions of the Product Development group with the rest of the company
What Product and Why?
The design team is already working to a specification when suddenly, the most successful Account Manager comes in and swears that he can get a million dollar order if the new product features can just be changed a bit. Better yet, the customer is the company’s biggest customer and your employer cannot afford to upset him. You recast the scope of the new product and start over with the design.
One week later, the VP of Sales summons you and the President to a meeting. Another opportunity has come up, potentially representing a 20% increase in company revenue this year. This is for the new product under development and the Sales team has been trying unsuccessfully to get into this large account. This is their opening. The new product will need to meet the prospect’s specification which differs from both the original and the revised specification.
On his way out, the VP of Sales delivers his parting shot: the proposal is due in two weeks while your realistic target date for completion of the design in progress is in three months.
All these situations are symptoms of the same issue: not defining upfront the target market for the new product. The situation described above usually occurs in the absence of a Marketing function (Market Managers or Product Managers) to shield the Product Development group from the immediacy of the Sales demands and to provide realistic pricing and market size definition and expectations. Another manifestation of this issue is the addition of features to the product so it can satisfy every possible customer without consideration of the associated prohibitive cost.
Finite Resources
Designing to a moving target is a fine way to strain limited resources and delay the revenue generating completion of the project. The delay makes it more likely that the market will change and prevent your company from harvesting all the revenue it had anticipated. The changes can take the form of external events such as the current economic crisis or of competitive activity such as the early release of products that are substitutes for yours.
R&D resources risk being sucked into the daily demands of technical support when the same group handles both. This will also cause delays and decrease the profitability of New Products. If the two functions cannot be separated, assigning a dedicated individual to each new product project can have the same benefits. Mentoring by a more versatile and experienced Manager can allow the assignment of a junior professional who, unlike his Manager, will not be distracted by competing demands. To see more Practical Tips for Managing New Product Development, click here.
Stretching finite resources too thin can drag project timelines and increase risk. It is often the number one challenge of NPD leaders.
Interactions with the Rest of the Company: Eliminating Silos
Is Technical Product Development an island in your company, working in isolation until the design is finished? Isolation can manifest itself in at least two ways: in one, the New Product Development group conceives of the product, writes the specification, designs the product and even estimates its selling price and anticipated revenue. If this looks normal to you, ask yourself: how successful would the company be if Operations specified the products and the Sales department designed them?
Another symptom of isolation is when ideas get explored by the technical group but never progress beyond exploration: no connection with the rest of the business is the cause.
Such isolation can lead to overestimating the selling price and quantities sold: 44% of new products fail to deliver the projected sales, according to one study. This isolation delays revenue generation as the Sales department does not get a chance to prepare the market in advance of product launch.
This isolation can also cause delays in Operations. The plant manager could be reluctant to break production runs in order to produce pilot quantities of the new product, delaying market adoption and revenue.
All these delays and wrong estimates contribute to wasted resources.
The Solution
Many of the challenges in New Product Development do not occur in the product development itself, but are organizational challenges that result in interpersonal friction and reduced return on investment. One solution can address all these issues: the implementation of a New Product Development process.
As described here, a New Product Development process with stages allows organizations to prioritize their new product development efforts according to clear criteria such as market evaluations and return on investment. It also aligns the entire organization behind each project, preventing conflicts in priority between different departments. The use of gates between phases ensures, for example, that design happens only after a specification has been agreed upon.
To address these challenges of New Product Development, a process must have the following features:
• Assess the projects financial value before the development starts
• Prioritize projects according to clear criteria
• Let Marketing professionals define the target market and specify the product upfront
• Involve all the functions of the companies at the product selection stage
• Align project targets and resources
Our New Product Development process meets the five criteria above and will address all the challenges of new product development mentioned in this article.