• Alex Savin
• March 23, 2022
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New Product Development in the Nutshell

For every company producing new things, new product development is crucial. NPD is an area where a lot of money and expertise is invested and is a necessary part of every production process.

What is New Product Development

In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (something physical you can touch) or intangible (like a service, experience, or belief). The NPD process involves two parallel paths: idea generation, product design, and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic product life cycle management to maintain or grow their market share.

Product’s lifecycle this paper examines the nature of a firm’s core capabilities, focusing on their interaction with new product and process development projects. Two new concepts about core capabilities are explored here. 

First, while core capabilities are traditionally treated as clusters of distinct technical systems, skills, and organizational systems, these dimensions of capabilities are deeply rooted in values, which constitute an often overlooked but critical fourth dimension. 

Second, traditional core capabilities have a downside that inhibits innovation, called core rigidities. Managers of new product and process development projects thus face a paradox: how to take advantage of core capabilities without being hampered by their dysfunctional flip side. Such projects play an important role in emerging strategies by highlighting the need for change and leading the way. Twenty case studies of five firms’ new product and process development projects provide illustrative data.

Managing new product development (NPD) is, to a great extent, a process of separating the winners from the losers. At the project level, tough go/no-go decisions must be made throughout each development effort to allocate resources appropriately. Benchmarking helps identify the critical success factors that set the most successful firms apart from their competitors at the company level. This company- or macro-level analysis also has the potential for uncovering success factors that are not readily apparent through the examination of specific projects.

Key Success Factors for a New Product Development

To improve our understanding of the company-level drivers of NPD success, Robert Cooper and Elko Kleinschmidt describe the results of a multi-firm benchmarking study. They propose that a company’s overall new product performance depends on the following elements:

• The NPD process and the specific activities within this process
• The organization of the NPD program
• The firm’s NPD strategy
• The firm’s culture and climate for innovation
• Senior management commitment to NPD

Given the multidimensional nature of NPD performance, the study involves ten performance measures of a company’s new product program:

• Success rate
• Percent of sales
• Profitability relative to spending
• Technical success rating
• Sales impact
• Profit impact
• Success in meeting sales objectives
• Success in meeting profit objectives
• Profitability relative to competitors
• Overall success

The ten performance metrics are reduced to two underlying dimensions: program profitability and program impact. These performance factors become the X-and Y-ax.es of a performance map, a visual summary of the relative performance of the 135 companies responding to the survey. The performance map breaks down the respondents into four groups: solid performers, high-impact technical winners, low-impact performers, and dogs. Again, the objective of this analysis is to determine what separates the solid performers from the companies in the other groups.

The analysis identifies nine constructs that drive performance. In rank order of their impact on performance, the main performance drivers that separate the solid performers from the dogs are a high-quality new product process: 

• a clear, well-communicated new product strategy for the company; 
• adequate resources for new products; 
• senior management commitment to new products; 
• an entrepreneurial climate for product innovation; 
• senior management accountability; 
• strategic focus and synergy (i.e., new products close to the firm’s existing markets and leveraging existing technologies); 
• high-quality development teams; and cross-functional teams.

These faster, better, and cheaper marching orders summarize the challenge facing new product development (NPD). In other words, NPD teams must find the means for speeding up time to market while also improving product quality and reducing product costs. Cross-functional teams have proved effective for meeting these challenges, and such groups may extend beyond company boundaries to include key materials suppliers.

Implementation of a New Product Development Plan

Effective integration of suppliers into NPD can yield such benefits as reduced cost and improved quality of purchased materials, reduced product development time, and improved access to and application of technology. As Gary Ragatz, Robert Handfield, and Thomas Scannell point out. However, those benefits do not automatically accrue to any NPD team that includes a supplier’s company representatives. A study of 60 member companies from the Michigan State University Global Procurement and Supply Chain Electronic Benchmarking Network explores the management practices and the environmental factors that relate most closely to the successful integration of suppliers into the NPD process.

The study identifies supplier membership on the NPD project team as the greatest differentiator between most and least successful integration efforts. Although the respondents reported only moderate use of shared education and training, the study cites this management factor as another significant differentiator between most and least successful efforts. Respondents listed direct, cross-functional, intercompany communication as the most widely used technique for integrating suppliers into NPD.

To integrate suppliers into NPD, a company must overcome such barriers as resistance to sharing proprietary information and the not-invented-here syndrome. The results of this study suggest that overcoming such barriers depends on relationship structuring—that is, shared education and training, formal trust development processes, formalized risk/reward sharing agreements, joint agreement on performance measurements, top management commitment from both companies, and confidence in the supplier’s capabilities. Overcoming these barriers also depends on asset sharing, including intellectual assets such as customer requirements, technology information, and cross-functional communication; physical assets such as linked information systems, technology, and shared plant and equipment; and human assets such as supplier participation on the project team and co-location of personnel.

Although many new-products professionals may harbor hopes of developing “the next big thing” in their respective industries, most product development efforts focus on incremental innovations. Accordingly, most research on the new product development (NPD) process focuses on developing revolutionary products. For new-products professionals seeking insights into the means for achieving breakthrough innovations, a fundamental question remains unanswered: Does the NPD process for discontinuous products differ from incremental or continuous products?

Robert Veryzer presents findings from an in-depth study of eight sporadic product development projects to understand better managerial practices associated with discontinuous innovation. The study explores the key factors that affect the discontinuous NPD process and the methods that the firms in this study used for assessing the radically new products they have in development. From the findings in this study, he develops a descriptive model of the discontinuous product development process, and he offers insights into the requirements for effective management of sporadic innovation projects.

Although half the firms in the study use a formal process for evaluating radically innovative products, the participants in the study generally do not employ a legal, highly structured process for managing discontinuous NPD efforts. However, these firms do follow a consistent, logical process in developing radical innovations, and their process differs significantly from incremental NPD processes.

The processes used by the firms in this study are more exploratory and less customer-driven than the typical, incremental NPD process. The impetus for all the projects in this study comes from the convergence of developing technologies, various contextual or environmental factors (for example, government regulations), and a product champion or visionary. Starting from these drivers, the discontinuous NPD process focuses on formulating a product application for the emerging technologies. In all cases, these firms developed prototypes at an earlier stage than the typical, incremental NPD process. To aid in the formulation of a new product application from emerging technologies, prototype construction in these discontinuous NPD projects precedes opportunity analysis, assessment of market attractiveness, market research, and financial analysis.

The key to success in industries populated by entrepreneurial high-technology firms is how the firm develops new products. Rapid product development creates significant advantages for entrepreneurial firms, including access to early cash flows, external visibility, legitimacy, and early market share. The higher a firm’s rate of new product development, the more likely the firm is to achieve and maintain these first-mover advantages. This is particularly true in pharmaceutical industry industries, where the effectiveness of patent protections leads to patent races in which a “winner take all” scenario exists. But even in industries where patent protection is weak, the advantages of being first, in terms of market preemption, reputation effects, experience curve effects, etc., can still be of major importance. We argue that one way an entrepreneurial firm can increase its rate of new product development is by entering into strategic alliances with firms that possess complementary assets.

The basic proposition advanced is that a firm’s rate of new product development is a positive function of the number of strategic alliances it has entered. However, the relationship between strategic partnerships and the rate of new product development may be nonlinear. Specifically, although strategic alliances may initially positively affect the rate of new product development, this relationship may exhibit diminishing returns. Moreover, negative returns may set in past some point. Thus, the relationship between the number of alliances and the rate of new product development may be an inverted U-shape.

Two reasons can be given to support such a relationship:

First, not all alliances will make an equal contribution to increasing the rate of new product development. The economic “law” of diminishing returns suggests that the more associations a firm engages in, the more likely it is to enter some alliances whose marginal contribution is relatively minor. Such a phenomenon on its own is enough to suggest diminishing returns.

Second, gaining access to complementary assets through strategic alliances is not without risks. Malperformance may occur when the firm discovers that the complementary assets provided by the partner are a poor match, fail to live up to the promises made by the partner, or a partner may opportunistically exploit an alliance, expropriating the firm’s know-how while providing little in return. 

These problems arise because the effectiveness with which the firm can select and manage alliance partners is likely to be negatively related to the number of alliances the firm is working on. Due to information processing requirements, the quality of partner search and the ability to monitor the partners’ actions will decline as the firm increases the number of alliances in which it is involved. This reasoning leads to a prediction that past some point, partnerships will be increasingly vulnerable to malperformance. This raises the possibility of diminishing returns to the number of alliances and negative returns as the number of alliances increases past some critical point.

This proposed relationship between alliances and new product development was tested on a sample of 132 biotechnology firms. The results provide strong evidence to support the inverted U-shaped relationship between the number of strategic alliances and the rate of new product development. Therefore, strategic partnerships are positively related to new product development at low levels. Still, as the number of alliances increases, the benefits begin to decrease, and at high levels, the costs of an additional alliance outweigh the benefits.

Conclusion

The whole process of NPD has several stages: Idea Generation, Idea Screening, Concept Development, Testing, Business Analysis, Beta Testing, Market Testing, Technical Implementation, Commercialization, and finally, New Product Pricing. Once NPD goes through all these stages, a new product is created and ready for sale.