New product development
A ‘new product’ can be a product or a service. It can be the next revolutionary computer chip, or a new holiday package put together by a travel agent. The point is, it is new, so it is often risky.
This briefing will not help you generate the ideas for completely new products, or recognise a winner when you see one. It focuses on the next stage - turning an idea into a product, once you have decided to go ahead with it. It covers:
- Reducing the risks as early as possible.
- Setting a spec, a price and a schedule.
- Running the project team and keeping costs under control.
Apart from having the right idea in the first place, there are three essential ingredients for successful new product development.
1.1 You need the relevant skills.
- For example, if you are developing a new food product, having a technician create the right look and taste is only the start. Other issues include sourcing ingredients, the mass production process, quality control, packaging, customer trials, costing and pricing, and so on.
You may need to include several people from outside your business (see 4).
1.2 You need to commit sufficient resources.
- If you can only afford a half-hearted attempt, do not begin. Without the critical mass of people, time and money invested, your project will be doomed.
- If you commit too many resources, the rest of your business may suffer.
- You may need finance.
1.3 You need personal commitment to the success of the project.
- Though teamwork is important (see 4), in a smaller business it is often the owner-manager who must drive the project.
In practice, most new product development is incremental - improving on an existing product. Compared with starting a product from scratch, this is relatively straightforward.
Identify major risks early on, so you can decide if the overall risk is worth the potential reward.
2.1 Analyse all the market risks. For example:
- Establish the likely volume of sales, and the marketing and sales cost of achieving each sale.
- Is your target market growing or shrinking? Are there any foreseeable changes in your market that could affect the success of your product launch - such as new product safety legislation.
- Are there any competing products already in the market that may block your route to entry? What are the strengths and weaknesses of the product? Can you offer something different and unique?
The killer blow for a new product will often be something you have not even considered.
2.2 Analyse the technical risks.
- For example, do you need in invest in new equipment or technology to make the production of the new product possible?
2.3 It is extremely helpful to have a working prototype to test. This need not be an expensive process.
- For mechanical devices you may need both a ‘works-like model’ and a ‘looks-like model’. If you are improving on an existing product, you may only need to model the new features.
- Start with a simple prototype such as a drawing. Good feedback at this stage can save time and money.
Potential customers, suppliers and members of the development team can give extremely valuable feedback once they see what the product is and how it works.
2.4 Avoid being the pioneer, who has to learn the hard way. Look for evidence of what others have achieved before you.
- Look at recent developments in related products. Visit trade shows to get ideas of forthcoming products and trends before they hit the market.
2.5 Work out how to reduce each risk to an acceptable level.
- For example, can your new design be patented or protected in some other way?
You need to know the what, when and how much of your new product before you can turn your idea into a project.
3.1 Start by defining a basic specification (‘spec’) for the product. List the features and how they translate into specific requirements.
3.2 Make sure you have a unique selling proposition (‘USP’) - a reason for customers to switch over to your product.
- Ask yourself what will make customers choose your product over a rival’s.
3.3 Plan the design of your product. This can be crucial to its success.
- Use in-house or external designers and get them to sign confidentiality agreements.
3.4 Pencil in a launch date.
- When should the product be ready? If it is delayed, how will that affect pricing, sales volumes and profitability?Unless you and a competitor are racing to launch similar products, hitting a particular launch deadline may not be vital.
- Plan to launch a pilot version of the product with a few favoured customers, to identify and sort out the inevitable problems before the main launch. This also helps you build up your order book before the launch.
- If you need any approvals or certification (eg for any electrical product), book the product tests. Ask if the approvals body can also test your prototype to identify any problems early on.
3.5 Decide on the likely selling price for the product. Based on this, work out what your maximum unit cost of production can be.
- Many new products are based on achieving cost reduction. The aim is to provide the same quality of product at a lower price and with better profit margins.
- Other products rely on superior design or technology to win market share, and can be priced at a premium. You still need to build to a price, to avoid pricing your product out of the market.
3.6 Estimate volumes and delivery demands.
- How many will you make and sell each month? What will typical order sizes be? How quickly will customers need delivery?
- If you will sell the new product in volume, it is important to achieve a low unit cost of production. To do this, you may have to invest heavily in the development stage.
Hand pick your team to suit the project.
4.1 Every new product needs a product champion to lead the team.
This individual should regard the product as his or her ‘baby’.
- Without such a champion, the project will lack the passion and perseverance needed to overcome the inevitable setbacks.
- Give the team leader the authority to run the project (within an agreed budget and timetable), without interference.
4.2 Create a team with all the skills needed to make the project a success (see 1.1).
- Involving a complete team from the start allows people to work in parallel, reducing the overall development lead time.Without this approach, problems can remain hidden until late in the day.
- Involve key customers, if appropriate.
- Involve any suppliers that will provide key components of the product.
4.3 Make sure all the team members are agreed about the main objectives that are based on the basic spec (see 3.1).
4.4 Be prepared for negativity and keep the team motivated.
- If anyone is unco-operative or has a ‘can’t-do’ attitude, this will have a negative effect on the rest of the team. Avoid including such a person in the first place.
- Most projects go through a honeymoon period, while you are generating ideas. Putting these ideas into practice can be a long and tiring process.
- Make it clear that there will be failures along the way, so individuals are neither afraid of making mistakes, nor depressed by setbacks when they occur.
Having formed the project team and agreed that the new product is commercially and technically viable, you need to get the details right.
5.1 The team leader should decide the key parameters for the product specification.
5.2 Where appropriate, allow each individual to decide the more detailed specifications, within these agreed parameters.
- By allowing individuals to take personal responsibility for each part of the project, you end up with a highly-motivated team.
- Use a series of SMART objectives (specific, measurable, agreed, realistic, time-limited) to control progress. This helps to identify problem areas that you can then focus on.
5.3 Draw up a critical path diagram that shows the order in which tasks must be completed.
- By agreeing some working assumptions, your team can start work on different bits of the jigsaw.
- For major projects involving several people, use a project management package. For example, Microsoft Project.This allows you to schedule in factors such as people’s other commitments. You can then spot likely delays and bottlenecks.
5.4 As the project proceeds, you may need to adjust the spec and planning assumptions.
- When you show customers the prototype, you may be forced to re-think the whole product, in the light of feedback received.
- Keep asking yourself if the project will meet its commercial objectives.
Without planning and monitoring, costs can spiral out of control.
6.1 Use top-down cost estimating if you have done a comparable project before.
- Using the previous project as a benchmark, you might double the cost (if the new project will take twice as long, using the same number of people) then add in an inflation factor.
6.2 Use bottom-up cost estimating if there is no comparable project.
- Each team member calculates the cost of his or her part of the project. These costings are agreed with the team leader. Add up these costings and add in a contingency factor to estimate the total cost. This is the budget for the project.
- Bottom-up estimates often seriously underestimate the costs, because tasks take much longer than expected.
You need to adapt and innovate constantly to stay ahead of the competition.
7.1 Plan for new product development on a scheduled basis.
- Extend product life cycles by repackaging, adding new features and finding new applications for the product.
- Do not wait until competitors launch their ‘next generation’ product before starting on your own.
7.2 Budget for new product development.
- Put aside funds to make improvements and for totally new products.
- Set yearly targets for the number of improvements or new products you aim to complete.