Managing the New Product Development Process PDF

Chapter 11 Managing the New Product DevelopmentProcess 249 Scrums, Sprints, and Burnouts: Agile Development at Cisco Systems 249 Overview 252 Objectives of the New Product Development Process 252 Maximizing Fit with CustomerRequirements 252 Minimizing Development Cycle Time 253 Controll...

Chapter 11 Managing the New Product DevelopmentProcess 249 Scrums, Sprints, and Burnouts: Agile Development at Cisco Systems 249 Overview 252 Objectives of the New Product Development Process 252 Maximizing Fit with CustomerRequirements 252 Minimizing Development Cycle Time 253 Controlling Development Costs 254 Sequential versus Partly Parallel Development Processes 254 Project Champions 257 Risks of Championing 257 Involving Customers and Suppliers in the Development Process 259 Involving Customers 259 Involving Suppliers 260 Crowdsourcing 260 Tools for Improving the New Product Development Process 262 Stage-Gate Processes 262 Quality Function Deployment (QFD) - The Houseof Quality 265 Design for Manufacturing 267 Failure Modes and Effects Analysis 267 Computer-Aided Design/Computer-Aided Engineering/Computer-Aided Manufacturing 268 Tools for Measuring New Product Development Performance 269 New Product Development Process Metrics 271 Overall Innovation Performance 271 Summary of Chapter 271 Discussion Questions 272 Suggested Further Reading 272 Endnotes 273 Managing the New Product Development Process Scrums, Sprints, and Burnouts: Agile Development at Cisco Systems Cisco Systems, founded in 1984 in San Francisco, had grown to become a global leader in networking technology such as routers, servers, switches, networking software, security software, and more. For most of the company's existence, it had used the "waterfall" method to develop software.a The typical waterfall method began with analysis that would result in documents specify- ing the business case, product requirements, marketing requirements, and so on. Different teams would then be formed to sequentially design, build, test, and deploy the product. A team could begin working only when the previous team had completed its stage of the process, and the entire process could take 18 months or more. b This approach was similar to "stage-gate“ methods and consistent with how the company developed hardware products. But managers in the software divi- sions were unsatisfied; they worried that their development cycles were too long compared to other software companies, making it hard to compete. In 2014, they decided to try a new approach called agile development to make software development faster and more flexible at the firm. Agile development began as a set of principles laid out by a group of 17 software engineers at a three-day retreat at a ski resort in Snowbird Utah in 2001.c Their objective was to come to an agreement about how to make soft- ware development faster and leaner. They ended up developing a set of core values and practices that emphasize collaboration, self -organization, and cross- functional teams.d The key distinction between traditional waterfall methods and agile methods was that rather than designing a complete product upfront and moving through a sequential process that culminates in testing and release, the product is broken up into many smaller parts or features that are built and 249 250 Part Three Implementing Technological Innovation Strategy FIGURE 1 Waterfall Development Waterfall versus Agile Development Agile Development released quickly, enabling the developers to get feedback and fix bugs early (see Figure 1). The process also gave developers considerably more autonomy. The method rapidly grew in popularity, attracting companies such as Google, Spotify, Netflix, and Twitter. Furthermore, though it was designed for software development, it had also been adopted for managing other kinds of projects, and had even been adopted by companies such as Lockheed Martin, Walmart, and ExxonMobil.e The Agile Development Process In agile development, a manager deemed the product owner (a person at the orga- nization who represents the customer's interests) assembles a complete list of func- tions to be developed for the product based on user stories-short descriptions of functions described by customers in their own words. This list is called the product backlog. Work on the product backlog is organized into a series of sprints, periods of roughly two weeks in which a small set of features from the product backlog are developed and tested. Work is conducted by scrum teams, small, self-organizing teams with no titles or team manager. There is no formal task assignment; each member just contributes in whatever way they can to complete the work and the team makes decisions as a whole. Sometimes agile development projects also have a scrum master who acts as a coach for multiple scrum teams. The scrum master does not provide day-to-day direction or impose any particular technical solution; rather, the scrum master's job is to help guide the scrum process itself. The teams figure out what items they can commit to and create a sprint backlog - a list of tasks they will complete during the sprint. Each day of the sprint, all the team members and the product owner attend a quick scrum meeting of 15 minutes max where they share what they worked on the previous day, what they will work on that day, and any obstacles to their progress. During the sprint, the scrum team takes a small set of features from idea through coding and testing. At the end of each sprint, there should be work that can be demonstrated to a client - a minimum viable product or MVP. This enables customers to provide  Chapter 11 Managing the New Product Development Process 251 feedback early and often, helping the scrum teams weed out or refine their ideas. A burndown chart shows the amount of work remaining in a sprint or a product release, and is used to determine whether a sprint or release is on schedule. "Release Early, Release Often" In agile development, rather than having grand comprehensive product rede- signs, the product is constantly, incrementally adapted. Introducing small changes one or a few at a time helps to reduce risk, and also improves transparency about what works and what does not work. By contrast, when many changes are intro- duced simultaneously, it is harder to tell why the overall product succeeds or fails. For this approach to work, a product has to be fairly modular. That is, it must be possible for a large product to be broken down into many smaller, relatively independent problems that can be worked on separately (something that is not possible with all products).f Furthermore, a potential downside of the agile approach is that it may be more difficult (or less likely) to make large-scale sys- temic changes to a product. In the right setting, however, agile development can accelerate product development, improve customer satisfaction, and even improve employee sat- isfaction because the process gives them much more autonomy and a sense of ownership in their jobs. As one team member at Cisco put it, "My boss used to come and tell me to get my team to do this or do that. Now, I tell him that I cannot tell my team to do this or that; I can suggest it to them, but they will discuss and decide if it's the right thing to do."g Discussion Questions 1. What are some of the advantages and disadvantages of the agile develop- ment process? 2. How is agile development similar to or different from (a) the stage-gate pro- cess and (b) the parallel development process described in the chapter? 3. What are some of the likely changes agile development requires in manag- ing development personnel? 4. What kinds of projects do you think agile development is appropriate for? What kinds of projects do you think it might be inappropriate for? a https://www.scaledagileframework.com/cisco-case-study/ b R. Chen, R. Ravichandar, and D. Proctor, "Managing the Transition to the New Agile Business and Product Development Model: Lessons from Cisco Systems," Indiana University Kelley School of Business Teach- ing Case (2016). c http://agilemanifesto.org/history.html d "Agile Manifesto", 2001, Agile Alliance. https://www.agilealliance.org/agile101/the-agile-manifesto/ e C. M. Nyce, "The Winter Getaway that Turned the Software World Upside Down," The Atlantic, December 8, 2017 https://www.theatlantic.com/technology/archive/2017/12/agile-manifesto-ahistory/547715/. f M. A. Schilling, "Modularity in Multiple Disciplines," in R. Garud, R. Langlois, and A. Kumaraswamy eds., Managing in the Modular Age: Architectures, Networks and Organizations (Oxford, England: Blackwell Publishers, 2002) pp. 203-214. g R. Chen, R. Ravichandar, and D. Proctor, "Managing the Transition to the New Agile Business and Product Development Model: Lessons from Cisco Systems," Indiana University Kelley School of Business Teach- ing Case (2016).  252 Part Three Implementing Technological Innovation Strategy OVERVIEW In many industries, the ability to develop new products quickly, effectively, and effi- ciently is now the single most important factor driving firm success. In industries such as computer hardware and software, telecommunications, automobiles, and consumer electronics, firms often depend on products introduced within the past five years for more than 50 percent of their sales. Yet despite the avid attention paid to new product development , the failure rates for new product development projects are still agoniz- ingly high. By many estimates, more than 95 percent of all new product development projects fail to result in an economic return.1 Many projects are never completed, and of those that are, many flounder in the marketplace. Thus, a considerable amount of research has been focused on how to make the new product development process more effective and more efficient. This chapter discusses some strategic imperatives for new product development processes that have emerged from the study of best- and worst-practices in new product development. We will begin by looking at the three key objectives of the new product develop- ment process: maximizing fit with customer requirements, minimizing cycle time, and controlling development costs. We then will turn to methods of achieving these objec- tives, including adopting parallel development processes, using project champions, and involving customers and suppliers in the development process. Next we will look at a number of tools firms can utilize to improve the effectiveness and efficiency of the development process, including creating go/kill decision points with stage-gate pro- cesses, defining design targets with quality function deployment, reducing costs and development time with design for manufacturing and CAD/CAM systems, and using metrics to assess the performance of the new product development process. OBJECTIVES OF THE NEW PRODUCT DEVELOPMENT PROCESS For new product development to be successful, it must simultaneously achieve three sometimes-conflicting goals: (1) maximizing the product's fit with customer require- ments, (2) minimizing the development cycle time, and (3) controlling development costs. Maximizing Fit with Customer Requirements For a new product to be successful in the marketplace, it must offer more compelling features, greater quality, or more attractive pricing than competing products. Despite the obvious importance of this imperative, many new product development projects fail to achieve it. This may occur for a number of reasons. First, the firm may not have a clear sense of which features customers value the most, resulting in the firm's overinvestingin some features at the expense of features the customer values more. Firms may also overestimate the customer's willingness to pay for particular features, leading them to produce feature-packed products that are too expensive to gain significant market pen- etration. Firms may also have difficulty resolving heterogeneity in customer demands; if some customer groups desire different features from other groups, the firm may end up producing a product that makes compromises between these conflicting demands, and the resulting product may fail to be attractive to any of the customer groups.  Chapter 11 Managing the New Product Development Process 253 Numerous new products have offered technologically advanced features compared to existing products but have failed to match customer requirements and were subse- quently rejected by the market. For example, consider Apple's Newton MessagePad, a relatively early entrant into the personal digital assistant market. The Newton was exceptional on many dimensions. It had a highly advanced ARM610 RISC chip for superior processing performance. Its operating system was object oriented (a feature that software programmers had been clamoring for), and Apple openly licensed the architecture to encourage rapid and widespread adoption by other vendors. Also, its weight, size, and battery life were better than many of the other early competitors. However, the Newton MessagePad was still much too large to be kept in a pocket, limiting its usefulness as a handheld device. Many corporate users thought the screen was too small to make the product useful for their applications. Finally, early problems with the handwriting recognition software caused many people to believe the product was fatally flawed. Another example is Philips' attempt to enter the video game industry. In 1989, Philips introduced its Compact Disc Interactive (CD-i). The CD-i was a 32-bit sys- tem (introduced well before Sega's 32-bit Saturn or Sony's 32-bit PlayStation), and in addition to being a game player, it offered a number of educational programs and played audio CDs. However, Philips had overestimated how much customers would value (and be willing to pay for) these features. The CD-i was priced at $799, more than double the cost of Nintendo or Sega video game systems. Furthermore, the prod- uct was very complex, requiring a half-hour demonstration by a skilled sales represen- tative. Ultimately, the product failed to attract many customers and Philips abandoned the product. Minimizing Development Cycle Time Even products that achieve a very close fit with customer requirements can fail if they take too long to bring to market. As discussed in Chapter Five, bringing a product to market early can help a firm build brand loyalty, preemptively capture scarce assets, and build customer switching costs. A firm that brings a new product to market late may find that customers are already committed to other products. Also, a company that is able to bring its product to market early has more time to develop (or encour- age others to develop) complementary goods that enhance the value and attractiveness of the product.2 Other things being equal, products that are introduced to the market earlier are likely to have an installed base and availability of complementary goods advantage over later offerings. development Another important consideration regarding development cycle time relates cycle time to the cost of development and the decreasing length of product life cycles. First, The time elapsed many development costs are directly related to time. Both the expense of paying from project ini- tiation to product employees involved in development and the firm’s cost of capital increase as the launch, usually development cycle lengthens. Second, a company that is slow to market with a measured in months or years. particular generation of technology is unlikely to be able to fully amortize the fixed costs of development before that generation becomes obsolete. This phenomenon is particularly vivid in dynamic industries such as electronics where life cycles can be as short as 12 months (e.g., personal computers, semiconductors). Compa- nies that are slow to market may find that by time they have introduced their 254 Part Three Implementing Technological Innovation Strategy products, market demand has already shifted to the products of a subsequent techno- logical generation. Finally, a company with a short development cycle can quickly revise or upgrade its off ering as design flaws are revealed or technology advances. A firm with a short d, evel- opment cycle can take advantage of both first-mover and second-mover advantages. Some researchers have pointed out the costs of shortening the development cycle and rushing new products to market. For example, Dhebar points out that rapid prod- uct introductions may cause adverse consumer reactions; consumers may regret past purchases and be wary of new purchases for fear they should rapidly become obso- lete.3 Other researchers have suggested that speed of new product development may come at the expense of quality or result in sloppy market introductions. 4 Compressing development cycle time can result in overburdening the development team, leading to problems being overlooked in the product design or manufacturing process. Adequate product testing may also be sacrificed to meet development schedules.5 However, despite these risks, most studies have found a strong positive relationship between speed and the commercial success of new products.6 Controlling Development Costs Sometimes a firm engages in an intense effort to develop a product that exceeds cus- tomer expectations and brings it to market early, only to find that its development costs have ballooned so much that it is impossible to recoup the development expenses even if the product is enthusiastically received by the market. This highlights the fact that development efforts must be not only effective, but also efficient. Later in the chapter, ways to monitor and control development costs are discussed. SEQUENTIAL VERSUS PARTLY PARALLEL DEVELOPMENT PROCESSES Before the mid-1990s, most U.S. companies proceeded from one development stage partly parallel to another in a sequential fashion (see Figure 11.la). The process included a number development of gates at which managers would decide whether to proceed to the next stage, send process A development the project back to a previous stage for revision, or kill the project. Typically, R&D process in which and marketing provided the bulk of the input in the opportunity identification and some (or all) of concept development stages, R&D took the lead in product design, and manufactur- the development ing took the lead in process design. According to critics, one problem with such a activities at least system emerges at the product design stage when R&D engineers fail to communicate partially overlap. That is, if activ- directly with manufacturing engineers. As a result, product design proceeds without ity A would pre- manufacturing requirements in mind. A sequential process has no early warning sys- cede activity B in tem to indicate that planned features are not manufacturable. Consequently, cycle time a partly parallel can lengthen as the project iterates back and forth between the product design and development pro- process design stages.7 cess, activity B might commence To shorten the development process and avoid time-consuming and costly iterations before activity A between stages of the development cycle, many firms have adopted a partly parallel is completed. development process, as shown in Figure 11.1b.8 Product design is initiated before  Chapter 11 Managing the New Product Development Process 255 FIGURE 11.1 Sequential versus Partly Parallel Development Processes concurrent engineering concept development is complete, and process design is begun long before product A design method design is finalized, enabling much closer coordination between the different stages in which stages and minimizing the chance that R&D will design products that are difficult or costly of product devel- opment (e.g., to manufacture. This should eliminate the need for time-consuming iterations between concept develop- design stages and shorten overall cycle time. One type of parallel development pro- ment, product cess, concurrent engineering, involves not only conducting the typical product design, and development stages simultaneously but also takes into account downstream stages of a process design) product's lifecycle such as maintenance and disposal. and planning for later stages Parallel development processes are not universally endorsed, however. In some of the product situations, using a parallel development process can substantially increase the risks lifecycle (e.g., or costs of the development process. If, for example, variations in product design maintenance, require significant changes to the process design, beginning process design before disposal, and product design is finalized can result in costly rework of the production process. Such recycling) occur simultaneously. risks are especially high in markets characterized by rapid change and uncertainty.9 Theory in Action The Development of Zantac In the 1970s, Glaxo Holdings PLC of Great Britain was Fortunately for Jack's team, Paul Girolami, Glaxo’s one of the larger health care conglomerates in the director of finance, chose to champion the project. world, known principally for its baby food, but it needed Girolami argued that the company should be willing to a new hit product to stimulate sales. While contemplat- risk its range of decently profitable products for one ing research possibilities, the head of Glaxo's research potentially sensational drug, stating, "Having all your laboratory, David Jack, attended a lecture by James eggs in one basket concentrates the mind because you Black, a Nobel Prize-winning scientist and researcher for had better make sure it is a good basket."c Not only was U.S.-based SmithKline Beecham. During the lecture, he able to convince the company that it was Black described a new possibility for treating ulcers worth investing in the shortened development process, that involved compounds called H 2 blockers that would but also insisted that the product be modified so that inhibit gastrointestinal cells from secreting acid. Jack it could be taken once a day (Tagamet required twice- was intrigued. Ulcers were a common problem, and thus a-day use) and so that the product would have fewer represented a large market opportunity for an effec- side effects than Tagamet. These features would help tive solution. Jack began experimenting with different differentiate Zantac as a superior product, and it was compounds in pursuit of a formula that would be safe and hoped they would enable Glaxo to take share away effective. Unfortunately, researchers at SmithKline from SmithKline Beecham. The development process Beecham beat Glaxo to the finish line, introducing was successful, and the product was ready for launch Tagamet in 1977. Tagamet revolutionized ulcer treat- in 1982. To recoup its development costs, Girolami ment, and sales grew phenomenally.a chose a premium pricing strategy for the product (one- Discouraged but not thwarted, Jack's team kept third higher than Tagamet), arguing that its advantages working. Other companies (including Merck and Eli would warrant its additional cost. He also insisted that Lilly) were also developing their own ulcer treatments, the product be launched globally in all major markets, and Jack believed that beating them to market might and he set up a distribution alliance with Hoffman- still give the company a shot at a significant share. In LaRoche to speed up the product's penetration of the that same year, the team came up with a compound U.S. market. based on ranitidine (Tagamet was based on a com- Girolami's strategies were successful, and by the end pound called cimetedine) that achieved the desired of the year, Zantac was stealing about 100,000 patients objectives. However, Jack realized that if Glaxo was a month from Tagamet. By 1987, Zantac sales had going to beat Merck and Eli Lilly to market, it would exceeded Tagamet's, and by 1991, Zantac became the need to radically shorten the typical 10-year testing world's No. 1 selling prescription drug and the first drug period required to secure regulatory approval and ever to achieve $1 billion in U.S. sales.d Both David Jack bring the product to market. To achieve this, Jack pro- and Paul Girolami were knighted, and Sir Paul Girolami posed the first parallel development process used in was appointed chairman of Glaxo.e the pharmaceutical industry. Instead of following the typical sequence of testing (e.g., from rats to monkeys, a A. Corsig, T. Soloway, and R. Stanaro, "Glaxo Holdings PLC: and from short-term toxicity to long-term toxicity), Jack Zantac," in New Product Success Stories, ed. R. Thomas proposed doing all of the tests concurrently.b This (New York: John Wiley & Sons, Inc., 1995), pp. 242-52. intensified development process could potentially cut b Ibid the cycle time in half -to five years- however, it would c C. Kennedy, "Medicine Man to the World," Director 46, no. 4 also be expensive and risky. If the development efforts (1992), pp. 106-10. d increased the research costs substantially, it would be "Anti-Ulcer Drugs: Too Much Acid," The Economist 318, n o. much harder to recoup those expenses through sales 7700 (1991), pp. 82-84. e of the drug. Corsig, Soloway, and Stanaro, "Glaxo Holdings PLC: Zantac." 256  Chapter 11 Managing the New Product Development Process 257 Furthermore, once process design has commenced, managers may be reluctant to alter the product design even if market testing reveals that the product design is suboptimal. It is precisely these risks that the stage-gate* process (discussed later in the chapter) attempts to minimize. PROJECT CHAMPIONS A number of studies on new product development have suggested that firms should assign (or encourage) a senior member of the company to champion a new product development project.10 Senior executives have the power and authority to support and fight for a project. They can facilitate the allocation of human and capital resources to the development effort, ensuring that cycle time is not extended by resource constraints, and help ensure that the project can sustain the necessary momentum to surmount the hurdles that inevitably will arise. 11 A senior project champion also can stimulate communication and cooperation between the different functional groups involved in the development process. Given that interfunctional communication and cooperation are necessary both to compress cycle time and to achieve a good fit between product attributes and customer requirements, the use of executive sponsors can improve the effectiveness of the development process. As of 2001, 68 percent of North American firms, 58 percent of European firms, and 48 percent of Japanese firms reported using senior managers to champion new product development projects.12 An example of a successful use of project championing is described in the accompanying Theory in Action: The Development of Zantac. Risks of Championing Vigorous project championing, however, also has its risks. A manager's role as champion may cloud judgment about the true value of the project. Optimism is the norm in prod- uct development-surveys indicate a systematic upward bias in estimates of future cash flows from a project.13 In the role of champion, this optimism is often taken to extreme levels. Managers may fall victim to escalating commitment and be unable (or unwilling) to admit that a project should be killed even when it is clear to many others in the orga- nization that the project has gone sour, or the factors driving the project's original value are no longer relevant. While it is common to read stories about projects that succeed against all odds because of the almost fanatical zeal and persistence of their champions, bankruptcy courts are full of companies that should have been less zealous in pursuing some projects. Managers who have invested their reputations and years of their lives in development projects may find it very difficult to cut their losses, in much the same way that individuals tend to hold losing stocks much longer than they should due to the temptation to try to recoup what they have lost. Though the champion's seniority is an asset in gaining access to resources and facilitating coordination, this same seniority may also make others in the firm unwilling to challenge the project champion even if it has become apparent that the project's expected value has turned negative.14 Firms may benefit from also developing "antichampions" who can play the role of devil's advocate. Firms should also encourage a corporate culture open to the *Note: Stage-Gate® is a registered trademark of Stage-Gate International Inc. 258 Part Three Implementing Technological Innovation Strategy Research Brief Five Myths about Product Champions Stephen Markham and Lynda Aiman-Smith argue that managers being more likely to be product a number of myths have become widely accepted champions. Though stories abound featur- about new product champions. While Markham and ing prominent senior managers supporting Aiman-Smith believe that product champions are projects, as do stories featuring low-level critical to new product development, they also argue champions fighting vigorously for a project's that for product champions to be effective, their role success, empirical evidence suggests that in the development process must be completely champions may arise from any level in the understood. Markham and Aiman-Smith conducted organization. (Note that this research does not a systematic review of the theoretical and empirical indicate champions from all levels of the firm literature on product champions and identified five are equally effective.) popular myths: Myth 5: Champions are more likely to be from Myth 1: Projects with champions are more likely marketing. Markham and Aiman-Smith argue to be successful in the market. Markham that while anecdotal evidence may more and Aiman-Smith's review of the empirical often emphasize champions who have mar- data on use of project champions found that keting backgrounds, an empirical study of projects with champions were just as likely 190 champions found that champions arose to be market failures as market successes. from many functions of the firm. Specifically, Markham and Aiman-Smith point out that while the study found that 15 percent of champions champions may improve the likelihood of a were from R&D, 14 percent were from market- project being completed, the factors determin - ing, 7 percent were from production and opera- ing its market success are often beyond the tions, and 6 percent were general managers. champion's control.a Interestingly, 8 percent of champions were Myth 2: Champions get involved because they potential users of the innovations.c are excited about the project, rather than from self-interest. Markham and Aiman-Smith report a S. Markham, S. Green, and R. Basu, "Champions and that empirical evidence suggests champions Antagonists: Relationships with R&D Project Characteris- are more likely to support projects that will tics and Management," Journal of Engineering and Tech- benefit the champion's own department. b nology Management 8 (1991), pp. 217-42; S. Markham and A. Griffin, "The Breakfast of Champions: Associations Myth 3: Champions are more likely to be involved between Champions and Product Development Environ- with radical innovation projects. Empirical ments, Practices, and Performance," The Journal of Prod- evidence from multiple large sample studies uct Innovation Management 15 (1998), pp. 436-54; and indicates that champions were equally likely S. Markham, "Corporate Championing and Antagonism as to be involved with radical versus incremental Forms of Political Behavior: An R&D Perspective," Organi- innovation projects. zation Science 11 (2000), pp. 429-47. b Markham, "Corporate Championing and Antagonism as Myth 4: Champions are more likely to be from Forms of Political Behavior." high (or low) levels in the organization. c D. Day, "Raising Radicals: Different Processes for Cham- Markham and Aiman-Smith argue that there pioning Innovative Corporate Ventures," Organization are myths about both high-level and low-level Science 5 (1994), pp. 148- 72. expression of dissenting opinion, and champions should be encouraged to justify their projects on the basis of objective criteria, without resorting to force of personality. 15 The accompanying Research Brief describes five myths that have become widely accepted about project champions.  Chapter 11 Managing the New Product Development Process 259 INVOLVING CUSTOMERS AND SUPPLIERS IN THE DEVELOPMENT PROCESS As mentioned previously, many products fail to produce an economic return because they do not fulfill customer requirements for performance and price, or because they take too long to bring to market. Both of these problems can be reduced by involving customers and suppliers in the development process. Involving Customers Firms often make decisions about projects on the basis of financial considerations and level of production and technical synergy achieved by the new product proposal rather than on marketing criteria. This can lead to an overemphasis on incremental product updates that closely fit existing business activities. 16 The screening decision agile should focus instead on the new product's advantage and superiority to the consumer, development and the growth of its target market.17 The end customer is often the one most able to A process com- identify the maximum performance capabilities and minimum service requirements of monly used a new product. Including the end customer in the actual development team or design- in software ing initial product versions and encouraging user extensions can help the firm focus whereby the overall product is its development efforts on projects that better fit customer needs. 18 Distributors can broken down into also be valuable partners in the new product development process. These organiza- smaller indepen- tions will often be the first to know who is buying the product, how they are using it, dent pieces that and be the first to hear of problems with the product or suggestions for how it might are worked on be improved. 19 by autonomous, self-organizing Customers may be involved in the new product development process as an informa- teams. Features tion source, or as actual co-developers of a new product.20 Many firms use beta testing are developed to get customer input early in the development process. A beta version of a product and presented is an early working prototype of a product released to users for testing and feedback. to customers Beta versions also enable a firm to signal the market about its product features before quickly so that the overall the product reaches the commercial production stage. Agile development processes product can (that are now often used in software development) take this approach even further. be rapidly and In agile development, the product is divided into many smaller features or functional- continuously ities, and these are rapidly developed into minimum viable products and presented to adapted. the customer for feedback, enabling rapid incremental adaptation. Other firms involve lead users customers in the new product development process in even more extensive ways, such Customers who as enabling customers to co-create the end product (this is discussed more in the sec- face the same tion below on crowdsourcing). general needs of Some studies suggest that firms should focus on the input of lead users in their the marketplace but are likely to development efforts rather than a large sample of customers. Lead users are those experience them who face the same needs of the general marketplace but face them months or years months or years earlier than the bulk of the market, and expect to benefit significantly from a solu- earlier than the tion to those needs.21 According to a survey by the Product Development & Manage- rest of the market ment Association, on average, firms report using the lead user method to obtain input and stand to benefit dispro- into 38 percent of the projects they undertake. Not surprisingly, when customers help portionately from co-create an innovation, the resulting innovations tend to better fit their needs or expec- solutions to those tations.22 More detail on how firms use lead users is provided in the accompanying needs. Theory in Action section: The Lead User Method of Product Concept Development.  Theory in Action The Lead User Method of Product Concept Development Hilti AG, a European manufacturer of construction had a long, close relationship with Hilti). Ten of the 12 components and equipment, turned to the lead user routine users preferred the new design to previously method in its development of a pipe hanger (a steel available solutions, and all but one of the 10 indicated support that fastens pipes to walls or ceilings of build- they would be willing to pay a 20 percent higher price for ings). The firm first used telephone interviews to iden- the product. Not only was the project successful, tify customers who had lead user characteristics (were but the lead user method was also faster and cheaper ahead of market trends and stood to benefit dispropor- than the conventional market research methods the tionately from the new solution). The lead users were firm had used in the past to develop its product con- invited to participate in a three-day product concept cepts. Hilti 's typical process took 16 months and cost generation workshop to develop a pipe hanging sys- $100,000, but the lead user method took 9 months tem that would meet their needs. At the end of the and cost $51,000. workshop, a single pipe hanger design was selected Source: C. Herstatt and E. von Hippel, "Developing New Prod- as the one that best met all the lead users' objectives. uct Concepts via the Lead User Method: A Case Study in a The company then presented this design to 12 routine Low-Tech Field," Journal of Product Innovation Management 9 users (customers who were not lead users but who (1992), pp. 213-21. Involving Suppliers Much of the same logic behind involving customers in the new product development process also applies to involving suppliers. By tapping into the knowledge base of its suppliers, a firm expands its information resources. Suppliers may be actual member of the product team or consulted as an alliance partner. In either case, they can contrib- ute ideas for product improvement or increased development efficiency. For instance a supplier may be able to suggest an alternative input (or configuration of inputs) that would achieve the same functionality but at a lower cost. Additionally, by coordinat- ing with suppliers, managers can help to ensure that inputs arrive on time and that necessary changes can be made quickly to minimize development time. 23 Consistent crowdsourcing with this argument, research has shown that many firms produce new products in less A distributed problem-solving time, at a lower cost, and with higher quality by incorporating suppliers in integrated model whereby a product development efforts.24 design problem Boeing's development of the 777 involved both customers and suppliers on the or production new product development team; United employees (including engineers, pilots, and task is presented flight attendants) worked closely with Boeing's engineers to ensure that the airplane to a group of people who was designed for maximum functionality and comfort. Boeing also included General voluntarily Electric and other parts suppliers on the project team, so that the engines and the body of contribute their the airplane could be simultaneously designed for maximum compatibility. ideas and effort in exchange for Crowdsourcing compensation, intrinsic rewards, Firms can also open up an innovation task by directing an innovation challenge to or a combination third parties such as the general public, or specific, targeted groups of innovators thereof. from different networks. Sometimes firms work with third parties directly, and other 260  Chapter 11 Managing the New Product Development Process 261 times they use a professional crowdsourcing service provider with their own net- work of innovators. For example, one professional crowdsourcing service provider, NineSigma, manages innovation challenges using a network of more than two million scientists and engineers globally. Similarly, Topcoder helps firms access a com- munity of more than one million software coders. Some of these service providers (such as InnoCentive) operate their service as a closed network where the firm seek- ing the innovation does not know the details of the solution provider. Others (such as NineSigma) operate open networks where the firm seeking the innovation solution can see all the solution proposals submitted, as well as all contact details of all solution providers that submitted a response to the challenge. Crowdsourcing challenges typically go through a four step process: 1. Need translation. A clear, concise, and compelling need statement is articulated that reduces industry jargon to a minimum, and that brings the challenge down to its most basic science. For example, NineSigma helped a client seeking ways to reduce wrinkles in shirts coming out of a dryer by producing a statement that read: "Our client is seeking ways to reduce surface tension of an organic material." The advantage of such a statement is that the specific application is removed, which invites interest from solution providers from seemingly unrelated industries. In this example, a professor doing integrated circuit research had developed a special polymer that was the solution most favored by the client. The need statement is usually a short one- to two-page document, often called a Request for Proposal. Andy Zynga of NineSigma notes, "It is very important to have a very clean and concise need statement to trigger interest. There may be a temptation to put two need s into one statement, but that is highly discouraging to solution providers and will reduce the chances of success."25 2. Connecting. The innovation challenge must be broadcast to the network of poten- tial solution providers that have been selected as most suitable to respond. 3. Evaluation/Selection. Submitted proposals get an in-depth review, and the most interesting solution proposals get selected and collated in the form of a report. 4. Acquisition. The firm engages with the solution provider and negotiates an agree- ment to transfer knowledge, a license, patent, and so on. This usually involves a monetary or other compensation scheme. It may also be necessary to adapt the incoming solution to the specific needs of the firm. Thousands of companies and many public bodies have used crowdsourcing to solve challenges that seemed almost impossible to solve. For example, reducing plastics in oceans, or addressing the opioid crisis are "Grand Challenges" that are being tack- led with crowdsourcing approaches right now. People participate in crowdsourcing for a variety of reasons that often do not include monetary rewards. For example, Ben & Jerry's asked its customers to invent new vari- eties of ice cream flavors-the submitters of the best flavors were given a trip to the Dominican Republic to see a sustainable fair trade cocoa farm. However, individuals also often participate for the sheer excitement and challenge of solving the problem, 26 or for social or reputational benefits.27 For example, Fiat Brazil used crowdsourcing to develop a new concept car called the Fiat Mio ("My Fiat"). Fiat created a Web site inviting people to create the car of the future. More than 17,000 people from around 262 Part Three Implementing Technological Innovation Strategy the world submitted over 11,000 ideas - and not just in the design. Participants were invited to contribute solutions at every stage of the development process, including solving problems related to fuel efficiency and production. Participants received no rewards from their participation other than the pleasure they derived from interacting with Fiat and with each other, and the satisfaction they felt at having their ideas incor- porated into the car. Hundreds of Fiat Mio's co-creators turned up at the unveiling of the car at a Sao Paulo motor show. TOOLS FOR IMPROVING THE NEW PRODUCT DEVELOPMENT PROCESS Some of the most prominent tools used to improve the development process include stage-gate processes, quality function deployment ("house of quality"), design for man- ufacturing, failure modes and effects analysis, and computer-aided design/computer- aided manufacturing. Using the available tools can greatly expedite the new product development process and maximize the product's fit with customer requirements. Stage-Gate Processes As discussed in a previous section, escalating commitment can lead managers to support projects long after their expected value has turned negative, and the cost of pushing bad projects forward can be very high. To help avoid this, many managers go/kill and researchers suggest implementing tough go/kill decision points in the product decision development process. The most widely known development model incor orating such points go/kill points is the stage-gate process developed by Robert G. Cooper. 28 The stage- Gates established gate process provides a blueprint for moving projects through different stages of devel- in the develop- ment process opment. Figure 11.2 shows a typical stage-gate process. where managers At each stage, a cross-functional team of people (led by a project team leader) must evaluate undertakes parallel activities designed to drive down the risk of a development project. whether or not to At each stage of the process, the team is required to gather vital technical, market, and kill the project financial information to use in the decision to move the project forward (go), abandon or allow it to proceed. the project (kill), hold, or recycle the project. In Stage 1, the team does a quick investigation and conceptualization of the project. In Stage 2, the team builds a business case that includes a defined product, its busi- ness justification, and a detailed plan of action for the next stages. In Stage 3, the team begins the actual design and development of the product, including mapping out the manufacturing process, the market launch, and operating plans. In this stage, the team also defines the test plans utilized in the next stage. In Stage 4, the team conducts the verification and validation process for the proposed new product, and its marketing and production. At Stage 5, the product is ready for launch, and full commercial pro- duction and selling commence.29 Preceding each stage is a go/kill gate. These gates are designed to control the qual- ity of the project and to ensure that the project is being executed in an effective and efficient manner. Gates act as the funnels that cull mediocre projects. Each gate has three components: deliverables (these are the results of the previous stage and are the inputs for the gate review), criteria (these are the questions or metrics used to make  Chapter 11 Managing the New Product Development Process 263 FIGURE 11.2 Typical Stage- Gate Process, from Idea to Launch Source: R. G. Cooper, "Stage-Gate Idea to Launch System," Wiley International Encyclopedia of Marketing: Product Innovation & Manage- ment 5, B. L. Bayus (e d.), (West Sussex UK: Wiley, 2011). the go/kill decision), and outputs (these are the results of the gate review process and may include a decision such as go, kill, hold, or recycle; outputs should also include an action plan for the dates and deliverables of the next gate). Because each stage of a development project typically costs more than the stage preceding it, breaking down the process into stages deconstructs the development investment into a series of incremental commitments. Expenditures increase only as uncertainty decreases. Figure 11.3 shows the escalation costs and cycle time for each stage of a typical development process in a manufacturing industry. Many companies have adapted the stage-gate process to more specifically meet the needs of their firm or industry. For example, while managers at Exxon were strong advocates of using a stage-gate process to track and manage development projects, they also felt that the standard five-stage system did not adequately address the needs of a company in which basic research was a primary component in generating inno- vations. Exxon managers created their own extended stage-gate system to include directed basic research. The resulting stage-gate system included two basic research stages (Stages A and B in Figure 11.4) and five applied research and development stages. In Stage A, the company identifies the potential business incentives and com- petitive advantages of an envisioned technology. The company then develops a basic research plan that establishes specific scientific deliverables, the methods of achieving 264 Part Three Implementing Technological Innovation Strategy FIGURE 11.3 Escalation of Development Time and Costs by Stage Source: Adapted from F. Buggie, "Set the 'Fuzzy Front End' in Concrete," Research Technology Management 45, no. 4 (2002), pp. 11-14. Stage Time Cost 0. "Here's an idea!" 1. Formulate-describe and sketch 1 week $100 2. Conduct preliminary investigations 2 weeks $1,000 3. Design and define specifications 1 month $10,000 Cost 4C. Strategic fit evaluation and NPV risk analysis 5A. Scale up, build pilot plant 5B. Market test 8 months $1 million 6A. Build plant 28 Months 6B. Promote, launch, market 16 months $10 million FIGURE 11.4 Exxon Research and Engineering's Stage-Gate System Stage 1 Commercial- these deliverables, and the required resources. In Stage B, Exxon's research division begins to execute the plan developed in Stage A, using scientific methods to generate leads for addressing the business opportunity. Stage 1 then identifies the best leads, using "proof-of-principle" assessments to establish whether the leads are feasible.30 Stages 2 through 5 proceed according to a typical stage-gate process. According to studies by the Product Development and Management Association, nearly 60 percent of firms (including IBM, Procter & Gamble, 3M, General Motors, and Corning) use some type of stage-gate process to manage their new product devel- opment process. Corning has made the process mandatory for all information system development projects, and Corning managers believe that the process enables them to better estimate the potential payback of any project under consideration. They also report that the stage-gate process has reduced development time, allows them to iden- tify projects that should be killed, and increases the ratio of internally developed prod- ucts that result in commercial projects.31  Chapter 11 Managing the New Product Development Process 265 FIGURE 11.5 Quality Function Deployment House of Quality for a Car Door Quality Function Deployment (QFD) - The House of Quality QFD was developed in Japan as a comprehensive process for improving the com- munication and coordination among engineering, marketing, and manufacturing personnel.32 It achieves this by taking managers through a problem-solving process in a very structured fashion. The organizing framework for QFD is the "house of quality" (see Figure 11.5). The house of quality is a matrix that maps customer requirements against product attributes. This matrix is completed in a series of steps. 1. The team must first identify customer requirements. In Figure 11.5, market research has identified five attributes that customers value most in a car door: it is easy to open and close, it stays open on a hill, it does not leak in the rain, it isolates the occupant from road noise, and it protects the passengers in the event of crashes. 2. The team weights the customer requirements in term s of their relative importance from a customer's perspective. This information might be obtained from focus group sessions or direct interaction with the customers. The weights are typically entered as percentages, so that the complete list totals 100 percent. 3. The team identifies the engineering attributes that drive the performance of the product-in this case, the car door. In Figure 11.5, four attributes are highlighted: the weight of the door, the stiffness of the door hinge (a stiff hinge helps the door stay open on a hill), the tightness of the door seal, and the tightness of the window seal. 4. The team enters the correlations between the different engineering attributes to assess the degree to which one characteristic may positively or negatively affect another. The correlations are entered into the matrix that creates the peaked roof 266 Part Three Implementing Technological Innovation Strategy of the house. In this case, the negative sign between door weight and hinge stiff- ness indicates that a heavy door reduces the stiffness of the hinge. 5. The team fills in the body of the central matrix. Each cell in the matrix indicates the relationship between an engineering attribute and a customer requirement. A number (in this example, one, three, or nine) is placed in the cell located at the intersection of each row (customer requirements) with each column (engineering attributes), which represents the strength of relationship between them. A value of one indicates a weak relationship, a three indicates a moderate relationship and a nine indicates a strong relationship. The cell is left blank if there is no relation- ship. The ease of opening the door, for example, is strongly related to the weight of the door and moderately related to the stiffness of the door hinge, but is not related to the tightness of the door seal or window seal. 6. The team multiplies the customer importance rating of a feature by its relationship to an engineering attribute (one, three, or nine). These numbers are then summed for each column, yielding a total for the relative importance of each engineering attribute. For example, the stiffness of the hinge influences how easy the door is to open, and whether the door stays open on a hill. Thus to calculate the rela- tive importance of the stiffness of the hinge, the team multiplies the customer importance rating of how easy the door is to open by its relationship to the stiff- ness of the hinge (15 x 3 = 45), then multiplies the customer importance rating of the door staying open on a hill by its relationship to the stiffness of the hinge (10 x 9 = 90), and then adds these together for the total relative importance of the hinge stiffness (45 + 90 = 135). These scores indicate that the tightness of the door and window seals is the most important engineering attribute, followed by the weight of the door. 7. The team evaluates the competition. A scale of one to seven is used (one indicat- ing a requirement is not addressed, and seven indicating a requirement is com- pletely satisfied) to evaluate the competing products (in this case A and B) on each of the customer requirements. These scores go in the right-hand "room" of the house of quality. 8. Using the relative importance ratings established for each engineering attribute and the scores for competing products (from step 7), the team determines tar- get values for each of the design requirements (e.g., the door's optimal weight in pounds). 9. A product design is then created based on the design targets from step 8. The team then evaluates the new design that was created. The team assesses the degree to which each of the customer requirements has been met, entering a one to seven in the far right column of the house of quality, permitting it to compare the new design with the scores of the competing products. The great strength of the house of quality is that it provides a common language and framework within which the members of a project team may interact. The house of qual- ity makes the relationship between product attributes and customer requirements very clear, it focuses on design trade-offs, it highlights the competitive shortcomings of the company's existing products, and it helps identify what steps need to be taken to improve them. The house of quality is used in settings as diverse as manufacturing, construction,  Chapter 11 Managing the New Product Development Process 267 FIGURE 11.6 Design Rule Impact on Performance Design Rules for Fabricated Minimize the number of parts Simplifies assembly; reduces direct labor; reduces material Assembly handling and inventory costs; boosts product quality Products Minimize the number of part Reduces material handling and inventory costs; improves Source: Adapted numbers (use common parts economies of scale (increases volume through from M. A. Schilling across product family) commonalty) and C. W. L. Hill, “Managing the New Eliminate adjustments Reduces assembly errors (increases quality); allows for Product Development automation; increases capacity and throughput Process," Academy of Management Execu- Eliminate fasteners Simplifies assembly (increases quality); reduces direct labor tive, vol. 12, no. 3, costs; reduces squeaks and rattles; improves durability; pp. 67- 81. allows for automation Eliminate jigs and fixtures Reduces line changeover costs; lowers required investment police service, and educational curriculum design. 33 Advocates of QFD maintain that one of its most valuable characteristics is its positive effect upon cross-functional com- munication and, through that, upon cycle time and the product/customer fit.34 Design for Manufacturing Another method of facilitating integration between engineering and manufacturing, and of bringing issues of manufacturability into the design process as early as pos- sible, is the use of design for manufacturing methods (DFM). Like QFD, DFM is simply a way of structuring the new product development process. Often this involves articulating a series of design rules. Figure 11.6 summarizes a set of commonly used design rules, along with their expected impact on performance. As shown in Figure 11.6, the purpose of such design rules is typically to reduce costs and boost product quality by ensuring that product designs are easy to manufac- ture. The easier products are to manufacture, the fewer the assembly steps required, the higher labor productivity will be, resulting in lower unit costs. DEKA Research makes a point of bringing manufacturing into the design process early, because as founder Dean Kamen points out, "It doesn't make sense to invent things that ultimately are made of unobtanium or expensium." 35 In addition, designing products to be easy to manufacture decreases the likelihood of making mistakes in the assembly process, resulting in higher product quality. The benefits of adopting DFM rules can be dramatic. Considering manufacturing at an early stage of the design process can shorten development cycle time. In addi- tion, by lowering costs and increasing product quality, DFM can increase the product's fit with customer requirements. For example, when NCR used DFM techniques to redesign one of its electronic cash registers, it reduced assembly time by 75 percent, reduced the parts required by 85 percent, utilized 65 percent fewer suppliers, and reduced direct labor time by 75 percent.36 Failure Modes and Effects Analysis Failure modes and effects analysis (FMEA) is a method by which firms identify poten- tial failures in a system, classify them according to their severity, and put a plan into 268 Part Three Implementing Technological Innovation Strategy place to prevent the failures from happening. 37 First, potential failure modes are iden- tified. For example, a firm developing a commercial aircraft might consider failure modes such as "landing gear does not descend," or "communication system experi- ences interference"; a firm developing a new line of luxury hotels might consider fail- ure modes such as "a reservation cannot be found" or "guest experiences poor service by room service staff." Potential failure modes are then evaluated on three criteria of the risk they pose: severity, likelihood of occurrence, and inability of controls to detect it. Each criterion is given a score (e.g., one for lowest risk, five for highest risk), and then a composite risk priority number is created for each failure mode by multiply- ing its scores together (i.e., risk priority number = severity x likelihood of occur- rence x inability of controls to detect). The firm can then prioritize its development efforts to target potential failure modes that pose the most composite risk. This means that rather than focus first on the failure modes that have the highest scores for sever- ity of risk, the firm might find that it should focus first on failure modes that have less severe impacts, but occur more often and are less detectable. FMEA was originally introduced in the 1940s by the U.S. Armed Forces and was initially adopted primarily for development projects in which the risks posed by fail- ure were potentially very severe. For example, FMEA was widely used in the Apollo Space Program in its mission to put a man on the moon, and was adopted by Ford after its extremely costly experience with its Pinto model (the location of the gas tank in the Pinto made it exceptionally vulnerable to collisions, leading to fire-related deaths; Ford was forced to recall the Pintos to modify the fuel tanks, and was forced to pay out record-breaking sums in lawsuits that resulted from accidents).38 Soon, however, FMEA was adopted by firms in a wide range of industries, including many types of manufacturing industries, service industries, and health care. A recent PDMA study found that firms report using FMEA in 40 percent of the projects they undertake.39 Computer-Aided Design/Computer-Aided Engineering/ Computer-Aided Manufacturing Computer-aided design (CAD) and computer-aided engineering (CAE) are the use of computers to build and test product designs. Rapid advances in computer technology have enabled the development of low-priced and high-powered graphics-based work- stations. With these workstations, it is now possible to achieve what could previously be done only on a supercomputer: construct a three-dimensional "working" image ofa product or subassembly. CAD enables the creation of a three-dimensional model; CAE makes it possible to virtually test the characteristics (e.g., strength, fatigue, and reliability) of this model. The combination enables product prototypes to be devel-oped and tested in virtual reality. Engineers can quickly adjust prototype attributes by manipulating the three-dimensional model, allowing them to compare the character- istics of different product designs. Eliminating the need to build physical prototype can reduce cycle time and lower costs as illustrated in the accompanying Theory in Action: Computer-Aided Design of an America's Cup Yacht. Visualization tools and 3-D software are even being used to allow nonengineering customers to see and make minor alterations to the design and materials. Computer-aided manufacturing (CAM) is the implementation of machine-controlled processes in manufacturing. CAM is faster and more flexible than traditional Theory in Action Computer-Aided Design of an America's Cup Yacht Team New Zealand discovered the advantages of using from full-scale boats, resulting in inaccurate results in sophisticated computer-aided-design techniques in prototype testing). The team would still build prototypes, designing the team's 1995 America's Cup yacht. The but only after considering a much wider range of design team had traditionally relied on developing smaller-scale alternatives using computer-aided-design methods. As prototypes of the yacht and testing the models in a water noted by design team member Dave Egan, tank. However, such prototypes took months to fabricate and test and cost about $50,000 per prototype. This Instead of relying on a few big leaps, we had the abil- greatly limited the number of design options the team ity to continually design, test, and refine our ideas. could consider. However, by using computer-aided-design The team would often hold informal discussions on technologies, the team could consider many more design design issues, sketch some schematics on the back specifications more quickly and inexpensively. Once the of a beer mat, and ask me to run the numbers. Using basic design is programmed, variations on that design traditional design methods would have meant wait- can be run in a matter of hours, at little cost, enabling ing months for results, and by that time, our thinking more insight into design trade-offs. Computer-aided would have evolved so much that the reason for the design also avoided some of the problems inherent in experiment would long since have been forgotten. scaling up prototypes (some features of the scaled-down Source: M. lansiti and A. Maccormack, "Team New Zealand," prototype boats would affect the flow of water differently Harvard Business School case no. 9-697-040, 1997. manufacturing.40 Computers can automate the change between different product varia- three- tions and allow for more variety and customization in the manufacturing process. dimensional A recent incarnation of computer-aided manufacturing is three-dimensional printing A method printing (also known as additive manufacturing), whereby a design developed in a whereby a design computer-aided design program is literally printed by laying down thin horizontal developed in a cross sections of material until the model is complete. Unlike traditional methods of computer aided constructing a model, which typically involve machining a mold that can take several design program days to complete, three-dimensional printing can generate a model in a few hours. is printed in three dimensions by By 2018, three-dimensional printing was being used to create products as diverse as laying down thin food, clothing, jewelry, solid-state batteries, and even titanium landing gear brackets strips of material for supersonic jets.41 Biotechnology firms were even using three-dimensional printing until the model is for use in creating organs by depositing layers of living cells onto a gel medium. 42 This complete. method has recently begun rapidly replacing injection molding for products that are produced in relatively small quantities. TOOLS FOR MEASURING NEW PRODUCT DEVELOPMENT PERFORMANCE Many companies use a variety of metrics to measure the performance of their new product development process. In addition to providing feedback about a particular new product, such performance assessments help the company improve its innovation 269  Theory in Action Postmortems at Microsoft At Microsoft, almost all projects receive either a post- from less than 10 pages to more than 100. These post- mortem discussion or a written postmortem report to mortem reports describe the development activities and ensure that the company learns from each of its devel- team, provide data on the product size (e.g., lines of opment experiences. These postmortems tend to be code) and quality (e.g., number of bugs), and evaluate extremely candid and can be quite critical. As noted by what worked well, what did not work well, and what the one Microsoft manager, "The purpose of the document group should do to improve on the next project. These is to beat yourself up." Another Microsoft manager notes reports are then distributed to the team members and to that part of the Microsoft culture is to be very self-critical senior executives throughout the organization. and never be satisfied at getting things "halfway right." A team will spend three to six months putting together Source: M. A. Cusumano and R. W. Selby, Microsoft Secrets a postmortem document that may number anywhere (New York: Free Press, 1995). strategy and development processes. For example, evaluating the performance of its new product development process may provide insight into which core competencies the firm should focus on, how projects should be selected, whether or not it should seek collaboration partners, how it should manage its development teams, and so on. Both the metrics used by firms and the timing of their use vary substantially across firms. In a survey by Goldense and Gilmore, 45 percent of companies reported using periodic reviews at calendar periods (e.g., monthly or weekly) and at predetermined mile- stones (e.g., after product definition, after process design, post launch, etc.). 43 Microsoft, for example, uses postmortems to measure new product development performance, as described in the accompanying Theory in Action: Postmortems at Microsoft. Measuresof the success of the new product development process can help management to: Identify which projects met their goals and why. Benchmark the organization's performance compared to that of competitors or to the organization's own prior performance. Improve resource allocation and employee compensation. Refine future innovation strategies. 44 Multiple measures are important because any measure used singly may not give a fair representation of the effectiveness of the firm's development process or its overall innovation performance. Also, the firm's development strategy, industry, and other environmental circumstances must be considered when formulating measures and interpreting results. For example, a firm whose capabilities or objectives favor development of breakthrough projects may experience long intervals between product introductions and receive a low score on measures such as cycle time or percent of sales earned on projects launched within the past five years, despite its success at its strategy. Conversely, a firm that rapidly produces new generations of products may receive a high score on such measures even if it finds its resources are overtaxed and its projects are overbudget. Additionally, the success rate of new product develop- ment can vary significantly by industry and project type. Some authors argue that even firms with excellent new product development processes should not expect to have a greater than 65 percent success rate for all new products launched. 45 270  Chapter 11 Managing the New Product Development Process 271 New Product Development Process Metrics Many firms use a number of methods to gauge the effectiveness and efficiency of the development process. These measures capture different dimensions of the firm's ability to successfully shepherd projects through the development process. To use such methods, it is important to first define a finite period in which the measure is to be applied in order to get an accurate view of the company's current performance; this also makes it easier for the manager to calculate a response. The following questions can then be asked: 1. What was the average cycle time (time to market) for development projects? How did this cycle time vary for projects characterized as breakthrough, platform, or derivative? 2. What percentage of development projects undertaken within the past five years met all or most of the deadlines set for the project? 3. What percentage of development projects undertaken within the past five years stayed within budget? 4. What percentage of development projects undertaken within the past five years resulted in a completed product? Overall Innovation Performance Firms also use a variety of methods to assess their overall performance at innova- tion. These measures give an overall view of the bang for the buck the organization is achieving with its new product development processes. Such measures include: 1. What is the firm's return on innovation? (This measure assesses the ratio of the firm's total profits from new products to its total expenditures, including research and development costs, the costs of retooling and staffing production facilities, and initial commercialization and marketing costs.) 2. What percentage of projects achieve their sales goals? 3. What percentage of revenues are generated by products developed within the past five years? 4. What is the firm's ratio of successful projects to its total project portfolio? Summary 1. Successful new product development requires achieving three simultaneous objec- tives: maximizing fit with customer requirements, minimizing time to market, and of controlling development costs. Chapter 2. Many firms have adopted parallel development processes to shorten the development cycle time and to increase coordination among functions such as R&D, marketing, and manufacturing. 3. Many firms have also begun using project champions to help ensure a project's momentum and improve its access to key resources. Use of champions also has its risks, however, including escalating commitment and unwillingness of others in the organization to challenge the project. 4. Involving customers in the development process can help a firm ensure that its new products match customer expectations. In particular, research indicates that involving lead users can help the firm understand what needs are most important 272 Part Three Implementing Technological Innovation Strategy to customers, helping the firm to identify its development priorities. Involving lead users in the development process can also be faster and cheaper than involv- ing a random sample of customers in the development process. 5. Many firms use beta testing to get customer feedback, exploit external develop- ment of the product, and signal the market about the firm's upcoming products. 6. Firms can also involve suppliers in the development process, helping to minimize the input cost of a new product design and improving the likelihood that inputs are of appropriate quality and arrive on time. 7. Stage-gate processes offer a blueprint for guiding firms through the new product development process, providing a series of go/kill gates where the firm must decide if the project should be continued and how its activities should be prioritized. 8. Quality function deployment can be used to improve the development team's understanding of the relationship between customer requirements and engineering attributes. It can also be a tool for improving communication between the various functions involved in the development process. 9. Failure Modes and Effects Analysis can be used to help firms prioritize their development efforts in order to reduce the likelihood of failures that will have the greatest impact on the quality, reliability, and safety of a product or process. 10. Design for manufacturing and CAD/CAM are additional tools development teams can use to reduce cycle time, improve product quality, and control development costs. 11. Firms should use a variety of measures of their new product development effectiveness and overall innovation performance to identify opportunities for improving the new product development process and improving the allocation of resources. Discussion 1. What are some of the advantages and disadvantages of a parallel development pro- Questions cess? What obstacles might a firm face in attempting to adopt a parallel process? 2. Consider a group project you have worked on at work or school. Did your group use mostly sequential or parallel processes? 3. Name some industries in which a parallel process would not be possible or effective. 4. What kinds of people make good project champions? How can a firm ensure that it gets the benefit s of championing while minimizing the risks? 5. Is the stage-gate process consistent with suggestions that firms adopt parallel processes? What impact do you think using stage-gate processes would have on development cycle time and development costs? 6. What are the benefits and costs of involving customers and suppliers in the devel- opment process? Suggested Classics Further Clark, K. B., and S. C. Wheelwright, Managing New Product and Process Develop- Reading ment (New York: Free Press, 1993). Cooper, R., and E. J. Kleinschmidt, "New Product Processes at Leading Industrial Firms," Industrial-Marketing-Management 20, no. 2 (1991), pp. 137-48.  Chapter 11 Managing the New Product Development Process 273 Griffin, A., and J. R. Hauser, "Patterns of Communication Among Marketing, Engi- neering and Manufacturing," Management Science 38 (1992), pp. 360-73. Loch, C., and S. Kavadias, Handbook of New Product Development Management. (Oxford, UK: Elsevier Ltd., 2008). Recent Work Chang, W., and S. A. Taylor, "The Effectiveness of Customer Participation in New Product Development: A Meta-Analysis." Journal of Marketing, 80, no. 1 (2016), pp. 47-64. Cooper, R. G., "Agile-Stage-Gate Hybrids," Research-Technology Management, 59 (2016), pp. 1, 21-29 Lawson, B., D. Krause, and A. Potter, "Improving Supplier New Product Develop- ment Performance: The Role of Supplier Development." Journal of Product Innova- tion Management 32 (2015), pp. 777-92. Piezunka, H., and L. Dahlander, "Distant Search, Narrow Attention: How Crowding Alters Organization s' Filtering of Suggestions in Crowdsourcing," Academy of Man- agement Journal, 58 (2015), pp. 856--880. Prpic, J., P. P. Shukla, J. H. Kietzmann, and I. P. McCarthy, "How to Work a Crowd: Developing Crowd Capital Through Crowdsourcing," Business Horizons, 58 (2015), pp. 77-85. Endnotes 1. E. Berggren and T. Nacher, "Introducing New Products Can Be Hazardous to Your Company: Use the Right New-Solutions Delivery Tools," Academy of Management Executive 15, no. 3 (2001), pp. 92-101. 2. M. A. Schilling, "Technological Lockout: An Integrative Model of the Economic and Strategic Factors Driving Success and Failure," Academy of Management Review 23 (1998), pp. 267-84; and W. B. Arthur, Increasing Returns and Path Dependence in the Economy (Ann Arbor: Uni- versity of Michigan Press, 1994). 3. A. Dhebar, "Speeding High-Tech Producer, Meet Balking Consumer," Sloan Management Review, Winter 1996, pp. 37-49. 4. M. C. Crawford, "The Hidden Costs of Accelerated Product Development," Journal of Product Innovation Management 9, no. 3 (1992), pp. 188-200. 5. G. Pacheco-de-Almeida and P. Zemsky, "The Creation and Sustainability of Competitive Advantage: Resource Accumulation with Time Compression Diseconomies," mimeo, Stern School of Business, 2003. 6. E. J. Nijssen, A. R. Arbouw, and H. R. Commandeur, "Accelerating New Product Develop- ment: A Preliminary Empirical Test of a Hierarchy of Implementation," Journal of Product Innovation Management 12 (1995), pp. 99-104; R. W. 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