Summary of exam materials (lectures) of the course Management of Product Development - 1ZM16 of the master track Innovation Management of Industrial Engineering at the Eindhoven University of Technology.
Summary of Lecture
Slides
1ZM16 Management of Product Development
ISSUED BY
Rutger Van Doorslaer
,1ZM16 summary
Theory Package 1.1 – NPD and NPD objectives
There are different classifications to New Products:
Newness, or innovativeness: this classification has an internal vs external perspective. There
is the new-to-the-firm (incremental) and new-to-the-market (radical) perspective. The internal
perspective describes if changes to a product / process determine whether a product is a
breakthrough (radical) or enhancement (incremental). Fewer radical new products have
been developed since 1998, because they have different risks, development costs and
revenue potential (which could be actually higher if successful).
(physical) goods versus services: Services are widely recognized as: intangible, inconsistent
and inseparable. Services can be categorized as explicit services (i.e., process – or
technology-based) and experiential services (i.e., person – and experiential-based).
Different industries: e.g., high-tech, software, medicinal, etc.
Different market focus: i.e., B2B or B2C
Strategic and financial importance of NPD:
Firms need to align innovation objectives with strategic objectives (i.e., integrating NPD
strategy with overall firm’s strategy) and quantify innovation objectives (e.g., revenue gain) to
achieve successful product innovation and financial success.
Success factors of NPD:
NPD often fails because of certain levels
- Strategy level – do the right things
o E.g., no explicit or well-communicated NPD strategy, NPD project portfolio not
in line with business strategy
- Organizational level – do things right
o E.g., innovation processes non-existing, unclear division of responsibilities
between departments (i.e. R&D and marketing), no entrepreneurial spirit
- Resource level – get things done
o E.g., resources inadequate and insufficient, communication problems
Categories of NPD Success Factors (Evanschitzky et al., 2012)
Product Characteristics Strategy Characteristics Process Characteristics Marketplace Characteristics Organizational Characteristics
Product Price Marketing Synergy Structured Approach Likelihood of Competitive Response Climate
Product Innovativeness Technological Synergy Reduced Cycle Time Competitive Response Intensity Project / Firm Size
Product Advantage Order of Entry Market Orientation Market Potential Design
Meets Customer Needs Dedicated HR Customer Input Environmental Uncertainty External Relations
Technological Sophistication Dedicated R&D Cross-Functional Integration Degree of Centralization
Strategic Orientation Cross-Functional Communication Degree of Formalization
Company Resources Senior Management Support
Predevelopment Proficiency
Marketing Task Proficiency
Technological Proficiency
Launch Proficiency
,1ZM16 summary
Product advantage is described in 2 different ways
- Rogers: observability, trialability, relative advantage, compatibility (especially for
radical innovations interesting), complexity, risk
- Cooper & Calantone: uniqueness, superiority, innovativeness, quality, durability, lower
costs
Storey et al. (2016): Key success factors are different for services than for products, such as
launch proficiency and absorptive capacity are more important for services.
NPD objectives
How to measure new product success?
- Operational outcomes versus external outcomes
o Operational: development costs, market entry timing, technical product quality,
product competitive advantage
o External: customer-based outcomes, financial outcomes
- Can be measured at different levels (project, team, business unit / SBU, organization)
Dimensions of NPD performance at the project level
Griffin & Page (1993; 1996) describe 4 dimensions to success:
1. Technical dimension
2. Timing dimension
3. Market dimension
4. Financial measures dimension
Success is measured against: plan/objectives, recently introduced comparable products and
competitors’ products.
The firms’ innovation or business strategy (e.g., pioneer vs follow) influences success, e.g.,
being fast to market trades-off quality. Several project characteristics such as the market or
technology influence NPD success at the project level.
Answers to Part I Questions
NPD is the development of goods or services (or a combination) with different levels of
newness from idea to launch. Successful NPD is needed for (ongoing) revenue of
organizations.
NPD is challenging because:
- Many things need to be done right,
- There are many different types of products
- These types of products have many different and interrelated determinants of
success
Challenges in determining objectives:
- Many different measures of NPD success
- Many possible objectives to determine when NPD is successful
This can be tackled by:
- Being aware of the many different possible objectives and options to measure
success.
- Making sure the chosen project objectives for the project at hand and the innovation
and business strategy of the firm.
, 1ZM16 summary
Theory Package 1.2 – NPD Process Management
Stage-Gate Principles
There are certain challenges to managing the NPD process. At the start of NPD projects,
both the technological and market uncertainty are high. Moreover, the risk is high that the
objective will not be achieved within the time – and resources constraints. Also, the risk of a
failing project and thus loss of project investments is high.
The project can therefore be divided into feasible short-term objectives. This ensures that
the long-term objective can more easily be achieved. Resources are then committed step-
by-step, reducing uncertainty. This allows management to commit new resources at certain
gates with certain objectives, and this is the key principle of Stage-Gate.
NPD-projects follow a circular and iterative process. At each gate, the same 4 parameters
are verified:
- Market (What, whom, where)
- Technology (How)
- Time (When)
- Resources (How much)
A typical NPD funnel looks as follows:
Moreover, NPD projects are multifunctional all along the process. The development of ideas
into products follows several distinct and well-defined phases, which are all executed by
multiple functions.
The Stage-Gate process has several advantages:
- Tangible shorter-term goals for each NPD projects.
- Forced reduction of market and technical uncertainty.
- Resource commitment to projects with continued success potential only.
- Effective decision making at the gates, based on technology/market/cost and timing
criteria that follow from the innovation strategy.
- Better portfolio management and coordination between projects through an overview
of the status of all innovation projects.
Managing Gate Reviews
At each gate, there are 4 types of decision-options:
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