How To Develop A Successful Product For 48% Less

Meet Matt. He’s spent five years as a new product development manager. Matt’s boss just handed him a tough development problem. Their major competitor launches almost twice as many successful products as Matt’s company. His boss wants Matt’s group, in the next five years, to meet this launch rate. And he wants Matt to do it without increasing his group’s cost for developing a successful product.

Is there a realistic way available for Matt to carry out the task his boss has set for him? Yes.

By searching the Internet, Matt uncovered a best practice for solving his problem. He found it in a study of best practices for new product development. This peer-reviewed study used an unprecedented amount of data and statistical rigor.1, 3, 4

Four discoveries Matt made in the best practices study

Discovery 1: Put more resources into front-end activities:

Companies who verify market potential assumptions produced one successful product for every 4.5 ideas. These companies, 25% of those in the study, were labeled The Best. Other companies, The Rest (75%), produced one successful product for every 11.4 ideas. Rest companies need twice as many ideas to produce one successful product.

Best’s cumulative costs to produce one successful product are 48% lower than the Rest’s. 3 (See Figure above) One look persuaded Matt to put more resources into verification. He could double the number of successful new products without an increase in budget.

Discovery 2: Use Voice of the Customer interviews (VOC) to determine market potential.

From the best practices study Matt learned that VOC interviews in the front end could determine market potential. At least thirty or more knowledgeable people are interviewed. These individuals range through direct customers to end users.5

Matt recognized that his current cost to shape an idea for a decision would increase. But, he saw his group’s cumulative cost for a successful product would be cut in half

Discovery 3: Gauge an idea’s business potential with simple estimates.

Lengthy estimates of business potential do not correlate with an idea’s success.6 Matt’s group now uses the Kill Early — Kill Cheap principle for decisions on new product ideas. 2 When Matt applied the principle fewer, but stronger, product concepts moved into the cost-intensive back-end of development.

Discovery 4: Exploit the lower cost as an opportunity to enter a virtuous cycle of profit and growth

In a virtuous cycle, a chain of events reinforces themselves through a feedback loop. Switching to the practices of Best companies opens up an opportunity to move ahead of Rest competitors. Matt’s boss could start a virtuous cycle by feeding back the increased profit flow into developing more new products.

“Data! Data! Data! I can’t make bricks without clay.”
Sherlock Holmes
The Adventure of the Cooper Beeches

Since 1985 I’ve used VOC to test key assumptions about market potential of a product concept. Like Sherlock Homes, I elicit undiscovered data, information, and latent needs from strangers. Holmes did most of his elicitation work face-to-face rather than on the phone. I use the phone.

Among the benefits of phone elicitations are:

  • Quicker to reach knowledgeable people for elicitation conversation
  • Greater openness of the conversation
  • Much lower cost

George Castellion
203-323-4075
gcastellion@gmail.com

Endnotes

  1. (2012) Markham, S. K. and Lee, H. Product Development and management Association’s 2012 Comparative Performance Assessment Study J. Prod. Innov. Manag. 30 p408-429

Best companies (25%) of all companies studied) are:

In the top third of their industry for NPD success

Above the mean for their new product program success

Above the mean for sales and profit success from NPD.2. (2014)

2. Gassmann, O., Schweitzer, F Management of the Fuzzy Front End of Innovation p196 Springer International Publishing, Switzerland

3. (2012) Markham, S. K. and Lee, H. Winning At NPD: Success Drivers From the 2012 CPAS Study http://www.pdma.org

4. (2013) Markham, S. K. The Impact of Front-End Innovation Activities on Product Performance J. Prod. Innov. Manag. 30 p77-92

Markham defines front-end activities as work done to develop a product concept before the NPD project enters the commercialization phase of a formal product development system. Such work includes simple demonstration of technical feasibility, a sensible understanding of how, why and when a concept’s acceptance the marketplace will occur, and a back-of-the-envelope financial viability analysis.

  1. (1993) Griffin, A. and Hauser, J. Voce of the Customer Marketing Science 12 p1-27
  2. Griffins, T. A Dozen Lessons about Business Valuation from the Iridium Debacle https://25iq.com/2017/04/14/a-dozen-lessons-about-business-valuation-from-the-iridium-debacle/

Boost Product Development Successes — Invest In Virtuous Circles

 

Virtuous circle — A process in which a good action or event produces a good result that also causes the process to continue so more good results happen”
Macmillan Dictionary

Our goal is to have more at-bats per unit of time and effort than anyone else”
Eric Schmidt, CEO, Google

A virtuous circle can boost a steady flow of new product successes

We’ve met Matt before.1 He’s a new product development manager who has come up with a high productivity product development process.

His new process produces twice as many successful new products in the same unit of time as the old process. It achieves this without an increase in the cumulative cost for a successful product. If his company exploits this process they can dominate a growing market sector.

Matt’s process follows recommendations of a recent best practices study of product development. This peer-reviewed study used an unprecedented amount of data and statistical rigor. 2, 3, 4

Key elements of Matt’s high productivity development process are:
1. Verifying major assumptions about an idea’s market potential and,
2. Assembling a development portfolio containing less than six product ideas.

To begin the virtuous circle, the fresh new cash flow from Matt’s process needs to be fed back into the process. This needs a positive decision to do so by members of the C-Suite.

Persuading the C-Suite to reinvest cash flow into product development

Matt’s boss, Ron, is Chief Technology Officer of the company. Ron sees the new process as giving them a competitive advantage. This advantage, coupled with their unique technology skills, would would increase market leverage.

Ron knew two key members of the C-Suite were on-board with reinvestment to begin a virtuous circle. Matt’s development process captures profit and revenue faster.5  This quantitative evidence impresses the Chief Financial and the Chief Marketing officers.

But, the Chief Operations Officer needed more information. The COO reminded Ron that the manufacturing sites in Matt’s division were at full capacity. Investment was needed to increase capacity.

The COO asked that the decision to begin the virtuous circle be postponed for a month. During this month his staff would explore outsourcing production of Matt’s new products.

Operation’s exploration discovered three potential sub-contractors with immediate capacity available.. The expense of outsourcing was small compared to cash flow from the high margin of the new products.

At the end of the month the CEO approved Ron’s request. The request was a low-hanging fruit opportunity for growth. It was well documented and consistent with the company’s existing strategic boundaries.

Elicitation interviews help set up virtuous circles in product development

Since 1985 I’ve used voice of the market and technology interviews to: a. verify a B2B product idea’s economic value; b. estimate the cost of delaying its development; and c. to gauge market dynamics in the idea’s ecosystem. I elicit undiscovered data, information, and insights from strangers. I only use the phone.

Among the benefits of phone elicitation are:

– Quick to reach knowledgeable people for elicitation conversation
– Openness of the conversation
– Much lower cost

George Castellion
203-323-4075
gcastellion@gmail.com

Endnotes

  1. Castellion, G.( 2017) Product Developers Are Like Mosquitos In A Nudist Camp
    Castellion, G. (2017) Breaking into a bank vault and taking only a bag of pennies is like doing Voice of the Customer research without 30 interviews
    Castellion, G. (2017) How To Develop A Successful Product For 48% Less
  2. (2012) Markham, S. K. and Lee, H. Product Development and management Association’s 2012 Comparative Performance Assessment Study Journal of Product Innovation Management. 30 p408-429Best companies (25% of all companies studied) are those who are:

– In the top third of their industry for NPD success,

– Above the mean for their new product program success

– Above the mean for sales and profit success from NPD.

3. (2012) Markham, S. K. and Lee, H. Winning At NPD: Success Drivers From the 2012 CPAS Study http://www.pdma.org

4. (2013) Markham, S. K. The Impact of Front-End Innovation Activities on Product Performance JPIM 30 p77-92
Markham defines front-end activities as work done to develop a product concept before the NPD project enters the commercialization phase of a formal product development system. Such work includes simple demonstration of technical feasibility, a sensible understanding through VOC of how, why and when a concept’s acceptance the marketplace will occur, and a back-of-the-envelope financial viability analysis.

5. (2009) Reinertsen, Donald The Principles of Product Development Flow: Second Generation Lean Product Development Celeritas Publishing, Redondo Beach CA 90277
In Reinertsen’s view, queues of product ideas in a development process are the root cause of the majority of economic waste in product development. Reducing batch size of ideas in the process reduces cycle time. This enables developers “to shorten cycle times, often by an order of magnitude or more, without changing capacity utilization.”