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/

Product Developers Are Like Mosquitos In A Nudist Camp

Like a mosquito in a nudist camp, Matt doesn’t know where to begin. He must select five product ideas for his development portfolio from a group of eleven ideas. Any of the eleven can add economic value to his customers’ products and services.

A recent peer-reviewed study shows that a portfolio size of five ideas will, compared to a size of eleven, cut in half the cumulative cost to develop one successful product.1, 2 And Matt’s boss wants him to double the number of successful products produced without an increase in team size.

Matt reached out to Andy for advice. Andy is a lean product development expert working with Matt to cut cumulative cost without an increase in team size.3 Andy had hinted that a figure of merit could be calculated for product ideas. This number compares the priority of developing an idea relative to other ideas.

Calculate a figure of merit for each idea

Andy recommended that Matt calculate the WSJF index, a figure of merit, for each of the nine ideas. (WSJF is an acronym for Weighted Shortest Job First.)

Using WSJF to set up a development portfolio maximizes ROI if a major constraint is team size. In Andy’s experience, using this index boosts the number of successful products. Its use also cuts the cumulative cost to develop one successful product.

Don Reinertsen is an evangelist for WSJF. He has adapted Toyota’s lean manufacturing system for use in product development.4 In manufacturing, Toyota’s system eliminates as much variability as possible. Yet, direct application of the Toyota manufacturing system to product development crushes innovation. Unlike standardized manufacturing components, product ideas have wide variations such as: a. potential contribution to company profits and, b. time to develop a successful product.

Prioritizing ideas by WSJF index relies on verification of each idea’s economic value. Interviews of customers and end users in the idea’s ecosystem handle verification. Interviews also provide the team with awareness of an idea’s sensitivity to cost of delay.

Andy said using the interviews’ verified data blunts the effect of Confirmation Bias. A team member with this powerful bias favors their solution from the start. Regardless of data validity, biased members ignore data contradicting their preferred decision.

Estimating the Cost of Delay

Estimating the cost of delay answers the following question. “What would it cost if the product launch was delayed by one month?” Matt’s company loses money every day the product is not in the marketplace producing profit.

Using a simple calculation of an idea’s WSJF index, Matt’s team divides the cost of a month’s delay in development of the idea by the number of months needed for development. They use the indexes to focus on developing the four or five valuable ideas with the highest WSJF indexes. Making this simple calculation helps the team understand the value of developing the idea with the resources at hand.

Matt’s use of the indexes lines up with results of a recent best practices study. The study analyzed an unprecedented amount of product development data with statistical rigor. It covered best practices in hundreds of companies across thirty-one industries.1, 2

Companies judged best in an industry produced one successful product for every 4.5 ideas. Other companies, Rest (75%), produced one successful product for every 11.4 ideas. Rest companies need twice as many ideas to produce one successful product.

In line with queuing theory, Best’s smaller batch sizes, compared to Rest’s:

  1. Reduce risk
  2. Reduce cycle time
  3. Reduce variability in flow

Best’s smaller batch sizes cut in half the cumulative cost to develop one successful product.

Since 1985 I’ve used voice of the market 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
  • Great 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 those who are:

  1. In the top third of their industry for NPD success,
  2. Above the mean for their new product program success
  3. Above the mean for sales and profit success from NPD.
  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 through VOC of how, why and when a concept’s acceptance the marketplace will occur, and a back-of-the-envelope financial viability analysis.

  1. (2017) Castellion, G. Breaking into a bank vault and taking only a bag of pennies is like doing Voice of the Customer research without 30 interviews
  2. (2009) Reinertsen, Donald The Principles of Product Development Flow: Second Generation Lean Product Development Celeritas Publishing, Redondo Beach CA 90277