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:
- Reduce risk
- Reduce cycle time
- 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
- (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:
- 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.
- (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.
- (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
- (2009) Reinertsen, Donald The Principles of Product Development Flow: Second Generation Lean Product Development Celeritas Publishing, Redondo Beach CA 90277