Finding Good Ideas: How To Improve Product Development
The development of new products and services is key to business success, but a new study from North Carolina State University shows that businesses could do a much better job of evaluating new ideas in order to identify products that will be winners in the marketplace.
“You need more critical screens upfront, so that good decisions get made earlier, bad ideas get eliminated, good ideas get moved forward, and you don’t waste time or money on the wrong projects,” says study co-author Dr. Mitzi Montoya, Zelnak Professor of Marketing Innovation at NC State.
New product development encompasses a wide range of activities, from market analysis to prototyping. Companies incorporate periodic review points when a team evaluates these activities and determines whether to pursue an idea, drop the idea or collect additional information and reevaluate. Review teams are usually comprised of senior management representatives from a company’s marketing, finance, research and development and/or manufacturing branches.
Montoya says that the research found that properly evaluating a concept at its very first review – accurately identifying strengths and weaknesses – is closely linked to a new product’s success in the marketplace. Good evaluations later in the process are less critical to the ultimate success of the products, Montoya says.
But having adequate evaluation early in the process requires good review criteria, which the study found may also be lacking. To understand the need for new criteria, you have to understand the two types of new product development projects: radical projects and incremental projects. Incremental projects are updated versions of existing products or services. Radical projects are new and innovative, carrying greater potential benefits – and greater financial risks.
The study, which evaluated the product development practices of 425 members of the Product Development and Management Association, found that companies use more review points for radical projects than incremental ones, but use fewer criteria to determine whether to move forward with a radical project.
“This suggests they probably don’t know which criteria to use,” says Montoya, “so radical ideas – regardless of their merit – might be killed because they are not being evaluated properly.”
To this end, Montoya says, the research provides a summary of criteria that companies could use as a benchmarking template for developing their own customized review criteria and evaluating their review practices. These criteria cover an array of financial, marketing and technical issues, from profit objectives to potential for patents.
The study, “Exploring New Product Development Project Review Practices,” was co-authored by Montoya, Dr. Jeffrey Schmidt of the University of Oklahoma and Dr. Kumar Sarangee, who was a Ph.D. candidate at the University of Illinois when the paper was written. The paper is being published in the September issue of the Journal of Product Innovation Management.
Note to editors: The study abstract follows.
“Exploring New Product Development Project Review Practices”
Authors: Mitzi M. Montoya, North Carolina State University; Jeffrey B. Schmidt, University of Oklahoma; Kumar R. Sarangee, University of Illinois
Published: September 2009, Journal of Product Innovation Management
Abstract: Most organizations use new product development (NPD) processes that consist of activities and review points. Activities basically solve problems and gather and produce information about the viability of successfully completing the project. Interspersed between the development activities are review points where project information is reviewed and a decision is made to either go on to the next stage of the process, stop it prior to completion, or hold it until more information is gathered and a better decision can be made. The review points are for controlling risk, prioritizing projects, and allocating resources, and the review team typically is cross-disciplinary, comprising senior managers from marketing, finance, research and development (R&D), or manufacturing. Over the past four decades, research has greatly advanced knowledge with respect to NPD activities; however, much less is known about review practices. For this reason, the present paper reports findings of a study on NPD project review practices from 425 Product Development & Management Association (PDMA) members. The focus is on three decision points in the NPD process common across organizations (i.e., initial screen, prior to development and testing, and prior to commercialization). In this paper, the number of (1) review points used, (2) review criteria, (3) decision makers on review committees and the proficiency with which various evaluation criteria are used are compared across incremental and radical projects and across functional areas (i.e., marketing, technical, financial). Furthermore, the associations between these NPD review practices and new product performance are examined. Selected results show that more review points are used for radical NPD projects than incremental ones, and this is related to a relatively lower rate of survival for radical projects. The findings also show that the number of criteria used to evaluate NPD projects increases as NPD projects progress and that the number of review team members grows over the stages, too. Surprisingly, the results reveal that more criteria are used to evaluate incremental NPD projects than radical ones. As expected, managers appear to more proficiently use evaluation criteria when making project continuation/termination decisions for incremental projects; they use these criteria less proficiently during the development of radical projects, precisely when proficiency is most critical. At each review point, technical criteria were found to be the most frequently used type for incremental projects, and financial criteria were the most commonly used type for radical ones. Importantly, only review proficiency is significantly associated with performance; the number of review points, review team size, and number of review criteria are not associated with new product performance. Furthermore, only the coefficient for proficiently using marketing criteria was significantly related to new product program performance; the proficiency of using financial and technical information has no association with performance. Finally, across the three focal review points of the NPD process in this study, only the coefficient for proficiency at the first review point, (i.e., the initial screen) is significantly greater than zero. The results are discussed with respect to research and managerial practice, and future research directions are offered.