New Product Development (NPD)
The ability to consistently deliver the right products quickly and profitably to address market needs.
It requires all areas of the business to collaborate effectively and can be one of the biggest challenges that organizations face. Effective NPD only happens when the right people can make the right decisions based on the right information at every stage of the process.
What is NPD?
NPD is a structured approach that optimizes revenue from product investments. This happens through the ability to identify and accelerate to market both the right new investments, and the right improvements or enhancements to current products. NPD is used extensively in manufacturing across multiple verticals (Pharma, Consumer Package Goods, Automotive, etc.). NPD spans the entire product lifecycle from ideation through development and launch and onto the commercialization of the product.
NPD allows organizations to accelerate time-to-market, and to improve the quality of new product offerings. Combined with the ability to improve the choice of investments to make this allows organizations to maximize revenue and ROI.
For manufacturing and product-based companies it takes the combined efforts of multiple business areas to manage new and existing product portfolios. NPD is critical in ensuring that the right processes are used and that there is effective cross function collaboration to deliver on the full product lifecycle while effectively managing the complex dependencies that inevitably exist.
This isn’t just important for individual product launches and enhancements. NPD collectively supports the entire portfolio of product investments, and by extension, the strategic product roadmap for product-based organizations. By not only ensuring effective collaboration within a product development initiative, but also across all product development initiatives, NPD helps organizations maximize revenue and productivity enterprise wide. In addition, it supports the strategic evolution of the organization to help ensure the focus is always on the right investments.
What are the elements of NPD?
NPD must span the entire lifecycle from idea generation and funding approvals through the successful commercial launch of the product – and it must do that across the complete portfolio of products. For that to happen successfully requires every step to be optimized.
That starts with identification of opportunities and the pursuit of the right innovations. That comes from:
- Definition of appropriate and effective strategic objectives along with the targets and metrics that will be used to measure performance
- Analysis of existing product portfolio to identify performance levels, market analysis, competitor prospects, growth potential, etc.
- Effective ideation from both customers and prospects, and internal stakeholders to ensure the best alignment with strategic priorities and market opportunities.
This may well result in more ideas than can be delivered so NPD must have effective demand management. This provides a single point of entry for all ideas and proposals and enables:
- Effective capturing and assessment of ideas and the screening out of those that are misaligned, ineffective or otherwise not appropriate.
- The completion of standardized business cases with comprehensive cost / benefit analysis and the identification of performance metrics and targets.
- Evaluation and validation of proposals by product and portfolio managers to ensure alignment with strategic objectives, the capability to deliver, and the sufficiency of expected performance targets.
- The prioritization of proposed investments based on these criteria into an actively managed strategic roadmap for the entire product portfolio.
Lean governance is key
An effective lean governance process must also be developed and put in place. That must ensure that there are adequate controls for leadership without restricting the ability for teams to deliver in the most effective and efficient way. In NPD that governance should be in the form of a stage gate process that provides appropriate control points from the start of the investments process through the commercialization of the finished product.
Organizations must have exceptional resource management to ensure the right people with the right skills are always available, without compromising the ability of other investments to deliver. Effective NPD will enable improved resource capacity and capability planning, improving overall utilization rates and ensuring gaps are identified and addressed before impacting performance.
An adaptive and continuous planning process
Critical to NPD success is effective and efficient execution of product development initiatives. That requires an adaptive planning processes to be in place to allow for pivots and changes when required without creating inertia in the value delivery stream. That must exist across all portfolios, all investment levels and all elements of the tri-modal reality of work delivery and must include:
- Accurate, timely and complete status reporting to provide insight into what is happening at all levels of all investments and support optimal decision making.
- Complete tracking of planned, forecast and actual financials to allow for identification and management of variances as soon as possible. In addition, financial information must support validation of ability to deliver performance targets or drive adjustments to the strategic roadmap where needed.
- Cross team collaboration to ensure that all dependencies are being managed across all investments and that all areas of work are focused on shared goals and objectives.
Of course, none of this matters if the organization cannot then convert these investments into financial performance. The final element of NPD must be the validation that revenue and profitability targets are being met and the aggressive management of any variances. The actual performance results must also feed the ongoing NPD cycle, impacting goals, objectives and the strategic product roadmap for future iterations.
What are the challenges of NPD?
Organizations experience many challenges when it comes to NPD, from the very start to the launch in market.
- A lack of integrated data and tools – Full lifecycle product data is frequently compartmentalized in a variety of tools without the ability to share and integrate that information. With some of the picture in ERP, part in PLM, more in PPM and yet other data managed in spreadsheets it’s impossible to get a singular view of what’s happening, and what to do about it. Organizations need a single solution that manages the entire portfolio and lifecycle.
- Unclear investment priorities – a lack of understanding over which ideas will translate into the best products. This comes from a failure to understand customer needs, a failure to understand market conditions and a lack of awareness of market innovators and disruptors. For many organizations, the lack of clarity on priorities also results from the inability to define strategic objectives and metrics clearly and then communicate those objectives and metrics to all areas of the business.
- Ineffective and inefficient funding and strategic planning – annual planning, strategic funding and business case development are still time-consuming, manual processes for many organizations, often requiring the extensive use of spreadsheets and static presentation tools. The absence of integrated, web-based tools that standardize and structure efforts, especially around cost / benefit analysis, jeopardizes the ability to make the right decisions.
- The absence of a strategic roadmap of multi-year product investments – in order to successfully evolve from an annual planning model to a continuous planning model, organizations must have the ability to envision and execute on multi-year strategies. Without a strategic, portfolio level roadmap for all product investments that simply can’t happen.
- Ineffective integration of all functions and teams – NPD requires effective contributions from all business areas and functions. For that to happen there must be strong program management abilities in place to break work out into logical projects and sub-projects – allowing all teams to work on their elements but with effective communication to the investment management hub. This in turn requires exceptional investment level dependency management – optimizing efficiency and effectiveness without increasing risk or compromising quality.
- Challenges combining work from different approaches – Similar to the point above, NPD commonly combines traditional work approaches for the manufacturing and engineering components with agile methods for the digital elements that are increasingly critical parts of product offerings. These disparate elements and work approaches – the Tri-Modal Reality – must combine seamlessly into a single integrated solution. This requires effective, investment level stage-gate processes at the program level to manage all efforts and dependencies.
From Project Management to Product Management
Effective NPD works. Organizations that have embraced the concept have been so successful in improving delivery and performance of not only individual products, but also of the entire strategic product portfolio, they are now applying the concept to other areas of the business. There is increasing focus on the productizing of IT investments, replacing especially application development projects with a product-based approach that treats those digital products as ongoing investment vehicles that are funded, deliver and are performance managed just like traditional products.