Best Practices in New Product Development (NPD)
By Robert C. Raciti
April 1, 1993
Table Of Contents
Trends in New Product Development
A detailed review of Best Practices in NPD
A model for NPD: "The New Product Development Cycle
Markets are changing faster in the 1990s than in any other time in history. Increasing market needs are stimulating technological development in products and production lines and the needs are reflected in the number of new products that are increasing every year (Adler, Riggs, & Wheelwright, 1989). It is therefore necessary that companies have effective and efficient new product development (NPD) skills to improve their competitive position and adapt to this growing market. Organizations should focus their NPD team on developing new products to keep up with the changing needs of the market. This paper describes trends in the marketplace today; suggests methods for incorporating into NPD efforts; proposes a simplified model for NPD; and hypothesizes about building development capacity in the future.
Companies are reacting to today's dynamic markets by striving to improve new product development processes. This trend is manifesting itself in many different forms. The research presented in this paper indicates that the most popular forms of adapting to the changing environment are improving product quality, adapting to changing customer demands and focusing on international markets (Terpstra & Sarathy, 1991; Wheelwright & Clark, 1992). Corporations are improving product quality by incorporating new technology into processes or products, decreasing product development cycle time, and introducing new generations of products. Studies have shown that improved product quality results in improved profitability because of higher price premiums and increased market share (Buzzell & Gale, 1991). Companies are adapting to changing customer needs by increasing the number of product varieties to cater to fragmenting markets. Additionally, companies are using international markets to expand sales base and extend the life cycles of their products.
A popular method used to improve product quality is decreasing new product development cycle time. Shorter cycle times allow firms to offer more product improvement projects than their competitors. Increasing the number of product improvement cycles tends to create a product performance gap over a long period of time. For example, Honda has created performance gaps between their products and competitive products in many market segments due to Honda's large rate of product improvement projects over the years. Short cycle times can also increase product performance by improving a company's ability to exploit technological developments by offering customers the next generations of product faster than do the competitors (Wheelwright & Clark, 1992).
Shorter product development cycle times can greatly improve the quality of the design by allowing organizations to begin designing new products closer to the market introduction date than their competitors do. This change gives designers and marketers more time to gather and refine information before designing the product. Very often product designers are uncertain about which sets of product characteristics will be the most attractive to the target customers. The additional time spent on gathering marketing information will result in a product that will offer the customer superior value (Hayes, Wheelwright & Clark, 1988).
Corporations are utilizing the latest technology in their products and services to improve product quality and profitability. Products that contain higher technology usually outperform the competition's products. Processes that contain higher technology usually decrease manufacturing costs. For example, the corporations in the disk drive industry have been consistently incorporating new technology into their manufacturing processes and have decreased their manufacturing costs by about six percent quarterly. The incorporation of technology into disk drives has greatly improved product performance. Disk drive capacity has increase tenfold in five years and reliability has improved by a factor of ten in the last five years (Young, 1992).
Many companies are focusing on international markets for NPD efforts today because the growth of the foreign economies is accounting for a larger portion of the world market. Selling internationally increases a product's long-run profitability and improves the return on investment in NPD projects. Profitability is enhanced by expanding market potential, extending the life cycle of products, and achieving economies of scale across the organization (Terpstra & Sarathy, 1991).
The increasing rate of new product introductions is decreasing the product life cycle (McNair & Leibfreid, 1992). To counteract this effect, companies are extending the life cycle through international sales. Many countries are often a generation or more behind the United States in terms of product life cycle. Products that are at the end of their life cycle in the United States are at the beginning of their life cycle in other developing countries (Terpstra & Sarathy, 1991).
Buzzell and Gale have used the Profit Impact of Marketing Strategy (PIMS) database to provide strong evidence that the product performance and profitability are strongly related. The PIMS database has information regarding 450 companies and 3000 business units and has been used to explore the general relationship between marketing strategy and performance. The database takes into account variables such as market conditions, competitive position, and financial and operating performance to uncover strong linkages among various marketing strategies, profits and market share. The PIMS has been used to confirm quality philosophies of the twentieth century. Data analyses have resulted in strong linkages of product quality to business success, and market share to profitability. The most striking relationship of these analyses is the strong positive correlation between product performance relative to competitive product, market share and profitability of a company (Buzzell & Gale, 1992).
There are many practices that leading companies use to facilitate their NPD efforts. Companies such as Hewlett-Packard, Motorola, and Honda have used the following methods to become world class leaders in their industries through the development of new products. Some of the best NPD practices include the following processes
1.Corporate and business unit strategies are well defined and clearly communicated throughout the organization.
2.Formal cross functional teams are created for development projects and research.
3.Prototype designs are built and used for market research testing purposes.
4.Companies work toward expanding potential new product ideas using analytical techniques for project selection.
5.Mechanisms are put in place to feedback project learning into the organization to improve ongoing and future projects.
6.Effective career development is in place for all product development team members.
Companies with superior new product development skills usually have many outstanding projects with well defined strategies that are clearly communicated throughout the organization. The project teams have the same goals and functional agendas. NPD teams that don't have similar goals increase the product development cycle time by weakening a project leader's ability to communicate a project's goals throughout the functional groups.
In order for strategies to be well defined, organizations must create an aggregate project plan. The plan can be viewed as a portfolio of projects that is subdivided into four separate groups containing different types of development projects each with different types of goals (Wheelwright & Clark, 1992). The groups consist of breakthrough projects, first generation projects, successive generation projects, and product improvement projects. The aggregate project plan lays out the sequence of projects the firm plans to undertake as well as projects which will be actively supported at any one time. The aggregate project plan's purpose is to ensure that the collective set of projects will accomplish the development goals and objectives and build the organizational capabilities needed for ongoing development success. This mix of projects must reflect the overall corporate strategy and be communicated throughout the organization so projects can easily move through invention, product generations and product improvement phases.
Breakthrough project objectives require a significant change in product or process. They often result in inventing new technologies for products or processes or research resulting in capturing know-how that can be used within the organization. The goal of these projects is to use innovations to develop future products.
First generation projects develop new system solutions for customers and result in a change on either the manufacturing process dimension, the product dimension, or both. These projects provide a base for a product and product families that can be projected into the future. Companies that have superior NPD processes make sure that project team members are aware of any potential future use because a significant product base usually follows first generation products. This knowledge will help in future reductions in cost by giving team members plenty of time to plan the next stage of development during a next generation project. It is important that a breakthrough project is not confused with first generation products because relying on invention can impede a project plan. First generation products usually have aggressive milestones and product introduction deadlines.
Successive generation projects result when a product development organization adds or removes incremental features to products or processes with the potential of creating a family of products. Companies with superior NPD skills match the primary needs of a core group of customers to the successive generation products and communicate customer's needs throughout the project development teams. These needs often involve refining or improving selected performance characteristics aimed at improving the perceived quality of a product.
Product improvement projects create products and processes that are derivatives, hybrids or enhancements of those projects that already exist. They range from product add-ons to cost-reduced versions of existing products and usually require fewer resources than the other types of products. Product improvement projects involve incremental product changes with little or no process change, incremental manufacturing changes with little or no product change or both.
In order for a business unit to have a well defined strategy, projects should be classified into one of the above categories and be included in the aggregate project plan. Each project must have the critical resources and cycle time for its complete development defined. To do so, the organization uses knowledge of its capacity utilization to insure that the resources are not overextended.
Overextended resources degrade productivity by increasing the fraction of valuable time spent on non-value-added tasks such as coordinating, remembering, or tracking down information. When managers do measure a business's capacity utilization compared to the committed resources, it is not unusual to discover project commitments to exceed available development capacity by 100% or more. Overextended resources can debilitate an organization's NPD efforts. For example, the results of a study by Liker and Hancock showed the percent of time spent on value-adding tasks in relation to the number of projects assigned to a single engineer is for the most part indirectly proportional (Wheelwright & Clark, 1992). In other words, engineering productivity decreases as more projects are assigned to an engineer.
Superior NPD practices require effective action from all the major functions in the business. In order to accomplish project goals in a timely and effective way these NPD teams need broad expertise in critical functions, team responsibility, and integrated problem solving across all functions. In addition to functional groups simply doing a good job, all functional activities must fit together. Activities must link together in time and have team member participation from all functions to promote cross-functional integration. Communication should be frequent, bidirectional, comprehensive and early in the project. Engineers who are initially involved in the process should share their preliminary analysis, alternative designs, and tentative proposals with the manufacturing engineering team members. The manufacturing engineering team should share their views about capabilities of the manufacturing process, the constraints they face in designing the process and the relative advantages of alternative design ideas. This communication helps the manufacturing engineers by increasing the design engineers' awareness of manufacturing capability when a final design alternative is selected. It also gives the process engineers a better sense of the issues and objectives embodied in the design.
One way to facilitate this coordination of activities is by practicing concurrent engineering. Concurrent engineering requires a cross function team consisting of marketers, design and manufacturing engineers, component suppliers from other companies, production workers, accountants, salespersons and service representatives who get together to design a new product or process. Each party has a significant input into designing the products and processes. All changes to the design should be incorporated during the design stage because it is the most cost effective time to implement changes. Changes made later in the NPD cycle are more expensive to implement because there is less rework during this phase. During the design process, teams are not only looking at product specifications, but also designing the product for how it will be used in the field. This requires that the design team gets input from the marketing group as well as input from the cross functional team.
Although concurrent engineering takes 50% to 100% more time up front, once the new product reaches the factory, start-up is usually quicker because most problems have already been resolved (Quinn, 1988). The decrease in problems on the factory floor is a result of input during the design phase from each internal customer early in the design process instead of input after the processes are in place.
In order for a company to use concurrent engineering practices successfully during the NPD process, a culture change must occur from the traditional process of NPD practices. This new environment requires that the managers change their traditional roles and become consultants to the production worker teams who are responsible for how their jobs can best be done. If the cultural change is successful, the workers are empowered due to this new responsibility, and the teams of laborers demand high-quality effort from their colleagues. The laborers are also constantly being trained to perform many different tasks so they can fill any position on their teams. This makes the manufacturing personnel more dynamic because multi-skilled workers can drastically change the business processes based on the new products introduced. The result is a decrease in cycle time due to workers not having to be retrained when the line changes products (Cook, 1990). Cross-functional integration is crucial to effective development especially for those projects that have dynamic markets and for technologies where time is a more critical element of competition.
Motorola has an interesting way of creating cross functional integration. They create "contract driven, cross functional" teams. These teams are selected, dedicated, co-located, and put under the general manager who serves as a full time project leader for the duration of the effort. During the preplanning stages of the project, the core team creates a contract or detailed work plan which includes resource requirements and expected performance results. The contract is then signed by senior management and the cross-functional team and acts as a vehicle for articulating the project plan to the team members. Because the team members and senior management have both agreed to the plan, project goals tend to be realistic and are achieved regularly (Wheelwright & Clark, 1992).
Traditional prototyping requires building a product sample in the early stages of the development cycle to verify the technical feasibility of a product concept. Companies should break this tradition and use prototypes to maximize performance and to confirm that designs meet customer expectations. In order to maximize product performance, firms should build many prototypes that have different design philosophies and then perform intense prototype testing to help select the final product design that will be produced (Taguchi & Clausing, 1990). The marketing group will use the prototypes in their market testing to get early customer feedback. This is a good opportunity to get the customer involved in the product development process to insure that the products meet the customer expectation. Prototyping will create insight into a variety of dimensions of the product such as form, style, feel, performance, and function. This powerful prototyping technique can provide engineering insight into how the products will be used in the field.
Motorola uses a philosophy called "periodic prototyping" where prototypes are built on a regular schedule. Each engineering discipline incorporates design improvements into each of the prototyping models. This forces the functional groups to think about restructuring and regrouping tasks for insertion of designs into each prototype. Each prototype built becomes an opportunity for regrouping, recalibrating, and market testing. The amount of information exchanged and the detailed problem-solving focus that occurs in each cycle are substantially greater than those which occur under the traditional prototyping process. Motorola has found that this system of prototyping strengthens cross-functional communication while providing senior management and the NPD team with review points. These reviews document the progress of each function and show how cross-functional issues are resolved. The result of these reviews is a shared understanding of what needs to happen in the next prototype cycle to make substantial progress (Wheelwright & Clark, 1992).
The purpose of NPD projects is to commercialize ideas that meet a market need in an economical, feasible form. The ideas considered for commercialization usually go through a few levels of screening, resulting in commercializing only a fraction of the original ideas. Effective organizations expand their knowledge base and access to information in order to increase the number of new product and new process ideas considered. Expansion of the knowledge base can come from university relationships, customers, suppliers and input from different areas of the organization such as manufacturing and marketing. One method for increasing the number of ideas considered is instituting procedures and incentives that encourage innovation and input from all parts of the organization as well as from customers, noncustomers and suppliers (Wheelwright & Clark, 1992).
This abundance of ideas must be reduced based on a set of screening criteria that fit the company's technological opportunities while making effective use of its development resources in meeting strategic and financial needs. An effective selection process is usually performed with two sets of screening processes. The first set of screens is not a go/no go evaluation point, but an investigation to select information needed before the go/no-go decision is made. In a large organization, screening at the first level is best performed by a cross-functional team. At this point, ideas are checked for alignment with the company's technology and product marketing strategies and for appropriateness of applying a firm's resources. Ideas are investigated for possibility of future generation products or enhancement of present products as product improvements. Development groups usually reshape the idea to provide a set of platform and derivative projects to support the product family and its coverage of the targeted markets.
The second set of screenings usually has senior management reviews of the product and processes development options. They use a consistent set of screening criteria to select those ideas that will become development projects. The go/no-go decision is based on objective estimates of their relative market and profit potential. Any project that makes it through this screen will be funded and staffed with every expectation that it will be carried through to market introduction, and management will be committed to its commercialization (Hall, 1991).
Analytical techniques are used to formalize the project selection process. These techniques usually take into consideration product profit potential and the competitive environment. This analysis uses the potential market and competitive advantage analysis to forecast sales. The choice of how to compete is generally between cost leadership and differentiation (Porter, 1980). Companies that focus their strategy to low cost relative to competitors use approaches such as economies of scale in production, learning curve effects, tight cost control, and cost minimization in areas such as R&D, service, sales force, or advertising. Firms that use this type of approach are Texas Instruments in consumer electronics and Hundai in automobiles. A company that focus its strategy on product differentiation creates a product that is perceived by customers as being unique. Hewlett-Packard uses this strategy through their product design and product features in electronics (Shank & Govindarajan, 1992).
In order to undergo significant improvements in product development skills over a long period of time, organizations must learn from experience. Organizational improvements result from learning through previous development projects (Schein, 1993). However, this type of learning is not a natural outcome of development projects. Learning comes from a close examination of previous projects and requires dedication of time and energy. Effective learning can help insure that solved problems do not recur. Procedures, methods, and project audits all provide ways for the organization to remember what it has already learned from previous development projects.
Improving procedures can help capture organizational learning by changing the specific delineated sequence of activities or rules that NPD teams follow. Team involvement in setting project objectives and goals at the beginning of a project can reduce problems later in the project due to team learning. Team involvement teaches the design engineers about the capabilities and limitations of the manufacturing process and teaches the manufacturing engineers about the objectives of the proposed design (Wheelwright & Clark, 1992). This type of cross functional learning is healthy for an organization because it provides team members with a view of the entire NPD process. This view can often alert team members of problems before they occur by making process limitations known.
Teaching NPD teams new skills in using methods can also help foster learning. For example, teaching quality function deployment (QFD) techniques to engineering and marketing will help match engineering design to customer requirements. When QFD is used, the skills are usually disseminated through the organization and performed better over time due to individual learning.
Project audits are another way to promote organizational learning. A project audit is a systematic project review conducted by a cross-functional team that can help organize and manage the search for insight into specific projects. This team's aim is to understand the causes of problems in lead time, productivity, and NPD processes. Participants include representatives from design engineering, process development, manufacturing, marketing, sales, field services and any other groups which are involved in the NPD process. Cross-functional teams allow views from all aspects of product development to be considered. The teams also communicate the lessons learned throughout the new product development groups (Quinn, 1988).
Learning from development projects is an important element of improving an organization's development capability. Senior management should foster an environment that is conducive to organizational learning at all phases of development projects. Successful organizational learning is a source of competitive advantage and a vehicle to build development capability over a long period (Schein, 1993).
Motorola has used effective human resources management to improve its effectiveness. The company provides educational opportunity to all 105,000 employees and gives incentive bonuses to the performers within the organization. Motorola allocates about three percent of its total payroll to bonuses. Its employees seem enthusiastic about the company's efforts to compensate them (Gross, 1989).
The NPD cycle is a circular arrangement of product development stages that result in the commercialization of new products. The stages for NPD consist of planning, design and prototype, production and pilot production, distribution, sales and marketing, and after sales servicing stages. Although there is a logical progression through the stages, after a product is developed, the cycle is continuous in order to promote improvement. Different phases of the projects rotate through the NPD cycle at the discretion of senior management.
Planning stages of NPD project are usually geared toward international business when feasible in order to increase geographical markets and market potential. With an increased market potential, the NPD investment decisions become more salable (Terpstra & Sarathy, 1991).
Concept development occurs during the planning stages and includes new product and process ideas from many sources. Inputs from all areas of the organization, customers, noncustomers, suppliers and external research organizations are taken into consideration for new product concepts. The organization constantly expands its knowledge base and access to information to increase the number of new product and process ideas considered for development. Instituting procedures and incentives that encourage innovation and input from all parts of the organization continually increase the number of product concepts considered.
The aggregate project plan is considered during the planning stages. The organization uses its process capacity to calculate the number and size of new projects it can develop. Overextending the company's resources during this phase can adversely affect NPD efforts by decreasing productivity across the development teams. Once the concepts have taken form, the concept ideas are deduced based on a set of screening criteria that fits the company's posture while satisfying its strategic and financial needs (Wheelwright & Clark, 1992).
Project screening is done during the planning stage and in two phases. The first screening is performed by a cross-functional team which ensures that the product concept aligns with the company's technological and product marketing strategies. Screening is then performed to ensure the appropriateness of applying potential processes to the firm's resources. Here ideas are investigated for possible future generation products or enhancement of present products as product improvements. The firm's marketing plans are articulated by this cross-functional team.
The second set of screenings consists of a senior management review of the product and processes development options. A consistent set of screening criteria are needed to select those ideas that will become development projects. A go/no-go decision is then based on objective estimates of the product's relative market and profit potential. Decision support tools that assess the profit potential over the life cycle of each new product are used to formalize the project selection process. Any project that makes it through this screening will be funded and staffed with every expectation that it will be carried through to market introduction with management committed to the product's commercialization (Wheelwright & Clark, 1992).
Once senior management approves the planning stages, the product development cycle is rotated to the design & prototype stage. During this time, marketing uses knowledge of the customer and how products will be used to help guide product design. The design goal is to create products that surpass traditional product specifications by addressing how the products will be used (Garvin, 1988). Engineering defines and verifies the product and process architecture and tries to use the latest technology to improve product quality and/or lower costs. The marketing group then defines target market parameters, develops sales and profit forecasts. These forecasts require interaction with engineering and manufacturing who chose components, interact with suppliers, and develop cost estimates based on the material and processes needed for manufacture (Wheelwright & Clark, 1992).
The design phase naturally evolves into the prototype testing phase that involves building early systems prototypes with the objective of maximizing performance and matching customer expectations. Early prototypes are built and often used by the marketing group for early customer interaction (Gould, 1993).
Under certain circumstances, new product prototype subassemblies have very tight specifications. The NPD cycle suggests loosening the specifications on the prototypes and measuring performance before tightening critical tolerances. This procedure prevents over-engineering and cuts unnecessary costs. It also focuses engineering groups on the critical design factors that can be handled by tightening the specification of the parts or preferably by changing the design to eliminate the variation of performance (Taguchi & Clausing, 1990).
Near the end of the prototype and design phase, engineering and operations management validate feasibility of processes, validate suppliers, and test and install tooling and equipment. Marketing can concurrently establish a distribution plan. Senior management approves the product and process architecture and parameters to rotate the development cycle to the next stage.
The pilot production & production stages have two phases. Pilot production is the phase that tests the whole system by integrating designs, detailed engineering, tools, equipment, components, assembly sequences, and employees. It involves using the individual components that are built and tested on production equipment. Assembling and testing the final product is performed in the factory. The pilot production phase results in many units produced while modifying the manufacturing processes if necessary.
Once the pilot production phases have been refined, the production phase starts high yield volume production. The volume increases incrementally once the NPD team is confident with the quality of the final product at each level. Products are tested for compliance with quality and cost targets resulting in improvement of processes to meet these expectations. Engineering then evaluates and tests the pilot units, solves problems, and works with marketing to train field service personnel. Marketing trains the sales force and prepares the order entry process systems (Hayes, Wheelwright & Clark, 1988).
The assembly line is designed to be as flexible as possible in order to adapt to the new products or processes it will be expected to produce. This flexibility allows the assembly line to produce a variety of products. Companies can no longer make the same item in large volumes for an extended period because product life cycles are shrinking. The goal is to make entire families of products or a unique item on the same production line. A flexible production line cuts down on the cycle time for any new products in the future. The decrease in cycle time increases profitability of companies and makes them more competitive. This is especially important in high technology areas because the rate at which newer generations of products are entering the market is shorter for each successive generation. To stay competitive, companies must offer the latest technological advancements to their customers (Michael, Summe, & Uttal, 1990).
The distribution stage requires marketing to formulate the channel strategy. Distribution channels are filled and new channels are explored. A channel distribution map is an effective tool to help plan distribution strategy. This map displays sales and market share information by channel over a particular period. The map makes it easer to see trends and competitors' changes in channel activity. Channel information is gathered from trade publications, surveys and other forms of market research (Wheelwright & Clark, 1992).
By the time the sales and marketing stage arrives, the sales force knows the details of the product technology and its uses. It is also familiar with the after-sales service support available. The sales force also understands and responds to customers' requirements, needs, wants, methods of using the product, and complaints.
The after-sales service stage of the NPD cycle occurs when customer feedback is gathered and deployed back into the organization. Once a product or service is sold, the company should then provide after-sales servicing, offer regular servicing and repairs, deal with customer complaints, anticipate customer dissatisfactions and their needs and wants for the future. Customer feedback is used to control and improve the quality assurance system. This feedback promotes design changes to existing products or after-sales service organizations and is used for new product development planning stages for other projects.
The organization monitors customers through surveys, interviews, focus groups, and complaint handling. Through these means the corporation will use after-sales service customer feedback to understand customers' operations, how they use products, and what problems they have (Salter, 1991).
Traditionally, this customer feedback was kept within the marketing department. Complaints were stifled so other areas of the organization would never know the real problems. The NPD cycle proposed in this paper suggests that complaints be studied to improve internal processes and satisfy customer expectation. Customer feedback is then disseminated to various areas of the organization to alter future product designs or business processes (Ishikawa, 1980).
Customer feedback introduces a range of human experiences and should be monitored, understood and used by the company. This feedback is important because customer attitude directly affects repeat purchases of products. Satisfaction resulting from a purchase feeds back into the confidence and attitude of the buyer. That, in turn, affects the intentions to buy a product. When goods and/or services are purchased, consumers anticipate their expectations regarding the products will be met. Once this has occurred, the consumers' attitude and confidence are boosted. This generally increases the customers' intentions to buy the product the again and to promote products by word of mouth (Howard, 1989). Without customer satisfaction, there will be little second time purchases and the market will easily be lost to competitors who produce products that do satisfy customer expectations.
A company that can develop new products, and processes them quicker and more efficiently than its competitors has a competitive advantage. However, to sustain this advantage and be competitive in the future, development capability must be continually improved and expanded (Wheelwright & Clark, 1992). In order for companies to build NPD capability rapidly, they must learn from the best-in-class organizations. The future environments will be changing so rapidly that learning by experience will be too expensive (McNair & Leibfried, 1992). The bulk of the expenses will be due to the extended time and effort it takes for an organization to get its products into the hands of the customers. Delays in product introduction adversely affect the profits over the life of the product. Incorporating benchmarking practices will become the preferred method of improving development capacity. Benchmarking is "the continuous process of measuring product, services, and practices against their toughest competitors, or those companies recognized as industry leaders." [1] (Camp, 1989) Benchmarking can be used across the organization to identify NPD practices that support critical objectives of the organization. According to a study by the Internal Benchmarking Clearinghouse, although 95% of the companies interviewed do not know how to benchmark, 79% of them believe that companies must benchmark in the future to survive (Biesada, 1992).
Benchmark practices start with an understanding of core issues such as unmet customer needs, performance gaps, problem areas, and strategic advantages. Performance measurements and external organizations are selected. These external organizations can include other departments within a company, other companies in the industry, or companies outside the industry that happen to perform a particular process well. Internal benchmarking is the analysis of existing practice within various departments or divisions of the organization to determine the best performing activities and drivers. Internal benchmarking is a good start for companies that want to become proficient at benchmarking. Benchmarking is a process of gathering information. Therefore, if a firm can't gather data from within, the company probably won't get it from anywhere else. Competitive benchmarking examines direct competitors and their strengths and weaknesses to plot a successful strategy. Industry benchmarking is an examination of everyone in the same industry for the purpose of analyzing industry trends and performance metrics. Best-in-class benchmarking examines many industries in order to search for innovative practices that can be applied within an organization. This type is the most powerful form of benchmarking because it can result in quantum leaps in performance. Best-in-class benchmarking provides a mechanism to change a process to make dramatic performance improvements. For example, if a manufacturing company wants to optimize its cash management process, it could study the industry and learn from those manufacturing companies that best perform cash management. However, it would be much better to examine companies in an industry that have impeccable cash management skills, such as a financial service company whose resource conversion technology is managing cash. This type of benchmarking will bring an innovative process to the industry as well as to the company (McNair & Leibfreid, 1992).
Benchmarking information can be acquired from varieties of sources. Among these are published material (trade magazines, management literature such as Lexis/Nexis or Value Line), insights gained at trade meetings, contracting trade associations, gathering intelligence at trade shows, conversations with industry experts (interviews are informative but expensive), customer feedback, consortia of benchmarking partners, employees and former employees.
Once the facts are gathered, an evaluation of the firm's efforts in comparison to the best firms in a given class can be made. Benchmarking is not copying, but is a process of selecting, analyzing, and measuring best-in-class performance to identify ways to make improvements within the organization and help lead to a long run competitive advantage (Freedman, 1992).
In order for companies to improve their effectiveness and efficiency in new product development with the goal of gaining a competitive advantage, companies should utilize the following strategies.
1.Corporate and business unit strategies must be well defined and clearly communicated throughout the organization.
2.Formal cross functional teams should be created for development projects and research.
3.Prototype designs should be built and used for market research testing purposes.
4.Companies must work toward expanding potential new product ideas using analytical techniques for project selection.
5.Mechanisms are to be put in place to feedback project learning into the organization to improve ongoing and future projects.
6.Effective career development should be in place for all product development team members.
These practices can then be incorporated into a proposed NPD cycle that facilitates the development of new products. The NPD cycle is a circular arrangement of product development stages that result in the commercialization of new products. The stages for NPD consist of planning, design/prototype, pilot production/production, distribution, sales/marketing, and after sales servicing stages. This NPD cycle helps organize functional inputs and promotes continuous improvement of the NPD process by providing a framework for new product development efforts. The proposed cycle facilitates the coordination of functional inputs by arranging tasks in time and fitting the tasks together through cross-functional integration. The cycle is circular in design in order to lend itself to continuous improvement by incorporating after-sales customer information and past project learning experiences into the planning phase for the next project development effort.
Companies are competing in an intense global environment where the development of new products is becoming the deciding factor for success. NPD can improve competitive position and increase returns on existing resources by allowing a company to respond to customer demands and competitors' strategies (Adler, Riggs & Wheelwright, 1989). Therefore, the challenge of the 1990s is the integration of senior management, marketing, manufacturing, and engineering to commercialize new products faster and more efficiently than their competition.
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[1]Quote by David T. Kearnes, CEO of Xerox Corporation