You Need to Know
About New Product Development
a company provides services, software or hardware, new opportunities and
threats emerge every day. With the pace of change in customer needs, product
technology and business processes showing no signs of slowing down, the
new Internal Audit question is "Which of our business practices efficiently
copes with this dynamic business environment?"
These forces of change provide an opportunity to strengthen the relationship
between Internal Audit and the Board of Directors. Institutional investors,
lenders, individual shareholders and the business press are all demanding
enhanced corporate governance practices and Directors are being held accountable
for a proactive overview of all important business practices.
Product development is considered especially important because it is the
main activity used to implement strategy. Boards of Directors and Internal
Audit have worked together on financial management practices for years
and the Director's responsibility for strategic overview has been recognized
for some time. New product development is fertile ground for Internal Audit
to help the Board. But Directors and Internal Auditors without an extensive
background need a good frame of reference to judge the effectiveness of
product development methods and practices.
Financial management practices have had the GAAP guidelines for decades.
Created out of the need for uniformity in financial reporting, generally
accepted accounting principles have very effectively facilitated accounting
communications and financial audit practices.
Are new product development practice guidelines needed? GAPDP (Generally
Accepted Product Development Principles) sounds nice, but the last thing
we need is a new acronym. What is needed is an audit plan template and
guidelines that help explore the effectiveness of new product development
processes. Whether a company provides banking services, insurance, software
or manufactured goods to customers, new product success is dependent on
the fundamentals of:
Understanding the marketplace: Defining new products; managing development
Introduction of new products: Learning from experience and improving the
Companies perform some of these processes better than others. Armed with
the right questions and an understanding of how to validate the answers,
people with good auditing skills are able to evaluate the state of these
development processes and provide value by determining where improvements
can be made. A feel for the process can be obtained by examining a sample
of the inquiry process.
Understanding the Marketplace
the marketplace is difficult. The half-life of marketplace knowledge is
so short that no person or company ever fully understands it. But a good
understanding of the marketplace is necessary for consistent product development
success. In fact, one of the best measurements of marketplace understanding
is the new product success rate. All companies should keep a systematic
measure of the new product success rate. The sad commentary is that most
companies don't have such a measurement or even a clear definition of success.
Here are a few lines of inquiry that probe a company's effectiveness at
understanding the marketplace:
all the people with information about the marketplace understand the learning
the marketplace information flow to all the people involved in new product
Defining New Products
The objective of the definition process is to plan how to satisfy customer's
expectations. The planning process must include more than just the definition
of the product. The business processes used to deliver services or products,
a major influence on customer satisfaction, have to be planned at the same
time the product is planned.
The strong tendency is to start the design of the product before the definition
is completed or processes like order entry and product service have been
considered. But, severe penalties are assessed when definition changes
are made during design and the terrible re's begin (redesign, rework, retest).
The terrible re's almost always compromise the quality of the final product
and cause overruns in schedule and budget.
The most effective risk management is accomplished as part of the definition
activities. When a product or the business processes are defined with too
many bells and whistles, the project is destined to run over schedule and
budget. Defined with too few features and functions or adequate support
processes and the customer won't want the final product.
are some questions to assess the condition of your definition methods and
a product definition completed before the design of the product begins?
Are the business processes (order entry, manufacturing, product
service) defined at the same time as the product?
Is a formal risk assessment performed and used as part of the planning
Managing Development Projects
Project planning, different than product planning, is determining how the
project should be broken into small subtasks and which tasks should be
accomplished first to maximize control and minimize risk. One of the planning
principles is to complete the most difficult tasks first, because the solution
to problems, large or small, limits the possibilities in other areas. Solve
too many of the easy challenges early in the project and there may not
be enough latitude to solve difficult issues later.
The dominant symptom of poor project planning and management is all too
familiar. Reports on the project say that there are a few little problems,
but time is going to be made up and the product will be completed nearly
on time. Then within weeks of the scheduled product launch, overruns begin
to be announced. Eventually the project ends up taking 50 to 100 percent
more time than scheduled.
The best measure of project management is the percent of projects that
are completed on time. Unfortunately, most companies don't systematically
keep this type of measurement. From the project management perspective,
here are a few lines of inquiry that bring out the condition of the project
know the causes of past project delays and have steps been taken to prevent
similar problems for occurring again?
Is a formal risk analysis performed during the project planning? Is it
used to determine what should be done first?
Are projects broken down into subtasks and is there a sense of urgency
to finish the subtasks on time?
Introducing New Products
best way to discredit sales people is to have the customers teach them
about new products. Too often, the new products are shipped before sales
training is completed, the product service people are ready, or the sales
literature is available. Under these circumstances, loss of momentum and
embarrassment are sure to follow. The best course of action is to have
the support materials and training completed before the product is released.
Here are some questions that examine the product introduction process:
plans made while the product is being defined?
Is sales literature completed and ready when the product design is complete?
Are sales people trained and briefed before the product goes to market?
Learning from Experience
Before rushing into the next project, the problems with the last project
should be converted into lessons learned. These lessons should be used
to prevent the same problems from occurring again. To prevent known problems,
processes or product development methods may have to be modified and training
sessions may have to be conducted to share new knowledge.
"How many people have seen the same problems happen time and time again?"
is the question. Consistently, over 80 percent of product development seminar
attendees indicate that the same problems happen over and over again. Often,
companies don't even have a measurement that indicates whether progress
in being made in their approach to new product development.
Here are some ways to delve into the effectiveness of learning product
channels exist to resolve issues and share lessons learned during product
Do post-project reviews exist?
Does everyone understand how new products are developed?
this point in time, product development principles do not have the GAAP's
years of refinement. But product development is not black magic, either.
Existing principles and guidelines will continue to be refined, but they
currently provide great value by stimulating improvement in a company's
product development endeavors.