Determining if your New Product Development process
is continuously improving!
by Dave Biggs
My wife says I live, eat and breathe new product development. She's right.
When I meet people, the conversation inevitably gets around to new products
-- what works and what doesn't. The majority of the time, when I'm on a
fishing trip, for example, I'm hoping to hook that great new technique
that'll help our company "catch" a really big new product.
When fishing, the first priority is to find out if there are any fish in
the water. So early conversations with new acquaintances focus on how well
they develop new products. Almost everyone can remember that one really
great product development project -- the one that worked almost perfectly.
The product was completed in record time, the whole company rallied, and
the market was taken by storm. No lack of war stories there!
But I've seen a lot of "one-fish holes" and I'm most interested
in techniques that pay off time and time again. Asking questions such as,
"How do you determine if your new product development process is continuously
improving?" often turns the conversation cold. In rare cases, the
coolness is simply protection of that secret fishing hole. Most often,
it's the embarrassment of information not readily available. My fishing
partners don't actually know if their processes are improving. Ironically,
it's not that hard to put a report in place to answer that and other important
new product design process questions. Let's look at how we might craft
such a report.
A good fishing report would answer questions such as what's hatching?;
what they are feeding on?; did they bite yesterday?; has the weather changed?
A good product development report would answer such questions as:
1. How well is the market understood?
2. How is the quality of new products?
3. How effective is the product develop ment process?
4. How efficient is the product development process?
5. Are product lines being kept current?
6. Where does the product development process need attention?
answers to these questions are not that difficult to obtain, but it is
relatively uncommon to find companies that provide this information. People
will invariably argue that they, "already do that."
I say it's uncommon, because the information is not published and reviewed
periodically by the various functions in the company. Too often, "we
already do that" refers to the "in the head" exercises when
were focused on a particular product. To manage a fabrication process,
though, a machine operator must systematically measure the output and analyze
the information. The same principles apply to managing a product development
process. So, exactly, what information answers the questions we must ask?
It's common to estimate the potential sales revenue before funding a development
project. Tracking revenue for the first few years in the marketplace and
comparing it to the original estimate leads to some interesting questions.
"Why are sales so much higher than projected," is the best kind
of question. There is, unfortunately, always the other side of the coin.
"Why aren't sales materializing?" The activity and thought required
to answer the "why's" yields keen insights into understanding
of the market.
Comparing the estimated project expenditures and completion date to the
actual project performance yields a wealth of information. The most valuable
information is the trend from project to project. Since all projects are
not the same in size and scope, some analysis may be required to determine
whether the development process is getting better. It's important this
information be used in a manner that tells the people to focus on improving
the process, not making bigger or longer estimates.
Over a decade ago, EM was measuring the percentage of sales that come from
new products. This has become a very popular measurement of the effectiveness
of product development. The idea is that if our product development process
is healthy, a certain minimum percentage of our sales should come from
new products. If the percentage is increasing, the product development
process is getting better; if the percentage is decreasing, the process
If you commit an act of poor quality, the referee not only penalizes you
by the loss of customer confidence and sales, but you are also assessed
the "redo" cost. When things aren't done right in the first place,
you get to do them again. This redo cost is a good indicator of new product
quality. In order to take into effect the size of the product, the measurement
can be a ratio of the redo cost to the revenue generated. It is useful
to gather this information for each product, as well as the aggregate for
all products developed.
The speed of the product development process can be measured by averaging
the elapsed times for the projects in the last three years (might be a
different time-frame for different companies). Decreasing time means the
process is improving. Summing up the development costs for all projects
completed in the last three years and comparing that to the total revenue
generated by those products is a good indicator of new products financial
contribution to the enterprise. This measurement is not a rigorous "return
on investment" calculation, but it is simple, easy to understand and
provides a good indication of the trends.
The topic of measuring and understanding the condition of new product development
is more involved than can be covered in a short article. However, the process
outlined in the MAP book goes into more detail. Appendix A of the MAP book
includes examples of these and other effective new product development
There are days when I have relapses, but I believe that new product development
is much more important than fishing. A significant amount of our effort,
then, should go into understanding the process, reinforcing what we do
well and changing what doesn't work. When change is necessary, a random
trip through the tackle box trying all the lures is not a good option.
It is better to rely on a good product development report and remove the
random luck approach. Good fishing!