Countdown to product launch: Are you confident customers will buy?

New product and service development Countdown to product launch: Are you confident customers will buy? Understanding customers is critical when devel...
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New product and service development

Countdown to product launch: Are you confident customers will buy? Understanding customers is critical when developing new products and services. Yet, with competition intensifying, companies feel pressured to release products more quickly than ever, often having to make trade-offs and take greater risks because they lack sufficient customer insight. By improving business practices in four specific areas, companies can increase the odds that customers will embrace their new products and services — and, at the same time, introduce them on the timetables that the marketplace demands.

By Melody Badgett, Happy Bowen, Whitney Connor and Jennifer McKinley

New product and service development

Introduction

Contents

When it comes to pleasing customers today, companies across industries, are struggling more than ever. Even established companies are faced with the challenge of appealing to a more informed and discriminating consumer base. Fully delivering on customer expectations in order to retain valuable customers further complicates this challenge. What tangible, concrete improvements can companies make to improve customer satisfaction externally and enhance efficiencies internally? A focus on new product and service development (NPSD) affords opportunities for both.

1 Introduction 2 Four areas of opportunity 3 Customer involvement 11 Structured or flexible process? 14 Hybrid process: Balance structure and flexibility 15 Innovative research methods 20 Organizational implications of NPSD

A key aspect of satisfying customers, and one that companies can impact decisively, is successful NPSD; however, this can be a feat in itself. To create new products and services that significantly (and positively) impact a company’s bottom line, companies must involve the customer fully and make use of insightful customer feedback and findings appropriately.

21 Summary 22 Methodology for the IBM NPSD primary research study 23 About the authors 24 References

One would think that in this technological age, the ability to incorporate customer needs into the NPSD process would be easier than ever. However, in the rush to get new products and services to market faster, companies are finding it more difficult to incorporate customer insights into the development process. When it comes to NPSD decision making, executives are faced with a host of questions, trade-offs and competing priorities that are driven by numerous, difficult-to-prioritize, imperatives (see Figure 1).

Forces driving development imperative Drivers

Development imperative

• Intense competition • Changing customer expectation

Implications • Shorter development cycles

Fast and responsive

• Better targeted products

High development productivity

• Leverage from critical resources • Increased number of successful development products per engineer

Products with distinction and integrity

• Creativity combined with total product quality • Customers integrated with truly cross-functional development process

• Accelerating technological change • Exploding product variety • Sophisticated, discerning customers • Technical diversity • Demanding customers • Crowded markets • Intense competition

Figure 1. Product development is driven by numerous, difficult-to-prioritize, imperatives. Source: Edward Smith and Steven Wheelwright: The New Product Development Imperative, Harvard Business Review, March 1999.

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New product and service development

Four areas of opportunity

We at the IBM Institute for Business Value interviewed 13 forward-thinking companies that lead the way in involving the customer throughout the NPSD process and using innovative new research methods and techniques in the NPSD process. Our study uncovered four primary areas that offer significant opportunities to improve both internal product development processes and external customer reaction to — and acceptance of — new products and services launched into the marketplace: 1. Work with the right customer at the right time — With the right customer input incorporated at the right time in the NPSD process, significant benefits can be realized. Companies that figure out how (and when) to listen to the right segments of customers must then use what they hear to guide both product development and iteration. Companies that do this are more likely to launch successful products and services into the marketplace with greater accuracy, at a reduced cost and ultimately, garner greater market share for the launched product. To benefit fully from customer knowledge, companies should develop a plan for customer involvement that includes: which customer types to solicit, when in the process to involve those different customer types, what analysis will be conducted, how the analysis will be used and how the information gathered will be transferred back to the product development team. 2. Balance process structure and flexibility — Paying attention to process flexibility can further

enhance NPSD effectiveness by affording companies — over 60 percent of which rely on structured NPSD processes today1— the opportunity to adopt a “best of both” approach that leverages elements of structure and flexibility. Elements of structure help ensure key deadlines are met and approvals obtained, while elements of flexibility defer costly decisions until a time in the process when more accurate information is available. Using a “best of both” approach, companies can create a hybrid NPSD process that accommodates their company-specific dynamics, opportunities and limitations. For most companies, balancing structure and flexibility means incorporating flexibility. However, today over 65 percent of all U.S. companies that develop products use a form of the structured Stage-Gate process , a rigorous product development roadmap2. Our interview results indicate that a very structured Stage-Gate process, long the norm, is not always the best alternative. Although determining how much structure and flexibility is best depends on a host of company-specific variables , such as product type, customer base and global reach, many times adding elements of a flexible, iterative process can add greater value.

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New product and service development

3. Utilize innovative techniques and technologies— Experimenting with new research techniques

and technologies can provide insights into what customers truly value, insights that often are not obtained through traditional channels. Companies can explore these new methods to better, and in many cases more cost-effectively, understand customers’ underlying wants and needs. Innovative new research methods, though not yet widely used, appeal to most companies interviewed as a means of increasing accuracy, reducing cycle times and ultimately, growing market share. 4. Manage organizational implications — Finally, analysis of social networks within an organization

can be used to improve the NPSD process and to create cross-functional NPSD teams. Social network analysis (SNA) makes visible patterns of information-sharing within strategically important formal and informal networks. Customer involvement

Any combination of improvements in these four areas can be beneficial for a company, but companies can attain the highest degree of success by making improvements in all four areas (see Figure 2). Customer involvement across the four key aspects of successful NPSD Utilize innovative techniques and technologies

Work with right customer at the right time

Balance process structure and flexibility

Manage organizational implications

Figure 2. The companies realizing the most NPSD success excel in all four areas. Source: IBM Institute for Business Value, 2002.

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New product and service development

Although companies typically do believe that customer involvement is a critical aspect of successful NPSD, our research indicates that the degree of structured customer involvement varies dramatically from company to company. A few innovative companies have made headway and are putting structure and forethought into which types of customers they involve when in the NPSD process. Many companies rely only on general, ongoing customer research that does not necessarily correspond to a specific stage of the process or a certain product. Both targeted, scheduled customer involvement and ongoing customer research are necessary elements of successful NPSD. Companies that do both are realizing the most success in the marketplace. Many companies are starting to make headway, but in general, none of the companies are fully there yet; customer involvement needs to be made more realtime, more structured and better integrated throughout the entire process. To be highly successful at NPSD, companies should develop a plan that details how they will involve customers. The plan can be divided up into three parts: 1. Determining which types of customers to involve when 2. Gathering insightful, accurate information 3. Integrating learning into the NPSD process. 1. Determining which types of customers to involve when — Should companies:

• Involve “lead customers” (that is, customers who are forward-thinking and develop solutions to meet a specific need before a product exists to meet their need) in different stages of the NPSD process rather than their “lag customers” (that is, customers who are less sophisticated, late adopters)? • Consult dissatisfied customers in addition to happy and satisfied customers? • Rely on general, ongoing customer research to direct their product development?

The broad spectrum of product-and company-specific variables make it difficult to set rules about which customers to involve when in the NPSD process.

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Certain types of customers are better suited for product testing and product feedback in different stages of the development process. For example, when testing a cutting-edge, high-tech, new concept targeted at the technologically sophisticated, lead customers and expected early adopters are often the best resource because they embrace and are curious about new innovations. However, when conducting the final round of user testing of a product targeted at the mass market, a broader selection of general users is typically most appropriate. When trying to identify trends in customer preferences and determine customers’ likes and dislikes, data from ongoing, general customer research is often the most revealing source of information.

New product and service development IBM Business Value Alliance

New product and service development

Because of the wide range of variables specific to each company and product — such as, size of NPSD budget, type of product or service being developed, characteristics of the target market, competitive nature of industry — there are no hard and fast rules for which types of customers to involve when in the NPSD process (see the sample map in Figure 3). Thus, companies should develop a plan to determine which type of customers to involve during which phase of the NPSD process and to determine when it is best to rely on ongoing customer research. High-level customer involvement map Product planning

Concept design

Prototyping and testing

Production and delivery

Post-launch refinement

Lead customers Future customers Mass-market customers Dissatisfied customers Other types of customers

Figure 3. Sample map of which type of customers to involve when in the process. Source: IBM Institute for Business Value, 2002.

Companies benefit from planning when to

Several case examples bring to life how companies can benefit from having a plan for which types of customers to involve when in their NPSD process:

involve specific types of customers in the NPSD process.

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• Lead customers and early adopters. An executive from a top-tier networking and technology infrastructure company explained that customer involvement is all about bandwidth: “Because of time and cost constraints, you can’t do needs assessments with all types of customers, so in high tech, you usually have to spend the majority of your time with lead customers and early adopters because they understand the product and are interested in getting it to launch quickly.” These customers are involved throughout the process, from concept development, to prototyping, to production and delivery, to refinement.

New product and service development IBM Business Value Alliance

New product and service development

• Early adopters. An executive from a leading consumer packaged goods (CPG) food company explained that it segments consumers into two groups: innovators and mainstream. When testing break-through new products and flavors, the company seeks out consumer groups that are very open to trying new foods. It has found that consumers in coastal locations such as New York City and California are much more open to trying new foods than consumers in other locations. The company believes this is because of the large proportion of innovative and adventurous restaurants that are common to those areas. After iterating the design concept and flavors with consumers from this group, testing is rolled out to the broader, mass-market population. • Competitors’ customers. They can be a valuable source of insight into why a specific product or brand isn’t purchased. A leading outdoor products company follows the motto, “keep your friends close and your enemies closer.” This company talks to competitors’ customers through informal interviews to understand what customers like about its competitors’ products and how competitors’ products stack up against products in the company’s portfolio. • Mass market. A top-tier networking and technology infrastructure company involves massmarket customers as a litmus test when previous feedback came from lead customers and early adopters. Mass-market customers can confirm that the product is relevant to the mass audience and that the direction gained from working with lead customers does not lead to creation of a product that only a small, niche, advanced market desires. General, ongoing research can supplement, targeted customer interaction.

Though some companies involve specific types of customers at different stages of the NPSD process, other companies rely more on general, ongoing customer research that does not necessarily correspond to a specific stage of the process or a certain product. Many companies find that this information helps in monitoring overall trends in customer preferences and determining how to improve current offerings. Companies can realize greater NPSD results by leveraging findings from both ongoing customer research and targeted interaction with customers. One of the major benefits of ongoing, general research is the reusability of customer data. An executive at a leading mobile phone company described how the company benefits from its ongoing customer insights research program. The company’s comprehensive program does not focus on specific products, but instead on collecting general information about customer needs that can be used and reused over time. The program includes brand tracking, market segmentation research, Web surveys, and interviews with current and potential customers. The major

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New product and service development

benefit is the breadth of information, which combines knowledge from customer research, business research, customer care feedback, employee insights, and more. The drawback is that feedback specific to the features and functionality of the product being developed is not obtained. NPSD teams at this company primarily leverage the general customer data during the idea-generation and concept design phases of the development process. Identifying exactly what is needed can help focus questioning.

2. Gathering insightful, accurate information — Determining what information is needed and how

it will be used will help focus the questions that companies should ask customers. Additionally, companies should plan the line of questioning it will deliver, based on the phase of the NPSD process, type of customer, kinds of information sought and application of the information. Some possible lines of questions include: • Determining unmet needs - Does the customer have a need that no product currently meets or meets adequately? - How does the customer currently meet his or her need? - Is the product that the customer is currently using designed for this purpose, or is the customer improvising? - What features, attributes and functionality is the customer seeking in a new product? • Determining how customers choose - What criteria do customers use to choose between products? - How do customers rank the criteria in level of importance? • Analyzing the competition - Which product or brand does the customer currently prefer? Why? - How do current products stack up against the competition? - Are there features, attributes and functionality that the customer particularly likes or dislike about competing products? • Assessing possible trade-offs - What trade-offs will the customer make with regard to features, attributes and functionality (for example, between stylishness and price, between size and weight, between simple and complex)?

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New product and service development

Collecting insightful, accurate data is no easy feat.

Determining what data to collect is only half the battle; collecting insightful, accurate data poses additional challenges. “[Customers’] underlying meanings and values are really just difficult-to-articulate needs”3. When collecting customer data, companies face three primary challenges: • Because customers struggle to articulate the “why,” it is difficult to get at the root of their needs. For example, if customers want a faster, smaller, lighter-weight laptop computer, what are their underlying needs? Do they want to accomplish twice as much work (faster) and work everywhere (lighter)? Or, do they seek more leisure time (faster) and prefer to work outside the office (lighter)? 4 • Customers have a difficult time imagining their future needs. Customers might not recognize that they will have a need for a revolutionary new product. Consider this, in 1899, Charles Duell, Commissioner of the U.S. Office of Patents said: “Everything that can be invented has been invented.” 5 An executive from a leading mobile phone company describes the situation well: “Customers have a hard time imagining the future; consequently, they can not articulate their future needs.” • Customers often fall subject to social pressures in focus groups and interviews. Specifically, participants are subject to social norms and thus, are reluctant to reveal feelings in a group setting. Many times, group thinking mentality leads to diluted insights. An executive from a leading gift and card company reinforced this fact: “We have found that focus group participants dramatically influence each other; to control for this we give each participant a personal dial and ask them to spin it to indicate their preferences.”

Customer research can lead to unexpected insights and results.

When recently conducting customer research, an online customized beauty products company realized that some people don’t have time to go through the customization process. Because of this, the company was missing out on an entire customer segment that simply didn’t have time for customization. Although the company still focuses on customized products, it now offers a noncustomized “express” product line that meets the needs of busy customers who place a premium on convenience. A leading outdoor products company created a heated, battery-powered jacket with for serious cold-weather mountaineers. Through customer research, the company realized that this jacket also appeals to a market the company hadn’t considered at all: parents of children who participate in outdoor sports activities, who spend hours standing on the sidelines of the field in chilly weather in support of their children.

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New product and service development

A leading provider of financial software and online tools conducts an annual survey with its personal finance customers and found that 42 percent of its customers were using the product to run a small business. The company thought it must have asked the question incorrectly and asked it again the following year. Again, the company found that almost the same results. Based on this, the company launched a new product targeted at small business customers and was able to sell that product at a considerably higher price point. An online customized beauty products company was considering launching a fine fragrances line; however, the company struggled with how it could sell this perfume online, where customers aren’t able to smell what they’ve created. After testing how images link to scents through trial and error with consumers, the company interviewed 30 to 50 women in cities across the U.S. as they went through the fine fragrance customization process. The company realized that customers were much more satisfied if they had a choice of three customized fragrances, rather than just one. Now customers have the option to buy a sample set of three customized fragrances for US$10, before purchasing a full bottle. Sales increased dramatically. Interpreting and translating customer comments pose significant challenges.

Aggregating and prioritizing customer information helps refine the focus of the product development initiative.

3. Integrating learning into the NPSD process — NPSD teams face the additional challenge of interpreting and translating findings from customers into product features. This is no easy feat because customers do not speak in terms of product features and engineering possibilities. For example, when commenting on a new coffee maker, a customer might say, “it should remind me of an English butler,” which really means the product design should be elegant and unassuming. Another customer might complain about how the coffee maker drips when she pulls the pot out from underneath the filter, which translates into the need for the product to keep itself and its surrounding area clean.6

Companies should also aggregate and prioritize customer information to avoid pursuing too many directions at once and trying to please too many different needs at once. The following two examples illustrate how companies can balance customer information with other initiatives and how they can make trade-offs that meet the needs of customers in different segments: • A networking and technology infrastructure company focuses on creating products that balance customer needs with the company’s overarching strategic technology goals. The company leverages a sophisticated system to aggregate and prioritize customer needs and technology initiatives. Field representatives meet with customers to determine their requirements, and needs, and then enter this information into the system. Members of the NPSD team enter the company’s strategic technology goals into the same system. When the inputs are complete, the computer program aggregates and prioritizes requirements, based on balancing the customer requirements with the company’s strategic goals. Following the computerized prioritization, the field representatives set expectations with customers and the NPSD team builds new products to the agreed upon specifications.

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New product and service development

• A leading outdoor products company’s target market for its outdoor products is broad, spanning elite athletes, to outdoor enthusiasts, to casual, fashion wearers. Consequently, it is important for the company to conduct several rounds of prototype testing to determine how to balance the needs of each segment and how to make the appropriate trade-offs in product features. Early prototypes are tested with elite athletes who assess product functionality in the most extreme conditions. Later-phase prototypes are tested with a broader audience to help understand of how different types of wearers respond to specific features. For the broad audience testing, distribution is split between elite athletes, active outdoor enthusiasts and more casual outdoor types. Through this testing, the company can learn which features elite athletes deem “must haves,” and casual wearers and outdoor enthusiasts do not appreciate or sometimes even find to be an annoyance. After all of the feedback is collected from each tester and aggregated by customer segment, the NPSD team prioritizes the findings and makes trade-offs to balance the needs of different customers. The prototype design is then iterated and results in a final product that best meets the needs of customers across all segments.

Coach serves as an example of a company that attributes success

Coach, a leading designer, producer and marketer of accessories, has done an exemplary job developing a plan to involve the customer, executing on the plan and incorporating the findings into the NPSD process. Coach leverages accurate customer inputs to yield more desirable products and ultimately, gain greater market share for launched products.

to customer involvement in NPSD.

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In the mid 1990s, Coach realized it needed to reinvigorate its brand to drive growth. The company began to conduct regularly scheduled market research, focus groups and surveys to better understand its customers’ preferences. The company aggressively analyzed feedback from department stores, Coach boutiques and factory stores to glean further insights about their customers. Additionally, the company conducted pilot tests of new product designs with selected groups of customers to collect feedback on specific designs. If customers were not enthusiastic about the product, the company iterated the design until an exciting product was created.

New product and service development IBM Business Value Alliance

New product and service development

Through this comprehensive research and testing, the company determined that customers wanted mixed-material bags, a more-fun image, a wider array of styles and more colorful accessories. One step at a time, the company began creating products that met these needs. Coach’s new, innovative products were an immediate success and this process continues to drive growth for the company today. To ensure that it continues to create products that are in line with ever-changing fashion trends, the company has made rigorous customer research and customer involvement an integral part of its product development program.7 Coach has had some highly positive results with this strategy: • Successfully created and launched many new, innovative product lines to attract new customers, while maintaining the Classics Collection to retain loyal customers8 • In 1998, introduced the Neo Collection, the first mixed-material bag; an immediate success9 • Launched the Hamptons Collection in 2000, colorful bags and products; such a hit that this product line is updated annually with new colors and styles10 • Introduced the Signature Collection in 2001, bags with logo pattern of C’s; “Our most successful launch ever, expanded to include seasonal colors.” - Coach CEO.11 • Fiscal year 2001 net income was up 73 percent over 2000, attributed to innovative product offerings and stylish classic products that meet the needs of a broad customer base12 • Quarter ending March 2002, net income was up 89 percent over the prior year, attributed to products across all categories, appealing to a wide spectrum of consumers.13 Structured or flexible process?

In our rapidly changing business environment, knowing when to use the right NPSD process is key. Although there aren’t any hard and fast rules for which type of NPSD process is best, understanding market and technology uncertainty and product complexity can help determine appropriate levels of structure and flexibility. Complex products that are designed in highly uncertain and unpredictable markets probably need more flexibility in order to adapt to customers’ rapidly changing needs and preferences. On the other hand, when the product being developed is not overly complex and the market and technology uncertainty is low, companies can be successful with simpler and more informal NPSD processes (see Figure 4).

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technology)

(Market and

Uncertainty

NPSD process: Structured or flexible?

Informal

Flexible

Simple

Structured (Stage-Gate) Complexity of product

Figure 4. Matrix of market and technology uncertainty versus product complexity. Source: Marco Iansiti, Technological Integration: Making Critical Choices in a Turbulent World, Harvard Business School Press, 1997.

“Quality new products and services are not so much driven by isolated product improvements as by

The matrix illustrated in Figure 4 can help companies choose the best NPSD process to meet their needs. The key to choosing the most appropriate NPSD process is understanding the relationship between two dimensions: market and technological uncertainty, and product complexity.

sustainable improvements in the product creation process itself.” 14

Structured process

Today, 68 percent of U.S. companies that develop products use a form of the Stage-Gate NPSD process.15 The Stage-Gate process is a rigorous product development roadmap, which maintains pacing with stages and is very procedural. Each step comprises predetermined parallel activities. Upon the completion of each stage, product characteristics are locked in and must pass a review in order to gain funding and resources to move through the gate and to the next stage. Each gate is a “go, no–go” decision, based on risk assessment, expenditures, quality control and resource requirements. There is a clearly defined concept freeze when focus shifts to implementation. Stage-Gate works best when large expenditures must be made early in the process and where the development cycle is long. Flexible process

For the flexible process, the first striking difference is that the total cycle time is shorter and the concept development stage is longer. How is this possible? It’s not just doing everything in the Stage-Gate model earlier; instead, companies need to determine the activities that can be moved up and those that need more time. In the flexible model, concept development and implementation overlap. Decisions that may be influenced by technology and market changes are delayed to allow for constant experimentation. The concept freeze happens at the latest movement, to allow for experimentation up until very late in the process.

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New product and service development

The real power of this model is the interaction between design and technology and the incorporation of cross-functional teams. Although this process has led many forward-thinking companies to success, most companies have been reluctant to adapting and incorporating flexibility into their NPSD process. In today’s tumultuous market, with rapidly evolving customer needs and a marketplace that is unpredictable and constantly changing, it is becoming even more important to be flexible and open to change. As Marco Iansiti of Harvard Business School said: “Businesses don’t need a development process that resists change – they need one that embraces it.” 16 Comparing structured and flexible processes

Comparing a structured Stage-Gate process with a flexible process reveals several key differences between the processes (see Figure 5). NPSD process types Low Concept

Stage-Gate process

product complexity

Discovery stage

Stage 1: Preliminary investigation / scoping

Stage 2: Build the business case / detailed investigation

Gate 1: Idea Screen Gate 2: Second screen

Freeze

Implementation

Stage 3: Development

Gate 3: Decision on Business case / decision to develop

Stage 4: Testing and validation

Stage 5: Full production and launch

Post launch review

Gate 5: Post-development, review / decision to test

Gate 4: Post development, review / decision to test

Total lead time Concept Flexible process

Uncertainty and

Concept development

High

Freeze

Concept development Implementation Concept time

Response time Total lead time

Figure 5: Comparison of a structured Stage-Gate model with a flexible process. Source: Iansiti, Marco and Alan MacCormack. “Developing Products on Internet Time,” Harvard Business Review, 1997; Stage-Gate model reprinted by permission of the author and the publisher from Cooper, Robert G. Winning at New Products, Third Edition, Cambridge: Perseus Publishing, 2001.

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Examples of successful approaches to NPSD processes

Two auto manufacturers interviewed by the IBM Institute for Business Value realized success using different NPSD processes. One, a top mass-market auto manufacturer, uses a structured and component-based development process, and the other, a premier auto manufacturer uses flexibility, computer-aided design (CAD) and a platform-based development process. However, using a flexible process, the premier auto manufacturer is able to develop vehicles successfully in one-third less time. Employing a flexible NPSD process can help avoid some of the common pitfalls of a more structured Stage-Gate process. A flexible process enables companies to learn more before committing significant resources. By overlapping of functions downstream, problems can be prevented through an iterative process that enables incorporating customers’ changing needs and new technologies into product design after implementation has begun. A flexible process decreases time to market and allows companies to delay certain key decisions, which can increase accuracy and reduce costly mistakes. Hybrid process: Balance structure and flexibility

Further complicating the question of which type of process to use is the variability in product characteristics — such as product tangibility, degree of innovation and level of technology — and the high number of other factors influencing the process, like importance of time-to-market, time-to-revenue, nature of the marketplace, management support, location of NPSD team members, and so on. Many companies find that a hybrid of structure and flexibility is most effective and practical to meet their product development needs because of two factors: Positive and negative trade-offs between a flexible process and a structured process and unique characteristics of each product in development. Companies can take advantage of merits from each process type, and develop a hybrid NPSD process that suits their needs. The key is figuring out which process elements to leverage to optimize a company’s NPSD process. Migrating to a hybrid process does not have to be a complete overhaul of the existing process — although it can be — companies can experiment. Ways for companies to experiment with flexibility include: • Creating next-generation cross-functional teams • Overlapping design and development • Mirroring prototype production with planned manufacturing process • Introducing realtime customer feedback • Iterating the product design based on customer input and findings.

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New product and service development

An executive at a leading provider of mobile phones explained, “We use the same rigorous product development process to analyze

A leading CPG company overlaps design, prototyping and production. Production of earlystage prototypes begins while the NPSD team is iterating the design concept. As customer feedback is collected, the prototypes are iterated. During the prototyping process, production begins to ramp up.

both our new product and our new service offerings.”

A major provider of financial software and online tools iterates product design based on customer feedback, creating several beta versions of new products before product launch. Customer feedback is collected on each version and incorporated into the design of the beta version. A networking and technology infrastructure company incorporates flexibility by allowing divisions to modify the process and encourages iteration until final signoff. Conversely, a leading outdoor products company found that its lack of structure and informal process led to oversights and mistakes. It discovered that introducing some structure into its highly-flexible process led to more successful product launches.

A senior executive from a leading financial services company explained, “Developing new services requires the same

Though services do have distinguishing characteristics, companies can apply product development concepts to improve service development. When services are bundled with products, or influence the sale of products, each should be considered in the development process in relation to the other to ensure that features and functionality are complementary.

amount of attention to detail as developing products does.” Innovative research methods

Three things come to mind when considering employing innovative new research methods to improve product and service development: • There is a real need to change; the old methods by themselves just aren’t good enough. • Companies can combine old and new techniques and technologies effectively to get the best from traditional methods while gaining unique value from the new. • Opportunities exist to garner greater consumer insight while realizing benefits, such as increased accuracy, reduced cycle time, and ultimately, greater market share of the launched product — companies just need to figure out when and how to take advantage of them.

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Effective research techniques

Our study revealed that some companies are taking advantage of a few new techniques and almost no companies actively use Web-based research technologies today; the majority of companies still relies on traditional research methods to collaborate and communicate with customers (see Figure 6). Effective research techniques Percent of respondents

80

new research methods traditional research methods

67% 58%

60

50%

40

33% 17%

20

17% 8%

0

Customer and consumer interviews

Focus groups

Observation

Surveys

ZMET

Other

Web-based techniques and technologies

Figure 6. Among those surveyed, most companies still rely on traditional research methods to collaborate and communicate with customers in NPSD. Source: IBM Institute for Business Value, 2002.

A leading CPG company, for example, relies heavily on focus groups to test prototypes of its products because of the insight gained when participants see, feel and, importantly, taste the products. A leading mobile phone company also uses testing with consumers in labs across the US to determine what features have the greatest appeal and to discern regional preferences. However, both companies also make use of innovative techniques and technologies to significantly enhance their development process and quickly obtain valuable customer information to which they would otherwise not have access. A leading CPG company uses virtual concept testing with a prescreened group of online users to test a broader range of ideas than is possible with traditional methods. In addition, it can reduce the turnaround time for receiving feedback results. The company is able to evaluate findings nearly immediately and can effectively narrow those findings to a few strong ideas, avoiding the up-to-eight-week response time allotted with surveys and rounds of focus groups. Another innovative company, a leading mobile phone company, embeds usage-tracking software into the phones of select new customers to track product performance and use. Companies are experimenting with the flexibility of combining old and new, and it’s paying off (see Figure 7).

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Combining the old and new: Companies are experimenting Old method

Medical technology company

Leading provider of financial software

Online customized products company

+

New method

=

Success

Interviews (with doctors and clinicians)

Observation (hospital maps)

New products and product improvements

Survey (with small business customers)

Observation (watch customers use product at home)

Breakthrough new product for small business customers

Samples and interviews (with potential customers about fragrance)

Visual image associations (visual representations of scents)

Increased sales of new product line

Interviews and focus groups (with customers)

Observation while driving with customers (how they use features, problems they face, and so on)

New, improved models

Mass market automobile manufacturer

Figure 7. Companies are finding a combination of old and new research methods to be successful. Source: IBM Institute for Business Value, 2002.

Innovative techniques

Today, technology and research decisions cannot be made in isolation; they have to be integrated with other business decisions. Just as with the customer plan, organizations need to map out when, where, and how new research methods fit into the NPSD process. Step one is understanding the opportunities and how they work (see Figure 8).

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Innovative techniques Definitions

Benefits

• A patented research tool that uses imaging to understand customers’ underlying thoughts more completely and facilitates sharing ideas with researchers

• Reveals unarticulated customer needs and product and brand associations • Results in a map that includes visuals and text to illustrate how emotions and product, brand and service attributes are connected to one another

Observation

• Watching customer shop for or use a product of service, often times without them knowing, rather than inquiring directly

• Less intrusive • Learn from real action versus reported conduct • Customer behavior is not influenced by a lab setup

Testing in the customer’s natural environment

• Asking customers to test products in places they would normally use them and later, provide feedback on their experience with the product or service through an interview or feedback form

• Inexpensive way to obtain feedback on prototypes prior to launch and identify improvements post-launch • Testing is not influenced by lab setup and research environment

Customer idealized design

• Generates consumers’ ideal products or services without • Similar to a focus group setting, but the session usually lasts company intervention all day • Participants are told to forget what is familar and to brainstorm • Reveals unarticulated customer needs during the ideation stage • Forces participants to make trade-offs to arrive at one idealization new product or service ideas as a group

ZMET

Figure 8. Innovative techniques build on traditional methods and often garner greater consumer insight. Source: Susan Ciccantelli and Jason Magidson, “Consumer Idealized Design: Involving Consumers in the Product Development Process,” www.productwish.com, 2001; Emily Eakin, “Penetrating the Mind by Metaphor,” The New York Times, Feb 2002; www.hbs.edu/mml/zmet.html; Dorothy Leonard and Jeffrey F. Rayport, “Spark Innovation Through Empathic Design,” Harvard Business Review, Nov-Dec 1997; IBM Institute for Business Value analysis, 2002.

The ZMET technique

Executives have had success with the Zaltman Metaphor Elicitation Technique (ZMET), developed by Harvard Business School professor Gerald Zaltman.17 Examples of the use of this innovative technique have resulted in Coca-Cola agreeing to place a meditating Buddhist monk on a soccer field in a recent commercial18 and helping Motorola select a dog (safe, trusted companion) over a computer to represent its new security system.19 In both cases, companies uncover unarticulated customer needs through the ZMET imaging technique and realized powerful associations of which they were previously unaware. As one Coca-Cola executive put it, “the big insight we had is that Coke is really two drinks in one — invigorating and social while, at the same time, calm and relaxing . . . [we’d] been marketing half a Coke.” 20 Other companies attribute a doubling in sales volume to using ZMET. Others, like Hallmark, say it, “touch[es] a part of consumers you can’t get to with any other technique,” and Motorola states, “there are ahas; you get answers to questions you never thought to ask.” 21

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What you see can be a key to what you don’t see

Observation is another new technique from which companies are seeing surprising results. Different than inquiry, companies can often learn more from customers by simply watching. Kimberly-Clark, the parent company of Huggies brand diapers, capitalized on the emotional appeal of training pants — ”big boy pants” — they saw when visiting homes of customers; it was a US$400 million business before competitors could launch anything close to it.22 By observing, a leading outdoor products company found a whole new market for one of its most extreme apparel products, the battery-powered heated parka. What parent would want to stand in the cold for hours watching their children participate in outdoor sports when they could do so from the warmth of a heated jacket? Web-based techniques

Only a few companies have been brave enough to venture forth into the world of Webbased research technologies, but opportunities are promising (see Figure 9). In many cases, Web capabilities offer fast, inexpensive, simultaneous communication. Rich media provides enhanced graphic and interactive simulation, thus reducing the need for full physical prototypes in testing. And, the Web allows for adaptive response from participants – the ability to test complex decision-making processes at a time that is flexible and convenient for consumers. Web-based techniques Definitions Online interviews, panels, surveys, discussion boards and access to customer feedback

When to use

• Research methods traditionally requiring a physical space and researcher present can now be conducted online • Companies use the Internet as a communication vehicle with customers

• Best if used when offline interviews, discussion groups and surveys would be considered

Web-based conjoint analysis (WCA)

• Traditional conjoint analysis is moved online: decompositional method that estimates the structure of a consumer’s preference

• Most helpful in the product-planning stage to determine intensity of preference and gain greater understanding of trade-offs

Internet concept testing (ICT)

• Traditional paper concept tests are conducted online

• Can be used at different times throughout the NPSD process to determine whether the product, service or position appears to the target market • Very helpful when testing product, price and positioning prelaunch

• Customers design the ideal product making trade-offs between designated features and price

• Best if used during the concept design stage to determine which features should be standard and which could be optional

User design

Figure 9. Web-based techniques use the Internet to involve the customer quickly and effectively in the NPSD process. Source: Ely Dahan and John R. Hauser, “The Virtual Customer,” Center for Business@MIT, September 2001; IBM Institute for Business Value interviews and analysis, 2002.

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Companies are experimenting. Initial forays into this realm include, bringing existing offline methods — such as surveys and customer service — online for improved tracking and response, as well as easier access for customers who want to provide opinions and feedback. An online customized beauty products company, for example, provides companywide access through an intranet to all customer correspondence so that all employees have a window into the customer. Fiat conducted an online survey of customer preferences and received over 3000 responses in a three-month period.23 More-advanced Web-based technologies, like Web-based conjoint analysis and virtual concept testing can help determine customer priorities, sales estimates, positioning and price sensitivities. These methods often have a quicker turnaround time to results than traditional methods, as well as the ability to test complex decision-making processes of customers, all in a more cost-effective manner. As customers get more and more involved in creating products, technologies — like user design and online customization — allow them to drag and drop preferred features and to create their own ideal products virtually. For example, an online customized beauty products company creates custom-blended formulas based on customer information – customers answer specific questions (developed by dermatologists and research scientists) about their needs, and can even select packaging and product name. In the future, companies might transfer the responsibility of creating new products and services to the customer to help ensure — from the outset — that the product or service meets the customer need. In short, customers might become the designers. Organizational implications of NPSD

To be truly effective in involving the customer fully in NPSD, organizations cannot ignore the internal structure of their product development teams and how they operate. Executives and managers can enhance the way that teams share information, translate customer learning, and ultimately,” get the job done” across geographic, functional, hierarchical, tenure and organizational boundaries.

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New product and service development

To improve information transfer across these boundaries, product development teams should: • Identify the different roles individuals play in information flow • Assign projects requiring cross-functional expertise that will bring different knowledge sources together • Put in place mechanisms — such as newsletters or discussion boards — to facilitate communication and ensure that all members are informed of others’ work and expertise • Use communications forums, like team meetings and project tracking databases, to establish precedents for sharing and on-going communication. In the executive brief, A bird’s-eye view: Using social network analysis to improve knowledge creation and sharing,24 researchers at the IBM Institute for Knowledge-based Organizations discuss how relationships can facilitate or impede knowledge creation and transfer. The brief illustrates how social network analysis (SNA) can help companies identify and improve knowledge sharing among product development teams. Summary

This study identified four primary aspects of NPSD that may offer significant opportunities for companies to improve the success of their new product and service development: 1) Balancing structure and flexibility in the NPSD process 2) Having a plan for when to involve which customers throughout the NPSD process 3) Exploring new research tools and technologies that can lead to better understanding of customers in the NPSD process 4) Making the necessary organizational changes to facilitate successful NPSD. Executing on these four areas of opportunity can lead to more efficient and effective internal product development processes and a higher success rate of new product launches in the marketplace, both of which can have significant impact on a company’s bottom line. To discuss how we can help your organization improve its new product and service development process, please contact us at [email protected]. To browse other resources for business executives, we invite you to visit our Web site at: ibm.com/services/strategy

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Methodology for the IBM NPSD primary research study

We went through the following steps in our research study: • Identified 25 forward-thinking companies leading the way in: - Involving the customer throughout the NPSD process - Using innovative new research methods and techniques in the NPSD process. • E-mailed executives in Product Development and Product Marketing divisions at target companies requesting their participation in the NPSD study • Selected a cross-industry representation of 13 companies to interview for the study • Preceded phone interviews with a 12-question Web-based survey • Conducted comprehensive phone-based interviews with executives from each company. The following types of companies were part of the study: a leading CPG company, a leading card and gift company, a leading mobile phone company, a premier outdoor products company, a leading provider of loyalty management programs and concierge services, a online customized beauty products company, a start-up NPSD software company, a genetics-based pharmaceutical company, a premier auto manufacturer, a top mass-market auto manufacturer, a top-tier financial services company, a top-tier networking and technology infrastructure company, and a leading provider of financial software and online tools.

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About the authors

Melody Badgett is a Senior Consultant, Whitney Connor is a Consultant, and Hathaway Bowen is an Associate Consultant in the Customer Dynamics Group at the IBM Institute for Business Value. They produce research for the Institute’s member program, the IBM Business Value Alliance. You can contact Melody at [email protected], Whitney at [email protected], or Hathaway at [email protected]. Jennifer McKinley heads the Customer Dynamics Group and leads the member programs within the IBM Institute for Business Value. She can be contacted at [email protected]. The IBM Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. Clients in the Institute’s member programs – the Business Value Alliance and the Institute for Knowledge-based Organizations – benefit from access to in-depth consulting studies, a community of peers and dialogue with IBM strategic advisors. These programs help executives realize business value in an environment of rapid, technology-enabled competitive change. You may contact the authors or send an e-mail to [email protected] for more information on these programs. For more information on social network analysis (SNA), contact Andrew Parker by e-mail at the IBM Institute for Knowledge-based Organizations, [email protected].

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References

24

1

Cooper, Dr. Robert G. and Dr. Scott J. Edgett. Portfolio Management for New Products: “Picking the Winners.” 2001, citing the Product Development and Management Association (PDMA) Best Practices Survey 1997.

2

Ibid.

3

Dahan, Ely and John Hauser. "Product Development – Managing a Dispersed Process," Center for Business@MIT, 2001.

4

Ibid.

5

Baldauf, Artur. Marketing Statistics. University of Vienna, 2001.

6

Ibid.

7

White, Erin. "Coach Turn Stodgy into Stylish," WSJ Europe, May 6, 2002.

8

Ibid.

9

Ibid.

10

"Coach Reports 39% Increase in Second Quarter Net Income; Ahead of Revised Expectations; Cites Double-Digit Sales Gains and Continued Margin Expansion," press release, January 22, 2001.

11

"Coach Reports Fourth Quarter and Full Year 2001 Earnings Ahead of Expectations," press release, July 30, 2001.

12

Ibid.

13

"Coach Reports Third Quarter Earnings Per Share of $0.32; Up 88% and Ahead of Revised Expectations; Results Driven by a 29% Sales Gain and Significant Margin Expansion", press release, April 23, 2002.

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25

14

Kessler Eric H. and Alok K. Chakrabarti "An Empirical Investigation Into Methods Affecting the Quality of New Product Innovations," September 1998.

15

Cooper, Dr. Robert G. and Dr. Scott J. Edgett. Portfolio Management for New Products: "Picking the Winners," 2001.

16

Iansiti, Marco and Alan MacCormack. "Developing Products on Internet Time," ‘‘Harvard Business Review”, 1997.

17

Mind of the Market Laboratory, www.hbs.edu/mml/zmet.html.

18

Eakin, Emily. "Penetrating the Mind by Metaphor," The New York Times, February 2002.

19

Pink, Daniel H. "Metaphor Marketing," Fast Company, April 1998.

20

Ibid.

21

Eakin, Emily. "Penetrating the Mind by Metaphor," The New York Times, February 2002,

22

Leonard, Dorothy and Jeffrey F. Rayport, "Spark Innovation Through Empathic Design," ‘‘Harvard Business Review”, November - December 1997.

23

Iansiti, Marco and Alan MacCormack. "Developing Products on Internet Time," ‘‘Harvard Business Review”, 1997.

24

IBM Institute for Knowledge-based Organization, www-l.ibm.com/services/insights/ibv_ sna.html.

New product and service development IBM Business Value Alliance

© Copyright IBM Corporation 2002

IBM Corporation IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America 09-02 All Rights Reserved IBM and the IBM logo are registered trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates.

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