The following discusses our approach to product life-cycle management (PLM) which comprises each of the following concurrent processes:
- [re]formulating the corporate/business strategy;
- new product development (NPD)
- customer relationship management (CRM); and
- internal/proprietary knowledge management (KM).
The purpose of this article is to highlight simple ways that businesses that are engaging in new product development can lower the risks and costs associated with the product development process and get the most out of internal resources (including staff) and external resources (including contractors and service providers). While this article is aimed at start-ups and businesses going through this process for the first time, these fundamentals apply to all organisations engaging in product life cycle management.
For ease of reference we will highlight important decision points along the way and demonstrate who the decision is usually made by. We will use the following classes of decision makers:
- Board and senior management (Board);
- Chief executive officer or chief project executive (CEO);
- Financial controller (CFO);
- Chief Technical officer (CTO);
- Chief Marketing officer (CMO);
- Design and engineering (DE);
- Risk manager or company secretary (RM).
It is also important to note that in smaller organisations, all of the above roles may be bestowed upon one or two people. If this is the situation you are in, it will help to look at the problem with different perspectives, depending on which decision maker’s ‘hat’ you are wearing at the time.
Part I What to expect from this article
The following discussion assumes that the reader is a manager or owner of an organisation who wants to run a development project from an observation about the intended market or process (or other prompt), through to the second release of the product to market. This gives a reasonably comprehensive scope without going through anything twice. Typically any additional releases to market follow the same steps albeit with different focus and scope.
A Google search for “new product development” conducted before this article was written returned 405 million results. After having a look at the first two pages of results there is reverence [not a typo] to a few multi step processes for analysing and responding to market challenges. Loosely, there is reference to an 8 step process, a similar but trademarked 8 step system known as Stage-Gate, a broadly similar 5 step system known as phase-gate, and some others. Then in relation to product improvement systems there are a number of other systems that authors are promoting with the promise of doing things better with less waste or risk.
For SMEs subscribing to any one of these systems and then strictly adhering to it will probably result in tears. These systems are often designed for large manufacturers in mind and the granular division of labour (and thinking) can seem artificial and ineffective in smaller organisations. The most important thing in PLM is looking outward to gain perspective and defining your problem with reference to your intended customers rather than what you think is awesome. The challenge is to give your customers what they want, and then to build your system to make a profit. For completeness, remember that if you are not running a product development project to make a profit (by either top or bottom line growth), it’s simply a hobby.
If you have not run a development project from start to finish before, you can be easily side tracked by an author’s particular focus. So, this article seeks to set out the process from start to finish and allow you to conduct a high level overview and then go into as much depth as you want. Please note that we have only gone to the depth necessary to raise important considerations for a general product; if you would like to discuss specifics please contact us.
For the sake of keeping it interesting, a personal project of the author has been used to demonstrate the process. This means that:
– there are no confidentiality issues to contend with;
– there is information required that most people don’t have; and
– we hope it allows some insight into why not all product development projects can be commercial successes (particularly hobbies).
The project relates to the development of a kayak ergometer (Ergo).
If you are looking for a detailed discussion of any of the published product development systems, the following is not what you are looking for; and we recommend that you start with a search for new product development on Wikipedia and go from there.
Part II Initiating NPD and testing market assumptions
The biggest mistake we see in NPD is someone having a great idea and then solving associated technical problems until it is useful for something, and then looking for a market to sell it into. While we acknowledge that many excellent products have been developed this way, this often results in more resources being consumed by the NPD process, because money gets spent first and lessons are learned second. Our approach to achieving cost effective NPD is to learn first and then commit resources that generate revenue from what has been learnt.
What prompts new product development
Product development projects rarely (read: never) start by a financial controller saying “we need to spend some of the company’s resources on something that we are not certain about”. Commonly it does start with a manager, marketer, or developer seeing an opportunity and wanting to exploit it. It is also common for a change to prompt a NPD project – a change in market, change in technology, change in regulations, or something else.
The prompt for the Ergo was that I had injured my shoulder in an incident while training in a kayak at night on a swollen river. After six months of doing very little physical activity I started to think about how I could train without putting the reconstructed joint at undue risk. Being an avid kayak paddler, and knowing a number of other paddlers, I had a feel for how common this type of injury was. Being a product development fanatic, I couldn’t help but wonder whether a product could be developed to sell to people who were stuck in their home post injury in a similar situation. Making some money to pay off the medical bills was also appealing.
Let the analyses begin.
The starting point for the project was a desire to complete the post surgery rehab and get back to a reasonable level of fitness and strength so that I could get back into a kayak without being limited by low fitness level, or being worried about reinjuring the shoulder while loading and unloading the boat; or dealing with any of the usual adverse conditions that can arise in open water.
The available options
The options were to train in a kayak in calm protected waters (which isn’t interesting) with a paddle with small blades (buy a new paddle) in a boat that is more stable than what I wanted to paddle (buy a new slow boat). Training in the water also necessitated that I travel to the water and load the kayak on and off the car, which was hard because lifting overhead was the biggest liability during the rehab process (I could buy another car with a lower roof). Travel time associated with getting to the water also meant that I had to commit an hour before getting any exercise. This all started to sound ridiculous so I looked for another option.
The other alternative was to buy or build a kayak ergometer. There was a small number of products on the market and they were all expensive and had very limited features such that they really only achieved an aerobic workout of the back and shoulders and didn’t really simulate the physiology of paddling. The physiology of kayaking has three key components – delivering power throughout the paddle stroke, maintaining balance, and achieving hip rotation. The last item is essential if you want to go fast and be efficient (for those of you that don’t know anything about the kayak paddle stroke, hip rotation allows a paddler to complete a longer stroke and use the power in their legs and abdomen to drive the boat forward, using the larger muscle groups, rather than just the smaller muscles in the back, shoulders, and arms). At best the available products achieved two of these three components.
An assessment of my preferences at this point was that training in the living room on a kayak ergometer made sense, even though it wasn’t nearly as interesting or enjoyable as taking a boat out. It would allow safe exercise with no wasted time getting to and from the water and hopefully provide me with an expedited recovery process.
So, what do we know now? We know:
- who the customer is, and what they want from the product (a way to train for kayak paddling in a safe and controllable way);
- the essential specifications of what the product must do to be useful (deliver all of the three key aspects of the physiology of kayaking);
- that there are competitive products on the market, which do not meet the requirements (market gap), and that the price does not appear to be very competitive and the ‘market’ is not well serviced (market opportunity?);
- that use of an ergometer is not a substitute for paddling a real boat (product satisfaction risk), but can provide a safer and more controllable exercise regime than out in the water with other river traffic and unpredictable weather – it also avoids the problem of having to buy numerous new pieces of equipment that may or may not be used for very long; and
- that there is currently a probable consumer base of 1 – me, plus other avid kayakers who have similar injuries and are rehabilitating (potential market size risk).
As you will now realise, we know a little bit, but have really uncovered more questions than answers. The key issue that screams out here is: is there a market for this product? This is a question that is often hard to answer, even for organisations that have been supplying a similar market for years. However, take note of the following information that was set out above:
- there are competitor products in the market;
- the cost of these products is high, and there isn’t a great deal of price variation; and
- even though the specification and features of the products vary greatly, the price doesn’t seem to vary accordingly.
This set of facts can point to the market being too small, and there just not being enough demand for competitors to spend the time and money to create more competitive products. This was later confirmed by contacting all of the manufacturers (or local resellers). The products were sold to a niche market (competitive athletes and clubs) and due to the lack of competition the consumers usually chose their equipment based on two aspects: the hardiness of the design and the integration with other technologies such as heart rate monitors and fitness monitoring software.
The relevant decisions to be made at this stage look like this:
Board: N/A – Decisions are within scope of executive responsibility.
CEO: Does this idea fit with the strategic direction of the organisation? And if so, how does it compare with other ideas on the table?
CFO: Does the market opportunity justify the investment required to realise this product? Do we have sufficient budget to achieve this, and do we have better NPD opportunities?
CTO: Does the firm have the internal knowledge and capability to develop a solution to the problem?
CMO: Can I sell this? And who do we have to compete with to sell it (not competitors, but existing distributors and other market participants).
DE: What are the essential elements contained in this product, and what features do we need to include to simulate the physiology of kayaking?
RM: Does the potential market justify the necessary spend on product liability insurance and completing sufficient design and engineering to minimise the likelihood of being sued by a customer who reinjures themselves or others while using the Ergo?
Advice: Information from existing market participants (distributors and retailers) would be useful here, particularly knowledge about what they would require from the product in order to stock and sell it.
More market information is required – audit your market with a good dose of realism
In the last section we pointed out that the market appeared to be too small. So, why isn’t there more demand for kayak ergometers? And, is there anything about them that is preventing consumers from buying them?
To answer the first question, a quick analysis demonstrates why demand is low. Recreational paddlers like being outdoors and don’t find sitting in a room on a machine enjoyable, so the likelihood of selling them an ergometer is low (there is an exception though – recreational paddlers who cannot paddle during winter because all of the local waters freeze). Low to mid level athletes train in a boat between 1 and 4 times a week, and a key driver for the activity is to get out and exercise (and compete) with friends, not sit in a room on a machine by themselves. Consequently, there might be a few people in this category who would get an ergometer, particularly those short of time and who might otherwise get insufficient training – but again not huge numbers here. High level athletes spend a lot of time training, and competing and may well be interested in getting a training advantage over other competitors, but in all likelihood their training regimes are probably directed by a coach, club or sponsor(s) and they may or may not want to add another training process. So even at this level consumer demand cannot be assured. Further, athletes tend to spend time at well equipped facilities so there is probably a higher chance of selling the ergometer to their club or other training facility rather than to the athlete themselves. How many well equipped, well funded kayak clubs are there in the local market – not many (less than 100).
Going beyond the actual customers, and to help inform the second question, there is also the broader issue that kayak paddling is simply not as popular as other sports such as running, rowing, or bike riding. It isn’t as accessible, the equipment is relatively expensive, and the pre and post exercise regime takes longer, so it is just not as time effective for most people.
A further consideration for the second question is that when comparing the space requirements of a kayak ergo with something like a recumbent bike or stepper, the kayak ergo takes up a lot of space. And without considering specifics, when kayaking you are sitting with your legs extended out in front of you with a 2 metre (6’8”) pole in your hands that you need to swing around. This means that a large floor space is required, and there is some danger created by the pole being swung around at speed (pets and children need to be excluded from the area in a home use environment).
Finally, another issue that was immediately evident from existing products on the market was that kayak ergometers are noisy. Most of the solutions used a fan as the resistance and created approximately 65dB of noise. This makes watching TV, listening to music, or otherwise being in a space with someone else much more difficult.
So, what do we know now? We know that:
- the market is not huge;
- there are a number of market segments;
- the market segments have a number of defining features with some overlap; and
- the defining features of a number of the market segments, do not create a significant demand for kayak ergometers.
But we also know that:
- if there was a product that could meet, or improve upon, the specifications of the existing competitor products, and at a similar or better price, there is an opportunity to sell such a product, albeit a limited one;
- that there are a number of opportunities to make kayak ergometers more appealing, for both home use and commercial use.
There is also another issue that we haven’t considered yet that paints a more positive picture. Kayaking addicts have a very high probability of injuring their shoulders and post injury or post-surgery have to go through a rehabilitation cycle. Added to this, it is rare that a repaired shoulder will ever be as stable and flexible as it was prior to being injured; and people who want to continue paddling often have an ongoing rehabilitation regime to prevent reinjuring the joint that they have spent thousands of dollars repairing, and months or years getting back into condition.
Armed with the above information, the question has to be asked: should any further effort be put into this project? And then, if further effort is put in, are there any other queries that need to be made to determine if the project is viable and should be pursued? What we know is that there is one or more small markets and there appears to be some scope for making a competitive product – so let’s test this.
Factor in likely costs
On the basis that the project is to proceed, we need to know what the development and manufacturing costs look like and if the small market can be serviced with sufficient margins such that it is a worthwhile pursuit. For someone with years of design and manufacturing experience there is an easy answer to this question: a product like this requires three sub-systems each with their own development requirements, which will take time and expense, the materials in the project can be optimised and are not expensive, but not cheap either, and the products are large, heavy and expensive to ship. Added to this, there is also a medium to high product liability risk profile for fitness equipment, especially products that are technical in nature and are used for prolonged periods by injured users. There are a number of barriers to profit here and it will be an uphill battle to achieve good margins, at least initially when sales volumes are likely to be low and marketing costs are likely to be high.
Does any of this sound familiar? Have you been through a similar process before and proceeded anyway? What was the result? Have you actually turned a profit from your project, or are you 3 years or more post development and still trying to pay off the development costs? Finally, would you proceed given the information outlined above?
In my case, while wearing the CFO hat, I determined that the opportunity to cost ratio was not good enough and conceded that there was little commercial value in fully developing this product. I continued development on the basis that I wanted to build something for myself, because I could.
In my case I did not pursue the opportunity, but as outlined in the first paragraph above, the barriers to profit can actually be a benefit if you take a long term position, and are willing to invest in a project to get a strong market presence – it is of benefit because it is equally as hard for a competitor to do the same thing.
Final comments about this part
We hope that the above illustrates how asking some questions at the front end can help you to make better investment decisions within your NPD and PLM processes. The analysis discussed above took approximately two full days to complete, and included a number of iterative processes of asking relevant questions and obtaining the information required to answer them. We can’t emphasise enough the importance of obtaining outside perspective during this process. Asking people in your distribution chain and intended market segment important targeted questions should yield significant insights, and allow you to either proceed with clear direction or kill the project. All without spending a fortune.
We will use the Ergo project for the following parts of the article. But as it didn’t proceed as a commercial endeavour the focus will be how we would take this marginal market opportunity (rehabilitation and technique optimisation ergometer market) and seek to maximise return on investment (ROI) and how we might achieve collateral benefit from having undertaken the process (including brand awareness, building simulation expertise, and combining software development with mechanical design processes for superior outcomes).
What to take away from the discussion above
First, don’t spend money analysing opportunities that clearly don’t exist. What we hope you can take away from the discussion above is that it is quick and cheap to do an initial analysis or analyses like the ones described above. Note that we haven’t even really considered what the product would look like, how it would function, how it would compare to other products or any other design and engineering type evaluations. There just isn’t any need: if there are not enough customers, you can save your time and energy and move to the next idea.
There is no need to make an analysis complicated for the sake of it.
Second, be objective but not too hasty. It is important to realise that being too hasty and not taking the time to understand your prospective customers could be just as bad as not considering who they are; and you may miss an excellent business opportunity.
Third, don’t blindly follow other peoples’ rules that have been formulated for different circumstances. Missed opportunities is a criticism commonly leveled at new product development systems as they systematically remove risk and provide more ‘predictable’ results. There has also been criticism that there is no way to determine whether these systems yield any greater success in the market place. Further, it is interesting that these systems all follow a predetermined set of procedures according to a set of rules.
The problem with rules is that they are all formulated with reference to the past, and if your goal is to be an entrepreneurial market leader and innovator, strict adherence to rules and systems will likely work against you; but you need to understand the rules in order to break them with success.
Finally, the other issue that we would like to raise here is that if you have a business that is, or has previously generated revenue, you will already have knowledge about your customers. You should be able to run a preliminary analysis like the one discussed above without spending any money with advisors or experts. Give the potential project the smell test and be objective about it. If you think there is an opportunity to make some money, then it is time to consider who you need to get further information from, and if you need to pay for it.
In the next part we consider the technical aspects of new product development [coming soon].