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How to Make Good Decisions in New Product Development

Contributor: Helen Tai
Posted: 06/17/2009
Helen Tai
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Those who have participated in new product development (NPD) know that making good decisions is critical. New information is constantly gathered, and knowing what actions to take based on that information determines the success or failure of the product. For example, what are the risks and how should they be dealt with? Does manufacturing have the necessary capacity? Once costs are better understood, do the financial assumptions still hold? Will unexpected technical challenges cause delays? Have changes in the marketplace made a new product development project less viable? Timely and sound decisions for each of these questions is essential for ensuring that a new product development project flows smoothly, launches on time, and provides the expected returns.

While making good decisions alone will not guarantee a successful new product development project, poor decisions will always result in undesirable outcomes. See if any of these complaints are familiar:
  • "We had to completely redo the _______ [fill in the blank with: stability testing, graphic design, product testing, etc.] because management changed their mind."
  • "I am running two back-up plans because management can’t make up their mind."
  • "Manufacturing pulled resources for this project because it doesn’t meet the target profit margin, but my boss wants to launch anyway because otherwise we won’t meet our sales target."
  • "We finally got a decision on the graphics, but now we’re so far behind that we have to airship."
  • "The product test showed that the customer doesn’t like our prototype, but we don’t have time to develop anything else, so we’re going with it."
Causes of Poor Decisions in New Product Development

Why are good decisions so hard to make? Shouldn’t intelligent leaders be able to make good decisions? The answer is, of course, yes, but often the organizational systems in which people work actually encourage poor decision making. Let’s look at the most common drivers of poor decisions.

Bias toward short-term results. With increased competition and customer sophistication, companies are under pressure to deliver new and improved products at an accelerated rate. If they do not act quickly, competitors will beat them to market. This drives:
  • Unrealistic timelines. Often product launch dates are determined before the customer requirements or the technical challenges are understood. In many cases, the new product development project is behind schedule before it even starts. In order to meet deadlines, teams skip key steps and hope that it does not come back to haunt them. They do not have the time to develop more than one idea, and if the one idea they pick fails, then they are in real trouble. They must make decisions quickly with limited or no data. Additionally, they frequently downsize the idea (i.e., decrease customer benefits) in order to meet the aggressive timelines. Overworked team members make bad choices and fail to recognize issues that would normally be obvious to them.
  • An unwillingness to take a stand. Because the short term is so important, leaders are reluctant to make decisions that may risk the launch. If they are given two options, and they pick the wrong one, then their project is in jeopardy of failure or missing the timeline. So, instead of making firm decisions, they delay decisions to keep their options open as long as possible. While this approach has merit when part of a well thought-out strategy, it causes problems when it results from lack of planning. New product development teams are forced to keep multiple options alive longer than necessary or to move forward at risk (i.e., in order not to fall behind, they move forward based on assumptions. If they guessed right, their gamble pays off; if not, their work is wasted and they fall further behind).
  • A "launch at all cost" attitude. Launching anything, even an inferior product, is better than launching nothing. If the product is less profitable than first projected or if some of the product benefits must be sacrificed in order to make the timeline, it’s still preferable to launching nothing. In their single-mindedness to launch something, companies fail to consider trade-offs such as, "Is it more profitable to rush to market with an inferior product or to delay launch with a superior product?" Or, "What additional costs do we incur by rushing to market?" Or, "Does it make more sense to fix production issues before or after launch?" While rushing to market sometimes pays off (like when being first to market provides a clear market advantage), in other cases it clearly does not (like when launching an inferior product could alienate customers). The important thing is to ask the question; otherwise the bias is generally toward launch at all costs.
Unclear decision-making criteria. In many cases, a company does not have standardized and well-defined criteria to make decisions. One project is evaluated based on its projected sales, another project is evaluated based on its risks, while yet another project is moved forward only because it is an executive’s pet project. When no clear criteria exist, several undesirable things happen:
  • New Product Development teams don’t know what information management needs to make a decision, which:
    • causes confusion, extra work and unnecessary stress. New Product Development teams are forced to decide for themselves what information is important to share. Invariably key information is left out and teams spend time gathering and providing information that management does not care about. How can a team succeed when the target is unclear?
    • leads to inconsistent information. Some New Product Development teams may provide a thorough analysis of the risks while another team may focus on the financial benefits. Management is left to compare apples to oranges.
  • In organizations where "bad news" is discouraged or a "launch at all cost" attitude exists, teams spin the information or present it in the best light. They may even hide risks and problems.
Poor decisions are inevitable as they are based on biased, partial, inadequate and/or inconsistent information.

Functional Silos. Many companies are organized functionally so that individuals align themselves with their department rather than with a cross-functional team. Although a functionally-aligned organization has its advantages, it creates problems in New Product Development, where cross-functional collaboration is critical to success.
  • Conflicting objectives. When an organization is functionally structured, different functions have different incentives. For example, marketing may be rewarded based on the number of new products they launch, while Research and Development (R&D) may be rewarded based on the number of novel new technologies they develop, and Operations may be rewarded based on how much money they save.When new product development team members are rewarded based on different criteria, each will make decisions based on his/her own self interest. Conflicts predictably arise as any decision creates winners and losers within a team, setting teammates against each other. A new product development team that works cohesively has a much higher chance of success than one that bickers over who is right or wrong. While some tension within a team is useful in generating better ideas and greater innovation, having fundamentally different incentives will not lead to constructive solutions.
    • Note: In one rare case I encountered, one team member consistently made decisions that hurt his own performance rating, but he did so for the greater good of the new product development team. This was the rare case of a selfless person, but no employee should be forced to choose between what’s good for him and what’s good for the team.
  • Failure to consider downstream stakeholders. The perspective of cross-functional partners is often not considered early enough or at all. In the early stages of a new product development project, marketing may work in isolation, only sharing their idea once a marketing concept is fully developed. R&D may then conclude that the idea is not technically feasible. If R&D input had been incorporated earlier, perhaps they could have partnered with Marketing to develop a product idea that was both compelling and feasible. Similarly, if R&D develops a product without consulting their Manufacturing partners, they may be in for the unwelcome surprise that their product cannot be manufactured.
  • Missed opportunities. In addition to these downsides, new product development teams also miss the potential upsides of partnering with their cross-functional partners. For example, if the Sales department works closely with its retailers, they can bring forward insights gleaned from the retailers. Similarly, packaging is a purchase driver for many consumer products and early incorporation of the Packaging group’s input may create unique and differentiated selling points.
How to Make Good Decisions in New Product Development

Solutions to these common causes of poor decisions, including how Design for Lean Six Sigma (DLSS) can be used to help make better decisions, will be discussed in a later article.

Thank you, for your interest in How to Make Good Decisions in New Product Development.
Helen Tai
Contributor: Helen Tai