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How to Make Good Decisions in New Product Development: Part 2

Contributor: Helen Tai
Posted: 06/17/2009
Helen Tai
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In the first part of this article, we learned how important it is to make good decisions in new product development, as well as the leading causes of poor decisions. In this part, we learn how to make good decisions.

How to Make Good Decisions in New Product Development

Fortunately, proven and effective solutions exist for all of the previously described causes.

Provide the right incentives. First and foremost, an organization must clearly and consistently reward the behaviors and outcomes it seeks. Rewards should be used to align new product development team members toward a common goal and should include a balance of both the short and long term. The downsides of rewarding just the short term have already been described. Focusing solely on the long term, however, leads to other equally problematic issues (e.g., not launching anything because it’s never perfect or not having any current income to fund long-term projects). Measures should include:
  • Customer satisfaction
  • Innovation (as defined by the company)
  • Meeting both short-term and long-term financial and sales targets
  • Hitting key milestones
  • How the product is developed (the right steps were taken, quality of decisions, etc.), not just the outcome
  • Employee satisfaction
  • Calculated risks should be rewarded, so long as learning occurs
A balanced measurement system ensures that new product development team members will work together toward a common goal and that they will consider both the short and long term in making decisions.

Establish standardized decision-making criteria and review forums. In most cases, management intuitively knows what matters in making a decision. Usually they want to know that: the project is in line with the brand strategy, the product will provide a compelling customer benefit, the project has a reasonable chance of success, the customer will buy the product, the product can be made reliably at an acceptable cost, the project risks are understood and appropriately managed, and most importantly, the product will hit short- and long-term financial targets.

The cross-functional management team needs to a) agree on the specific decision-making criteria, b) document and communicate the criteria, c) provide the new product development teams a standard template to present the information in a consistent manner, and d) hold regular review meetings where teams present their projects utilizing the new template. Since important decisions are made at these meetings, attendance by the cross-functional management team is given the highest priority. Having the cross-functional management team in attendance ensures that the majority of questions or issues is addressed during the meeting and also encourages synergy among the cross-functional management team by providing a forum for discussion.

By having a standard template with objective and data-based decision-making criteria, new product development teams know what is important and management gets the objective information they need to make sound and consistent decisions across projects.

Utilize proven methodologies to develop products. Although Design for Lean Six Sigma (DLSS) is a very effective approach for shortening product development timelines as well as increasing profitability, many people have the mistaken impression that DLSS takes longer than traditional New Product Development. In fact, DLSS re-distributes the resources so that more is done on the front end, and development time is actually shortened. DLSS also addresses several of the issues identified earlier:
  • Focusing on the customer. All cross-functional team members are rewarded based on the team’s combined ability to meet the customer needs. Thus, all new product development team members are working toward the same goal, and their individual needs are no longer in conflict. Focusing on the customer also has the obvious benefit of increasing the probability of customer acceptance.
  • Cross-functional development team. As part of front-loading the project, cross-functional partners are included earlier in development. Communication improves and potential issues are identified and addressed, resulting in smoother downstream execution. Everyone participates in defining the new product development project, leading to greater ownership and satisfaction.
  • Set-based development. Rather than focusing on a single solution, the new product development team develops a set of potential solutions. Through a series of learning cycles, the ideas are refined and the best ones moved forward. Having a set of potential solutions rather than placing all bets on a single solution greatly increases the probability that at least one of the ideas will be successful. Unlike the "unwillingness to take a stand" scenario mentioned earlier, this is an intentional approach with a clear understanding of when decisions must be made to meet the desired timeline.
  • Learning mentality. At innovative companies like Toyota, taking appropriate risks and trying new things are encouraged. Learning from mistakes is celebrated as a way to learn and improve (they are only considered failures if no learning occurs). Everyone understands that a number of innovative ideas will not make it to market, but because learning is encouraged and smart risks are rewarded, people feel safe taking risks, and a culture for innovation is fostered.
Utilizing DLSS improves the timing and quality of decisions by: aligning the organization so that decisions are consistently based on the ability to meet the customer needs, incorporating the perspectives of all members of the cross-functional development team and their management, and having a set of options to choose from rather than force-fitting one idea through the process.

Summary

Making timely and high-quality decisions in new product development is critical to a company’s success. Poor decisions have many obvious negative consequences, including extra spending, missing timelines or financial targets, and in the worst case, complete failure of the New Product Development project. Despite the importance of good decisions, companies often unwittingly set themselves up for poor decisions through commonly established organizational systems.

The main organizational drivers of bad decisions are a bias toward short-term results, unclear decision-making criteria, and functional silos. These set the stage for many problems, such as unrealistic timelines, an unwillingness to take a stand, a "launch at all cost" attitude, inconsistent criteria for making decisions, confusion and stress for the teams, hiding of bad news, conflicts within new product development teams and missed opportunities.

To address this, companies should create a balance between short- and long-term goals. They need to establish standardized decision-making criteria and review forums. Finally, utilizing proven methods such as DLSS (Design for Lean Six Sigma) will ensure customer focus, alignment of the cross-functional development team, the development of multiple options (increasing the probability of success) and a learning mentality that fosters innovation. Making these changes will improve the timeliness and quality of decisions, leading to more successful new products.

Thank you, for your interest in How to Make Good Decisions in New Product Development: Part 2.
Helen Tai
Contributor: Helen Tai