Strategy Dynamics Briefing 37: Product development

Briefing 36 introduced the idea that resources develop through stages. Product development is one such process that has long been well understood.

Typical stages may include:

  • idea generation, making use of diverse sources including basic R&D, competitors’ products, customer focus groups or direct requests, employee suggestions, and so on
    initial screening, where the basic technological feasibility and market potential are assessed.
  • technical development, which includes the product’s initial specification and testing.
  • commercial evaluation, including market research, assessment of likely sales volumes, prices and revenues, and detailed estimation of production costs and capital investment.
  • final development, when the product itself takes the form that customers will actually see, and the details of the production process are specified.
  • product launch, when marketing and sales activity start, sales are generated and product is shipped.

The exact stages involved and the activities that occur in each vary considerably from industry to industry. It is also common for companies to run stages in parallel in order to collapse the time between initial idea and product launch — for example, production engineering running in parallel with final product design and market testing.

Figure 1 illustrates a staged resource structure for such a product development process. New ideas enter the process at the bottom left, and progress up the chain. At each stage, a product may fail and fall out towards the bottom right. There is a fractional probability of each product making it from one stage to the next, and each development stage requires some time to work on a product idea. The total time for a product to pass through development is 14 quarters or 3½ years, provided that the rate of new ideas and products passing between stages is within the limits that staff in each stage can handle.

Figure 1: Dynamics of a product development process with increase in initial ideas.

Dynamics of a product development process with increase in initial ideas.

After quarter four, management take steps to increase the rate of new product ideas entering the process from 150 to 200 per quarter. Although the technical development staff are able to cope with the faster arrival of new ideas, products reach the later stages faster than those teams can handle, and the total process lengthens by 1.5 quarters. More new products are launched, but slightly later than before.

After quarter eight, a further initiative raises the rate of new ideas to 300 per quarter. Management recognizes that this could throw much more work into technical development than the group can handle (dashed lines), a problem that would also feed through to later stages. Consequently, a tighter screening process is introduced at the same time. This cuts sharply the number of ideas that would otherwise flow into technical development. It would be expected also to cut the flow of work into later stages, but the tighter screening increases the quality of new product ideas, so more make it through at each stage. As a result, the increase in new product launch rate (5.0 per quarter versus 2.2 originally) is proportionately greater than the increase in the rate of new ideas. However, this comes with a penalty of longer development times overall (20 quarters versus 14) due to the higher workload—a problem that could be tackled by increasing staffing selectively on the stages where work pressure becomes most severe.

Until next time…

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Strategic Management Dynamics book cover
Pipelines must contain the samestuff

The resources flowing up the chain in Figure 1 are all “products.” This is the general principle that resource development pipelines must contain the same kind of resource in every stock and in every flow between those stocks. We do not have, for example, “research staff” in the first stage of Figure1 and “product” in the second stage.

Note too that some of the stages listed above in the description of typical product development steps actually describe the transitions from stage to stage (i.e. the flow rates) rather than the stocks themselves. ‘Idea generation’, for example, is a flow of new ideas into a stock that has not yet been screened, and screening results inflows that push each idea either into technical development or else out of the system as a reject. ‘Technical development’, on the other hand, is a state in which a product resides for some time, as is commercial evaluation and final development. If the progress of product development is to be quantified, then, it is important to describe each state and each flow rate accurately. So, when using resource development chains, be sure to define precisely each state in which the resource can be [that is, the stocks] and the flow rates between each state.

This briefing summarises material from chapter 6 of Strategic Management Dynamics, pages 328-336.

Read more about the book on the Strategy Dynamics website

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