The Importance of New Product Development to Maintain a Company's Competitiveness

The article ‘The Effect of Product Introduction Delays on Operating Performance’ provides an experimental evidence on the effects of product introduction delays on accounting-based procedures of operating performances. The speed of research on product development issues has increased. Delay in product introduction, publicly available accounting data is used to estimate delays on return on assets (ROA), sales over assets (SOA) and return on sales (ROS). A sample of 450 publicly traded firms were considered for the experiment that had faced some product introduction delays and have a statistical negative significance on profit.

Sample selection for the experiment is done primarily from the Wall Street Journal and Dow Jones News Service over a period of three year to avoid any overlap. Depending on the method used that is based on annual financial data from Compustat, fiscal year considered 0 and then 1 and so on, which then used to estimate abnormal performance, the median abnormal decline in return on assets (ROA) ranges from 2.70% to 3.44% over a period of three year of the delay announcements. The median decline in sales over assets (SOA) ranges from 5.92% to 10.99%, and the median decline in return on sales (ROS) ranges from 1.48% to 3.06%. Also, cross-sectional regression analysis indicates that on smaller firms the impact of delays on abnormal ROA is more negative, and for those firms that are more profitable before the delay. Also, for firms that operate in industries that are larger and more profitable, its impact is more negative. Round the product introduction delay announcements there is positive association between abnormal ROA and abnormal stock price performances.

The need for a diverse selection of products is not new, but most vendors have taken a long time to move past a single, uncomplicated credit score product. Many financial service vendors have developed their own small businesses model around a credit rating supplying, instead of exploring techniques to offer a full set of expert services that their clients would locate helpful with time.

It is defined that 70% of all new product launches fall short in the main year. The dilemma is, why do some thrive when many others fail? This can be understood from concepts as mentioned in article ‘New Product Development Imperative Strategy’. Increasing customers’ expectations, technology and competition are dynamic factors which are leading to replacement of old products or having altogether a new demand. To meet the changing needs of the customer a company need to evolve continually.

The new product development is of vital importance for a business to grow in long run. It plays a crucial role to achieve market leadership. Product development skills helps firm to enhance its existing product lines and make way for new and development capabilities of the firm. Intense competition, changing customer expectations, product and technical diversity are the key driving forces that lead to development of fast, responsive products with distinction and integrity and ultimately lead to shorter development cycles, leverage critical resources and increase total product quality.

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Effective, efficient principles are required for strategic product development. This can be done by following three steps process:

1. Company must have a right set of development projects.
2. The projects must be executed on right time, right budget and on right target.
3. Company must capture the lessons learned from each project so as to be prepared for future.

For better and faster product development company should follow principles as:

• Selecting projects having focus on main objective, no random or disconnected projects taken.
• Do not over commit resources, so strategically resources should be properly allocated as per the requirements.
• Do not change projects priorities based on competitors move.
• For different projects have different process as per project.
• Take previous project experience and can use on other projects also.
• Review is important but not going again and again for review which causes unnecessary delay in completion of projects.
• A revolutionary development strategy-and outstanding project execution

A company can focus its attention on different areas to pursue growth and sustainable profit and can build its development strategy on any three mentioned strategy: 1) New Product Development (if product is no longer competitive or market is saturated then can create a new product to maintain and increase market penetration); 2) New Customer Development (creating new product to complement established products and company’s offering); 3) New Market Development (using new as well as old products to enter a completely new market segment).

To create a development portfolio company can follow process which are broadly classified into three process- pre-project, project execution and learnings from projects, which can be further subdivided into 8 steps.

1. Characterizing project types. Projects are diverse in nature in terms of scope, team size, budget, duration etc., so it is important to first characterize the projects to decide on level of discrete development activities to be performed. Most firms categorize projects on four different categories. Breakthrough - a type of project which has completely new product and process, created for the future. Platform - a project that establishes the next generation of product line and solution to a product challenge. Derivative - it is an incremental change to an existing platform or product’s manufacturing process. Used on less demanding project and require less cost. Maintenance - it is simplest type of project which is carried out for sustaining and have routine processes. To have a clear understanding projects are narrowly categories that overlap with other.
2. Strategic choice of project mix. To be in competitive market a project needs to be improved continuously and require addition of platforms. Project mix depends on factors like resources availability, firm’s strategic action and age of the firm that are built on the core product.
3. Creation of road maps. Once strategies are in place it needs to be linked to the project mix. It is the task of the firm to construct a project roadmap so as all the project need to be proposed, approved and executed to support business.
4. Aggregate project planning. Ones the tools to categorize, project mix and project roadmaps are in place, firms’ management need to cumulatively look at all them to get ahead with new product launches. In combination these tools help the development projects to fit with available resources, link them with business strategy, helps in decisions regarding creation chartering and resource allocation of a project. Company need to now define scope and objectives of each individual project that involves gathering data regarding customers, markets, competitors and company capabilities to determine focus of each projects. Focus groups, targeted market research studies, industry reports, advice from experts and various other techniques used to gather data to meet the customers need and have edge over the competitors.
5. Type of project team. After determining the appropriate set of projects, project execution is carried out. Project execution starts by building the right team and this involves around defining the tasks to be carried out. Extent to which team controls the resources and nature of performance to evaluate the team and project results. Types of development team are: 1) functional team structure (a type of traditional team in which individual member are answerable to their respective function heads): 2) lightweight team structure (most common form of team, one functional team manager has oversight over the entire team); 3) heavyweight team structure (team having more control over the resources used and decision made); 4) autonomous team structure (these team are integrated cross-functional structure and is designed to handle most challenging development projects).
6. Prototyping. Helps in executing development projects and consists of cycle that involves designing, building and testing. This helps companies to understand customers requirement and deliver the project on time.
7. Project audits includes post project audits regularly to keep project updated and on right track.
8. Learning across projects, where available previous project learnings should be used to build new product which can both save time and cost and further enhance project outcome.

Conclusion and Learnings

For a firm to remain in market for longer time and have a sustainable business it is very important to change over time and introduce new product at right time, within budget that can hit the target completely. Firms following the strategy and step by step procedure for new product development could leverage the use of the above discussed development skills which lead them to a more efficient and cost-effective product. This ultimately help firms to meet and fulfil customer’s requirements and can be a market leader.