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chapter 3

New Product and Service New Product and Service Development, and Process Development, and Process Selection Selection

PowerPoint Presentation by Charlie Cook

The McGraw-Hill Companies, Inc., 2003

Chapter Objectives Chapter Objectives

Illustrate the importance of the development of new products and services to a firms competitiveness. Identify the various types of new products that are developed by companies. Introduce the new product design process and the concept of a products life cycle. Demonstrate the necessity of concurrent product and process design as a new product or service is developed. Present a framework for understanding how new services are developed and introduced into the marketplace.
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Managerial Issues Managerial Issues

Product life cycles becoming shorter.
The need to bring products to market more quickly and efficiently.

Conducting product development on a continuous basis.

New products may represent a majority of sales and profits. 3M an innovative company, having strength to introduce new products in the market at a faster pace with a great success record.

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Why the Emphasis on New Why the Emphasis on New Goods and Services Goods and Services
Increased Competition
Advances in worldwide telecommunications Lower trade barriers (import duties and tariffs) and the creation of trade organizations (NAFTA and European Union) Faster transportation of goods

Advances in Technology
Products become obsolete faster. Cell Phone sizes & features and PCs speed and storage are good examples. Improved manufacturing processes (CAD and CAM and industrial robots)
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The Benefits of Introducing The Benefits of Introducing New Products Faster New Products Faster
Greater Market Share
Early entry captures large initial market share. Semi-conductor industry first two entrants share majority of market

Price Premiums
Ability to initially charge more for new products. Products that are late to market have a ve impact on profitability in terms of cost overruns.

Quick Reaction to Competition

Rapid response to competitors new products.

Set Industry Standards

Initial product sets market/industry standards (entry barriers).

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The Impact of Speed to Market on Sales The Impact of Speed to Market on Sales

Exhibit 3.1a
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The Impact of Speed to Market on The Impact of Speed to Market on Profit Margins Profit Margins

Exhibit 3.1b
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The Impact of Speed to Market on Profits The Impact of Speed to Market on Profits

Exhibit 3.1c
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Categories of New Products Categories of New Products

Incremental or Derivative Products
Cost-reduced versions of existing products or products with added functions & features. Are hybrids or enhancements of existing products. Require minimal changes in design or process, allowing for quick development. Require fewer resources to develop new features or functions. Help ensure near-term cash flows by maintaining current market share.
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Categories of New Products Categories of New Products

Next Generation or Platform Products
Represent new system solutions for customers.
Require more resources to develop. Are key to continued product revenue growth.

Intels 286, 386, 486, PI, PII, PIII & PIV are examples Fords MUSTANG models Ensure companys growth and lay the foundation for a series of evolutionary products in coming years.
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Categories of New Products Categories of New Products

Breakthrough or Radical Products
Create new product categories as core businesses. Require substantial design and process change. Render existing products obsolete in long-term. First PC, first Laptop, first Cellular phone are good example. CDs, Optic Fiber, Teflon are another class of examples. These products are necessary for long term success of the firm.
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The Trend toward Shorter The Trend toward Shorter Product Development Times Product Development Times

Source: Data: Product Development & Management Association, Business Week, January 27, 1997, p. 6.

Exhibit 3.2
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The New Product The New Product Development (NPD) Process Development (NPD) Process
New Product Development Process
The method by which new products evolve from conceptualization through engineering to manufacturing and marketing.

Market Success Depends on NPD

Continuously generate new product ideas. Convert ideas to reliable functional designs. Ensure that the designs are readily producible. Select the processes most compatible with customer needs.
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Sequential Flow of Activities in Sequential Flow of Activities in Product Design and Process Selection Product Design and Process Selection

Source: Reprinted with the permission of the Free Press, an imprint of Simon & Schuster from Fast Cycle Times: How to Align Purpose, Strategy, and Structure for Speed by Christopher Meyer. Copyright 1993 by Christopher Meyer. Fundamentals of Operations Management 4e

Exhibit 3.3
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The New Product The New Product Development (NPD) Process Development (NPD) Process
Concurrent Engineering
The simultaneous and coordinated efforts of all functional areas which accelerates the time to market for new products.

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Concurrent Engineering Approach to NPD Concurrent Engineering Approach to NPD

Exhibit 3.4
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The New Product Development The New Product Development (NPD) Process (contd) (NPD) Process (contd)
Idea Generation
Market pull: the voice of the customer in providing feedback to determine product specifications. Technology push: a product developed by the firms R&D is pushed into the market. Polaroid Cameras, PCs and 3Ms Post-it Notes are examples

Concept Development
Initial product design developed and tested. Analysis of the market and customer requirements. Businesses today recognize the need to involve their customers in all aspects of design, production and delivery of goods and services.
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The New Product Development The New Product Development (NPD) Process (contd) (NPD) Process (contd)
Quality Function Deployment (QFD)
The process for translating customer requirements into a products design.

Voice of the Customer

Customer feedback is used in QFD process to determine product specifications. Customer attributes: Product needs Product preferences Attributes are weighted based on their relative importance to customer. Consumer is asked to compare and rate the companys products with those of its competitors.
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The New Product Development The New Product Development (NPD) Process (contd) (NPD) Process (contd)
House of Quality
The part of the QFD process that uses customer feedback for product design criteria. Use of QFD teams
Identify important customer attributes. Design superior product. Shorten product design time. Facilitate inter-functional cooperation.

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Completed Completed House of House of Quality Quality Matrix Matrix for a Car for a Car Door Door

Exhibit 3.5
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QFD Details QFD Details

Process used to ensure that the product meets customer specifications

Voice of the engineer

Voice of the customer

Customer-based benchmarks

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QFD House of Quality QFD House of Quality

Adding trade-offs, targets & developing product specifications

Trade-offs

Targets

Technical Benchmarks

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The New Product Development The New Product Development (NPD) Process (contd) (NPD) Process (contd)
New Product Planning
1. Build models of new product. 2. Test new elements and components. 3. Conduct detailed investment and financial analyses of products anticipated life cycle.

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The New Product Development The New Product Development (NPD) Process (contd) (NPD) Process (contd)
Design for Manufacturability (DFM)
Choosing manufacturing methods and materials. Minimizing the number of individual parts:
Reduces assembly time. Increases reliability.

Setting product specifications.

Output from the design activity that states all criteria for building a product.

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Design Change to Reduce Design Change to Reduce the Number of Parts in a Bracket the Number of Parts in a Bracket

Exhibit 3.6
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Factors contributing to Successful Product Factors contributing to Successful Product Design Design

Design from the outside in. Make the customers use

of the product the focus of all product development.

Partner Deeply. Involve all of the relevant functional areas

(marketing, engineering, purchasing & manufacturing) early in the design process to assist in defining the new product (concurrent engineering).

Partner Widely. Organizational boundaries

are becoming fused. Designers should involve all stakeholders internal & external. the right market niche. Upfront design analysis will eliminate the faulty concepts early.

Design the product upfront. Match the right product to

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Factors contributing to Successful Product Design contd. Factors contributing to Successful Product Design contd.

Get physical fast. Use prototypes to visualize a concept

and to obtain quick feedback from both users and managers.

Design for manufacturability. Always design a product

that will meet established quality, cost and delivery parameters. Manufacturing issues are as important to success as ergonomics, aesthetics and functionality.

Surprise the user. Always build something extra into the

product that will unexpectedly delight the customer. This creates customer loyalty and increases the chances of having a truly hot product.

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 WITH TODAY'S HUGE ARSENAL of drugs, doctors can control diabetes, glaucoma, hypertension, and dozens of other diseases. But they can't force people to take their medicine. Forgetful and reluctant patients rack up $25 billion in avoidable hospital bills each year, according to the National Pharmaceutical Council in Reston, Va., plus billions more in unnecessary nursing home admissions. One remedy may be for the medicine containers themselves to remind patients when it's time to take a pop. Aprex Corp. in Fremont, Calif., builds a "smart" bottle cap that's equipped with its own chip, alarm clock, and a tiny display. The cap keeps track of how often the bottle is opened and can nudge patients with electronic beeps. Now, Aprex has added a modem that reads the cap's memory and automatically relays to Aprex the number of times the cap was removed that day. If the count isn't right, the patient gets a reminder call in the morning. The service, called Dosing Partners, costs less than $2 a day--but isn't covered by insurance. Still, Aprex has drawn some big backers. Last fall, Pfizer invested $2 million to join Johnson & Johnson and New York Life as an equity partner.
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Process Selection in Manufacturing Process Selection in Manufacturing

Types of Processes
Project process
Process that focuses on making one-of-a-kind products.

Intermittent process
Process that produces products in small lot sizes (e.g., job and batch operations).

Line-flow process
Continuous process that produces high volume, highly standardized products (e.g., assembly-line and continuous operations).

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Types of Processes Types of Processes

Exhibit 3.7
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Process Selection in Manufacturing Process Selection in Manufacturing

The Product-Process Matrix
High production volumes and narrow product lines make specialized equipment and standardized materials economically feasible.
Remaining in a process niche after the product cycle has advanced to its next stage dooms a firm to market failure.

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Matching Major Stages of Matching Major Stages of Product and Process Life Cycles Product and Process Life Cycles

Source: Adapted from Robert Hay and Steven Wheelwright, Restoring Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons, 1984).

Exhibit 3.8
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Product and Process Life Cycles Product and Process Life Cycles

Exhibit 3.9
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New Service Development New Service Development

Types of Incremental and New Services Types of Incremental and New Services

Exhibit 3.10
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Categories of New Services Categories of New Services

Incremental services
Service line extensions New services that augment current services.
New items on restaurant menu, new airline routes.

Service improvements New services in which features have changed relative to existing services.
E-ticketing for airlines.

Style changes Modest forms of new services that change only the appearance of the service. Aimed to impact the customers perceptions, emotions and attitudes.
Renovation of a restaurant, exterior painting of airplane with a new logo.
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Categories of New Services (contd) Categories of New Services (contd)

Radical
New service offerings that were not previously available or new delivery system for existing service Major innovations New services in markets not fully defined. Often driven by computer and information technology.
Internet banking

Start-up services New services in established markets already served by existing services.
Development of SMART card for retail transactions, customer loyalty card by Lahore Chatkhara.

New services for current markets Added services to current customers.

PICIC Banks kiosk in PC Lahore.
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A Framework for Categorizing New A Framework for Categorizing New Services Services

Exhibit 3.11
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Categories of New Services Categories of New Services

Service Category
Window Dressing

Content Change
Not significantly different from other services Delivered in similar fashion

Breadth of Offering

Significant design change in content of service Delivered in similar fashion

Revolutionary Channel Development

New in both content and delivery method Delivery of same/existing service through a different/new channel

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Categories of New Services Contd. Categories of New Services Contd.

Service C
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Window D

New Service Development Process New Service Development Process

NSD is very similar to NPD. Designing of Product and Process is carried out simultaneously. It is impossible to separate product from process. The process starts with IDEA. R & D in services occurs primarily in the operations process w.r.t. how the service is delivered.
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New Service Development (NSD) Process New Service Development (NSD) Process Contd. Contd.
Stage
Design Analysis

Activity
Formulating the objectives and strategy of the new service. Considering the financial implications of the new service. Examining supply chain issues for delivery of service.

Development Full Launch

Testing the service design, training personnel, conducting pilot runs. Releasing the service to the market place.

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NSD Process -- Propositions NSD Process Propositions

The NSD process is more likely to be nonlinear for the services that are less standardized or are delivered through more industrialized service channels. Competence in the planning phase activities of NSD process drives successful radical innovations, whereas competence in execution phase activities of the NSD process drives successful incremental innovations. Service failures and subsequent recovery efforts are often the result of using an ad hoc NSD process or the lack of NSD competence rather than from poor service execution. Effective portfolio management of individual NSD efforts will decrease the total risk of a firms NSD program and increase the probability of high NSD returns (Similar to the portfolio management approvals that mutual funds use) Portfolio-like management of NSD efforts will increase the fulfilment of heterogeneous customer needs.
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The Customer Contact Approach to The Customer Contact Approach to Designing Service Processes Designing Service Processes
Service systems are generally classified along industry lines
Financial services, health services, transportation and etc. Such classification does not mention much about process

Customer Contact
The presence of the customer in the system.

Extent of Contact
The percent of time the customer is involved relative to the time required to deliver the service.

Creation of the Service

The work process involved in providing the service.
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The Customer Contact Approach to The Customer Contact Approach to Designing Service Processes Designing Service Processes

High Degree High Degree of Customer of Customer Contact Contact

Low Degree Low Degree of Customer of Customer Contact Contact

High

Percentage of customer contact (customer influence on the system) Difficulty in managing system

Low

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Major Differences between High- and Major Differences between High- and Low-Contact Systems in a Bank Low-Contact Systems in a Bank

Exhibit 3.12
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The Service Process Matrix The Service Process Matrix

Source: Roger W. Schemenner, How Can Service Businesses Survive and Prosper? Sloan Management Review 27, no. 3 (Spring 1986), pp. 2132, by permission of publisher. Copyright 1986 by Sloan Management Review Association, All rights reserved.

Exhibit 3.13
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Customer Contact Approach Contd. Customer Contact Approach Contd.

Degree of customer interaction and customization, closely parallels the degree of customer contact. The degree of labour intensity to deliver service is also important Service Factory
Low degree of labour intensity and low degree of customer interaction and customization

Service Shop
Low degree of labour intensity but higher degree of customer interaction and customization

Mass Service
High degree of labour intensity but has a relatively low degree of customer interaction and customization

Professional Service
High degree of labour intensity as well as higher degree of customer interaction and customization

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Generic Strategies for Service Generic Strategies for Service Organizations Organizations Low Degree of labour intensity
Capital intensive with high fixed costs. Cant easily adjust capacity to meet changes in demand Must attempt to smooth out demand during peak periods by shifting it to off-peak periods

High Degree of labour intensity

Workforce management is paramount. Emphasis should be on hiring training and scheduling

Benchmarking of best-in-class companies could help

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Designing a New Service Designing a New Service Organization Organization

Service Vision (Heskett)
Identification of the target market
Who is our customer?

Defining the service concept

How do we differentiate our service in the market?

Developing the service strategy

What is our service package and its operating focus?

Creating the service delivery system

What processes, staff, and facilities are needed?

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Designing a New Service Organization Designing a New Service Organization Contd. Contd.
The process and the product must be developed simultaneously. Service operation itself lacks the legal protection, commonly available to goods production. Service package constitutes the major output of development process. Many parts of the service package often are defined by training individuals receive before they become part of organization.
Professional service organizations, e.g. law firms, hospitals require certification prior to hiring

Many service organizations can change their service offerings virtually overnight.
Barber shops, retail stores and restaurants

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Service-System Design Matrix Service-System Design Matrix

Exhibit 3.14
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Service-System Design Matrix Contd. Service-System Design Matrix Contd.

Buffered Core physically separated from the customer. Permeable System customer can penetrate via phone or face-to-face contact Reactive System Penetrable and reactive to customer requirements Greater the amount of customer contact, the greater the opportunity to generate additional sales. Face-to-face loose specs
Fast food restaurants and Disneyland, neither customer nor server has much discretion on creating the service

Face-to-face total customization

Where the specs. to be developed through some interaction b/w customer and server, e.g., legal and medical services
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Strategic Uses of the Strategic Uses of the Service-System Design Matrix Service-System Design Matrix
1. 2. Enabling systematic integration of operations and marketing strategy. Clarifying exactly which combination of service delivery the firm is actually providing.
As the company incorporates the delivery options (listed on diagonal) it is becoming diversified in production process.

1.

Permitting comparison with other firms in the way specific services are delivered.
This helps to pinpoint a firms competitive advantage.

1.

Indicating evolutionary or life cycle changes that might be in order as the firm grows.
The evolution of service delivery could move in either direction, unlike to that in manufacturing where from intermittent operation, movement is towards continuous operation. One can go into depth, placing particular service products of a small firm or cover a large service organization at more aggregated level.

1.

Providing flexibility.

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Process Selection in Services Process Selection in Services

Types of Service Organizations
Service businesses Facilities-based services that provide assistance to customers who come to the service facility. Banks, hospitals, law firms. Field-based services that provide on-site services to customers. Cleaning and home repair services. Customer support services Provide product information and services to current external customers. Product repair and maintenance services. Internal services Provide services for other internal organizational units. Functions such as, maintenance, accounting.
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Process Selection in Services Process Selection in Services (contd) (contd)

The Production Line Approach
Orientation is toward the efficient production of results precisely controlled execution of the central function. McDonalds Big Mac
Besides marketing and financial skills, the company carefully controls the execution of each outlets central function the rapid delivery of a consistently uniform, high quality mix of prepared food in a clean environment, with cheerful courtesy. The systematic substitution of equipment for people, combined with carefully planned use and positioning of technology enables McDonalds to attract customers in unprecedented manner.

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McDonalds Production Line Approach McDonalds Production Line Approach

The McDonalds french fryer allows cooking of the optimum number of french fries at one time. A wide-mouth scoop is used to pick up the precise amount of french fries for each order size. (The employee never touches the product) Storage space is expressly designed for a predetermined mix of pre-packaged and pre-measured products. Cleanliness is pursued by providing ample trash cans in and outside each facility. (larger outlets have motorized sweepers for parking areas) Hambergers are wrapped in color coded paper. Through painstaking attention to total design and facilities planning, everything is built integrally into the (McDonalds) machine itself into the technology of system. The only choice available to the attendant is to operate it exactly as the designer intended.
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Process Selection in Services Contd. Process Selection in Services Contd. The Customer Involvement Approach
Having the customer take a greater participatory role in the production of the service.
ATMs, self-service gas stations, salad bars, inroom coffee-making equipment in hotel rooms.

This turns customer into partial employees, who must be trained in what to do and be compensated primarily through lower prices that are charged for service.

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Process Selection in Services Contd. Process Selection in Services Contd. The Personal Attention Approach
The central focus is complete customer attention and satisfaction at all times. It is the concept of mass-customization, applied to services. Each customer is treated as an individual, with the service firm often maintaining a database of each customers likes and dislikes. This information may be available within one particular facility or for all facilities of that organization. Ritz-Carlton does it for all of its guests.
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Common Characteristics of Common Characteristics of Well-Designed Service Systems Well-Designed Service Systems
1. Each element of the service system is consistent with the operating focus of the firm. 2. It is user-friendlycustomers can interact easily. 3. It is robustcapable of coping with variations in demand and resources availability 4. It is structured so that consistent performance by its people and systems is easily maintained.
Supportive technologies are truly supportive and reliable.

1. It provides effective links between the back office and the front office so that nothing falls between the cracks.
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Common Characteristics of Common Characteristics of Well-Designed Service Systems (contd) Well-Designed Service Systems (contd)
6. It manages the evidence of service quality in such a way that customers see the value of the service provided.
This is particularly true where a service improvement is made. Unless customers are made aware of improvement through explicit communication about it, the improved performance is unlikely to gain maximum impact.

6. It is cost-effectivethere is a minimum waste of time and resources in delivering the service.

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