CHAPTER 3

PRODUCT DESIGN AND

DEVELOPMENT
 OVERVIEW OF PRODUCT DESIGN AND
DEVELOPMENT
• Product development is the process through
which ideas are turned into actual goods and
services.
• Its main objective in an organisation is to satisfy
customers by meeting their actual and
anticipated needs.
• By focusing on customers’ satisfaction, product
design and development enhances the
competitiveness of the firm.
• The role of the operations manager in
this case is to plan, organise, implement
and control the design and conversion of
inputs into products and services that
will satisfy the customer.
• Operations subsystem:
– This is that part of the organisation
that exists primarily for generating and
producing the organisation’s products.
 What is a Product?
• A product, broadly defined, is anything that
satisfies a customer’s needs or wants (Kotler
2002).
• A product is a set of tangible and intangible
attributes that will satisfy the customer’s
needs.
• For Microfinance institutions or a bank, a
product is a financial service that customers
purchase because it fulfils a particular need
eg Loan product, saving product.
• A new product represents an opportunity to
create value, and in so doing, offers a
strategic competitive advantage (Thomas
1993).
• The broad definition of a product includes
its component parts: ie the
– Core product:
– Actual product:
– Augmented (enhanced) product:
 Component parts of a Product
• Core product
– The reason why the customer pays money - a benefit (e.g., financial
return, security) or the need it fulfils (e.g., liquidity, livelihood).
– The minimum necessary for the customer to achieve her or his
buying objective
• Actual product:
– The specific features that characterize what the customer is buying
— including how it is designed (terms, interest rates, eligibility
requirements) and packaged (length and clarity of the application,
colour of the passbook);
• Augmented (enhanced) product:
– How the customer receives the product - the way in which it is
delivered and serviced (application turnaround time, hours of
operation, waiting room facilities, and customer service - in terms
of friendliness, accessibility before and after the loan is closed;
product knowledge of loan officers in a bank).
• The Total product
– Potential Product: Everything else that can possibly
be done to attract and retain the client, especially
non- traditional ways to add value, which requires
intimate knowledge of the customer
• Competitive differentiation and positioning
– Enhanced Product: How the customer receives the
product – the way in which it is delivered and
serviced (application, turnaround time, hours of
operation, waiting room facilities, and customer
service – friendliness, accessibility before and after
the loan is closed; product knowledge of loan officers
• Source: Ledgerwood, 2006
• New product development involves refining
and expanding the above component parts
in a methodical and systematic manner.
• Product development does not mean the
same thing to all people.
• Product development is a process of
improving existing products or creating new
products, either for the organization’s
existing market or few new types of clients.
 Note:
• The product may be entirely new
(original) in the market( Product
Innovation), copied from
competitors( Product Imitation),
improved for better performance and
perceived value or modified to provide
similar performance at lower
cost( Product Improvement).
 Today the world witnesses many
more new products emerging
daily than before:

Is this statement true or false?

Give reasons.
 Operations Manager’s concerns in Product
Design and Development
• What new products should the business
create?
• When should the new products be introduced
into the market?
• What adjustments should be made to the
existing products to make them more suitable
for the market?
 Justification for Product Design and
Development
• A product or service plays a central role in the
activities of any organisation since it is the
medium through which the organisation can
achieve its objectives.
• A product or service is the only element of the
marketing mix that brings in revenue to the
organisation. The rest bring in costs.
 Factors justifying the need for product
development
• The product life cycle = eg fashions
• Technological innovations eg computer aided designs
• Developments in complementary products
• Environmental requirements eg Kaveera ban
• Global trends
• Rapidly changing technology and advancement
in information technology eg internet This has
led to:
– Shorter product life cycles
– Demand for a wide variety of goods
– Increased awareness of value for money
The Product Development Process
• The product development process refers to the
different stages a product goes through as it is being
developed.
• It involves the design and development of:
– The concept or core of the product, which is the set of
expected benefits that the consumer buys. eg comfort in case of a
bed.
– The package or the physical product in which the benefits
are packed.
– The process through which the operations department
produces the package and benefits.
The Product Development stages:

1. Concept Generation
2. Idea Screening
3. Preliminary Design and Testing
4. Final Design and Development
5. Post Production Product
Support
 1. Concept Generation
• Product development process begins with the
search for ideas about products.
• The search for ideas depends on the corporate
development culture of the organisation which
may be:
– Product innovation
– Product imitation
– Product improvement
 Sources of ideas about products:
• Market place eg marketing dept scans the
market to see consumption trends of products through:
– Formal market surveys
– Market research
– Market intelligence systems
– Constant interactions with customers
• Monitoring competitor activities eg using
reverse engineering
• Workers within the organisation
eg workers’ innovations

• Research and Development

 Note:
• All ideas collected from various
sources must be developed and
transformed into concepts.
• The concept includes the overall
form, function, purpose and
benefits of the idea.
 2.Idea Screening
• This is the reduction of ideas into the most
attractive and practicable.
• The attractive ideas are evaluated in terms of
feasibility and contributions to the firm’s wealth
by all the subsystems of the organisation namely:
- Research and development
- Engineering and design
- Operations, Finance, Marketing
- Human Resource, Purchasing
 Ways in which ideas are screened
• The Market screen ie Screen products in terms of:
- Set corporate objectives
- Ability to generate sufficient demand
- Performance in the market

• The Operations screen ie Screen capacity by:

- Analyse the required HR capacity
- Analyse inventory capacity
- Analyse compatibility with existing products
• The Finance screen
- Screen the financial implications of the new product.
- Screen expected revenue, payback, NPV
• Market Analysis
- Check level of customer satisfaction
- Check expected purchase frequency
- Check target markets and ease of product distribution
 Note:
• Market analysis also checks the financial
feasibility of the product.
• It identifies the market price which is used to
work backwards to determine the profitability
of the product.( top – down).
• The other method is to start from zero and
add manufacturing costs and required profits.
( bottom – up).
 3.Preliminary Design and Testing
• Research and development dept
develops a preliminary design. It
involves:
– Designing the constituent parts of the product
– Defining the Bill of Materials(BOM).
– Designing layouts to enable the flow of materials,
labour, information.
– Making a model product
Note: All departments test the designed product against the set
standards and benchmark.
Techniques of testing preliminary designs
• Quality Function Deployment:
- It ensures that the eventual design of the product
or service actually meets the needs of the customer.
• Value Engineering:
- This is the analysis of how much cost is spent on the
primary and secondary functions of the product or
service and how it can be reduced.
- The purpose of value engineering is to eliminate
any costs that do not contribute to the value and
performance of the product or service.
 4.Final Design and Development
• At this stage the prototypes are made and tested
for safe performance under normal and extreme
conditions.
• After checking the product’s functional and
psychological performance, the product is
branded, packaged and tested in the market for
customer reaction.
• The purpose of market testing is:
• To enable firms pre-test marketing plans.
• To make reliable forecasts of future sales
• To reduce investment costs and risks
NOTE; If Successful, release product for full time production
 5.Post Production Product Support

• This stage involves steps taken to ensure that

the product survives once it has been
launched on the market.
• The steps include:
– Education of the users
– Offers of warranties
– Product modification to accommodate feedback
from the market
 Review Questions
 
(a)The product development processes begin with the search for
ideas about products depending on the corporate culture of the
organisation. Explain the main sources of product ideas. ( 12
Marks)
(b)Under product design and development the role of the
operations manager in idea screening is to coordinate the
evaluation and reduction of the ideas generated into the most
attractive and practicable. Explain the various ways through
which ideas generated about products are screened. ( 13 Marks)