Many firms rightly believe that new product development (NPD) is the key to long-term success. Companies must release new products to stay relevant in the market and to meet changing consumer tastes. New products often include new technologies that allow the firm to offer new features or to gain cost advantages against competitors.
Project managers are well-trained in the design and execution of time-bound endeavors that create unique results. Of course, the effort to convert an idea into a new product is formally defined as a project. Sometimes, NPD efforts better fit the definition of a program in which several smaller projects are executed simultaneously to deliver the new product, service, or application.
As we discussed in Part 1 (read here), organizations adopt different project management systems based on several elements. These are culture, risk tolerance, and innovation maturity. Culture is comprised of the unwritten rules that guide the behavior of individuals in the company. In this post, we’ll discuss the element of risk and how it impacts the selection of a project management approach to NPD.
Organizational risk tolerance is reflected in the firm’s culture. Highly risk-tolerant firms often follow a prospector strategy in seeking to be first-to-market. (Read more about a prospector strategy here.) Venture capital firms recognize, for instance, that few investments will pay off. Yet, they accept the risk of failure for most cases, gambling on the odds that one idea will make it in the marketplace.
Conversely, risk-averse firms often have very large capital expenditures (capex) that require better odds. Investing several billion dollars with a low percentage chance of success is a fool’s game. Such companies thus require more certainty in project and product decisions to ensure technical and market feasibility.
For example, a firm with no hard assets and expending only labor costs will often follow an Agile approach to product development. Software and application developers require almost no investment to launch their products. They are able to conduct many experiments to understand customer needs and market acceptance with almost no cost. Thus, Agile systems, like Scrum, have become very popular in the software world for new product development.
On the other hand, designing and developing a tangible product, like a medical device or household appliance, requires significant capital investment (risk) and may have low margin paybacks. Regulatory approval is not certain, and companies must build machines, tools, and factories to manufacture hard, tangible goods. Today’s supply chain issues increase risk and cost at the same time.
Therefore, many companies that manufacture real goods follow a more traditional staged-and-gated process. Staged-and-gated NPD processes follow a product development “funnel” in that lots of low-cost ideas are first tested for feasibility before additional investments are made. Each phase of the project is thoroughly vetted for financial, technical, and market acceptance before the project can advance. In this way, risk is managed so that the firm invests in the best products ideas.
Hybrid Processes and Risk
Of course, over the years, staged-and-gated systems have become more bureaucratic. The larger the firm, it seems, the more checks and balances put into the NPD system. No amount of testing will ever eliminate risk and these process-heavy systems reduce the ability of the firm to rapidly test and compete in the marketplace.
On the other hand, tangible good manufacturers that attempt to implement Scrum tend to fail. Agile processes are designed for low-investment, software projects in which there is frequent contact with a customer representative. Quality can suffer in Agile projects because teams cannot define “done” and investments are often trivial in comparison to hard goods.
Hybrid NPD processes address risk in a balanced way by recognizing investments while also allowing time for experimentation. Organizations should adopt the features of Agile systems that make sense for their culture: iterations (sprints), investment, and competition. In some cases, WAGILE Product Development is the best answer. (Read more about the WAGILE process here.) In other cases, a Lean NPD approach that focuses on team collaboration and quality is the best answer. (Read more about Lean Innovation here and here.)
Culture and risk-tolerance are both factors in selecting the best project management system for new product development. In Part 3 of this series, we will discuss innovation maturity as another factor in selecting a project management methodology for NPD. In the meantime, register for my presentation on Hybrid Project Management Processes in NPD on 25 August 2002 at 12 pm EDT. Click here to register. Feel free to contact me at firstname.lastname@example.org if your organization is striving to find the right balance between risk and culture for new product development.
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