 The economic success of most firms depends on

their ability to identify the needs of customers

and to quickly create products that meet these
needs and can be produced at low cost.
Achieving these goals is not solely a marketing
problem, nor is it solely a design problem or a
manufacturing problem; it is a product
development problem involving all of these
functions.
 A product is something sold by an enterprise to
its customers. Product development is the set of
activities beginning with the perception of a
market opportunity and ending in the
production, sale, and delivery of a product
◦ Product quality: How good is the product resulting from the
development effort? Does it satisfy customer needs? Is it
robust and reliable? Product quality is ultimately reflected in
market share and the price that customers are willing to pay.
◦ Product cost: What is the manufacturing cost of the product?
This cost includes spending on capital equipment and tooling
as well as the incremental cost of producing each unit of the
product. Product cost determines how much profit accrues to
the firm for a particular sales volume and a particular sales
price.
◦ Development time: How quickly did the team complete the
product development effort? Development time determines
how responsive the firm can be to competitive forces and to
technological developments, as well as how quickly the firm
receives the economic returns from the team’s efforts.
 Development cost: How much did the firm have to spend to
develop the product? Development cost is usually a significant
fraction of the investment required to achieve the profits

 Development capability: Are the team and the firm better able to
develop future products as a result of their experience with a
product development project? Development capability is an asset
the firm can use to develop products more effectively and
economically in the future

High performance along these five dimensions should

ultimately lead to economic success; however, other performance
criteria are also important. These criteria arise from interests of
other stakeholders in the enterprise, including the members of
the develop- ment team, other employees, and the community
in which the product is manufactured
 Marketing: The marketing function mediates the interactions
between the firm and its customers. Marketing often
facilitates the identification of product opportunities, the
definition of market segments, and the identification of
customer needs. Marketing also typically arranges for
communication between the firm and its customers, sets
target prices, and oversees the launch and promotion of the
product.
 Design: The design function plays the lead role in defining
the physical form of the product to best meet customer
needs. In this context, the design function includes
engineering design (mechanical, electrical, software, etc.)
and industrial design (aesthetics, ergonomics, user
interfaces).
 Manufacturing: The manufacturing function is primarily
responsible for designing, operating, and/or coordinating
the production system in order to produce the product.
Broadly defined, the manufacturing function also often
includes purchasing, distribution, and installation. This
collection of activities is sometimes called the supply chain.
Different individuals within these functions often have specific
disciplinary training in areas such as market research, mechanical
engineering, electrical engineering, materials science, or
manufacturing operations. Several other functions, including
finance and sales, are frequently involved on a part-time basis in
the development of a new product. Beyond these broad functional
categories, the specific composition of a development team
depends on the particular characteristics of the product.
Few products are developed by a single individual. The collection of
individuals developing a product forms the project team. This team
usually has a single team leader, who could be drawn from any of
the functions of the firm. The team can be thought of as consisting
of a core team and an extended team. In order to work together
effectively, the core team usually remains small enough to meet
in a conference room, while the ex- tended team may consist of
dozens, hundreds, or even thousands of other members. In most
cases, a team within the firm will be supported by individuals or
teams at partner compa- nies, suppliers, and consulting firms.
Sometimes, as is the case for the development of a new airplane,
the number of external team members may be even greater than
that of the team within the company whose name will appear on the
final product.
 Developing great products is hard. Few companies are highly successful more than half the time.
These odds present a significant challenge for a product development team. Some of the
characteristics that make product development challenging are:
◦ Trade-offs: An airplane can be made lighter, but this action will probably increase manufacturing cost. One of the
most difficult aspects of product development is recognizing, understanding, and managing such trade-offs in a
way that maximizes the success of the product.
◦ Dynamics: Technologies improve, customer preferences evolve, competitors introduce new products, and the
macroeconomic environment shifts. Decision making in an environment of constant change is a formidable task.
◦ Details: The choice between using screws or snap-fits on the enclosure of a computer can have economic
implications of millions of dollars. Developing a product of even modest complexity may require thousands of
such decisions.
◦ Time pressure: Any one of these difficulties would be easily manageable by itself given plenty of time, but product
development decisions must usually be made quickly and without complete information.
◦ Economics: Developing, producing, and marketing a new product requires a large in- vestment. To earn a
reasonable return on this investment, the resulting product must be both appealing to customers and relatively
inexpensive to produce.

 For many people, product development is interesting precisely because it is challenging. For others,
several intrinsic attributes also contribute to its appeal:
◦ Creation: The product development process begins with an idea and ends with the production of a physical
artifact. When viewed both in its entirety and at the level of individual activities, the product development process
is intensely creative.
◦ Satisfaction of societal and individual needs: All products are aimed at satisfying needs of some kind. Individuals
interested in developing new products can almost always find institutional settings in which they can develop
products satisfying what they consider to be important needs.
◦ Team diversity: Successful development requires many different skills and talents. As a result, development teams
involve people with a wide range of different training, experience, perspectives, and personalities.
◦ Team spirit: Product development teams are often highly motivated, cooperative groups. The team members may
be allocated so they can focus their collective energy on creating the product. This situation can result in lasting
camaraderie among team members.
 A company wants to establish a common product development
process structure that would be appropriate for all of the many
different operating divisions across the company and also needed
to create a product development organization that would allow it
to compete effectively in a variety of competitive business
markets. Some of the questions a company faces are:

 What are the key product development activities that must be

included in every project?
 What project milestones and review gates can be used to manage
the overall development process by phases?
 Is there a standard development process that will work for every
operating division?
 What role do experts from different functional areas play in the
development process?
 Should the development organization be divided into groups
corresponding to projects or to technical and business functions?
A product development
process is the sequence of
steps or activities that an
enterprise employs to
conceive, design, and
commercialize a product.
A well-defined development process is useful for the following
reasons:
 Quality assurance: A development process specifies the phases a
development project will pass through and the checkpoints along
the way. When these phases and check- points are chosen wisely,
following the development process is one way of assuring the
quality of the resulting product.
 Coordination: A clearly articulated development process acts as a
master plan that defines the roles of each of the players on the
development team. This plan informs the members of the team
when their contributions will be needed and with whom they will
need to exchange information and materials.
 Planning: A development process includes milestones corresponding to
the completion of each phase. The timing of these milestones anchors
the schedule of the overall development project.
 Management: A development process is a benchmark for assessing the
performance of an ongoing development effort. By comparing the actual
events to the established process, a manager can identify possible
problem areas.
 Improvement: The careful documentation and ongoing review of an
organization’s development process and its results may help to identify
opportunities for improvement
Identifying customer needs: The goal of this activity is to understand customers’ needs and to
effectively communicate them to the development team. The output of this step is a set
of carefully constructed customer need statements, organized in a hierarchical list, with
importance weightings for many or all of the needs.
Establishing target specifications: Specifications provide a precise description of what a product has to
do. They are the translation of the customer needs into technical terms. Targets for the
specifications are set early in the process and represent the hopes of the development team.
Later these specifications are refined to be consistent with the constraints imposed by
the team’s choice of a product concept. The output of this stage is a list of target
specifications. Each specification consists of a metric, and marginal and ideal values for
that metric.
Concept generation: The goal of concept generation is to thoroughly explore the space of
product concepts that may address the customer needs. Concept generation includes a
mix of external search, creative problem solving within the team, and systematic
exploration of the various solution fragments the team generates. The result of this
activity is usually a set of 10 to 20 concepts, each typically represented by a sketch and
brief descriptive text..
Concept selection: Concept selection is the activity in which various product concepts are
analyzed and sequentially eliminated to identify the most promising concept(s). The
process usually requires several iterations and may initiate additional concept
generation and refinement.
Concept testing: One or more concepts are then tested to verify that the customer needs
have been met, assess the market potential of the product, and identify any short-
comings that must be remedied during further development. If the customer response
is poor, the development project may be terminated or some earlier activities may be
repeated as necessary.
 Setting final specifications: The target specifications set earlier in the process are re-
visited after a concept has been selected and tested. At this point, the team must
commit to specific values of the metrics reflecting the constraints inherent in the
product con- cept, limitations identified through technical modeling, and trade-offs
between cost and performance.

Project planning: In this final activity of concept development, the team creates a detailed
development schedule, devises a strategy to minimize development time, and
identifies the resources required to complete the project. The major results of the front-
end activities can be usefully captured in a contract book, which contains the mission
statement, the customer needs, the details of the selected concept, the product
specifications, the economic analysis of the product, the development schedule, the
project staffing, and the budget. The contract book serves to document the agreement
(contract) between the team and the senior management of the enterprise. A project
planning method is presented in Chapter 18, Managing Projects.

Economic analysis: The team, often with the support of a financial analyst, builds an economic
model for the new product. This model is used to justify continuation of the overall
development program and to resolve specific trade-offs between, for example,
development costs and manufacturing costs. Economic analysis is shown as one of the
ongoing activities in the concept development phase. An early economic analysis will
almost always be performed before the project even begins, and this analysis is up-
dated as more information becomes available. A method for this activity is presented in
Chapter 17, Product Development Economics.

Benchmarking of competitive products: An understanding of competitive products is critical to

successful positioning of a new product and can provide a rich source of ideas for the
product and production process design. Competitive benchmarking is per- formed in
support of many of the front-end activities

 An enterprise must make two important decisions about the way it
carries out product development. It must define both a product
development process and a product development organization.

 A product development process is the sequence of steps an enterprise employs

to conceive, design, and commercialize a product.
 A well-defined development process helps to ensure product quality, facilitate
coordination among team members, plan the development project, and
continuously improve the process.
 The generic process presented in this chapter includes six phases: planning,
concept development, system-level design, detail design, testing and
refinement, and production ramp-up.
 The concept development phase requires tremendous integration across the
different functions on the development team. This front-end process includes
identifying customer needs, analyzing competitive products, establishing target
specifications, generating product concepts, selecting one or more final
concepts, setting final specifications, testing the concept(s), performing an
economic analysis, and planning the remaining project activities. The results of
the concept development phase are documented in a contract book.
 The development process employed by a particular firm may differ somewhat from the generic
process described here. The generic process is most appropriate for market-pull products.
Other types of products, which may require variants of the generic process, include
technology-push products, platform products, process-intensive products, customized
products, high-risk products, quick-build products, and complex systems.

 Regardless of the development process, tasks are completed by individuals residing in organizations.
Organizations are defined by linking individuals through reporting relationships, financial relationships,
and/or physical layout.

 Functional organizations are those in which the organizational links correspond to the development
functions. Project organizations are those in which the organizational links correspond to the
development projects. Two types of hybrid, or matrix, organization are the heavyweight project
organization and the lightweight project organization.

 The classic trade-off between functional organizations and project organizations is between deep
functional expertise and coordination efficiency.

 Globally distributed product development teams allow access to specialized resources, market
information, and/or technical expertise. However, global teams experience higher project
coordination costs