The ability to achieve profitable product development has been vital for most companies long before the current hype surrounding the term ‘innovation’.
While it is possible to find radically new solutions (i.e., to innovate) in several other areas than products and services, a company that fails in the product development area will normally not last very long. So a lot of innovation efforts is naturally focused on developing new products, improving functionality or competitiveness of current ones, or improving the way these products are communicated and brought into the marketplace.
Several critical success factors are required to succeed in product development. In a recent blog post I introduced a product idea evaluation checklist for download and free use, as a possible contribution to a future open source methodology for innovation. A strong up-front evaluation of a product idea is certainly very important, but other factors are equally important. I will walk you through the 6 success factors that I personally have found to be most important ones – based upon lessons learned over the past years, sometimes ‘the hard way’.
Let’s start with the overall objective, which I often formulate as depicted below.
Profitable products, that’s definitely an objective. And high customer satisfaction, implying that customers will likely remain loyal and with a reasonable willingness to pay over time, which is vital for long-term profitability. Lastly, product profitability should be achieved as fast as possible, which imply that both time to market and take-up rate are important.
Now, from objective to actions. What are the most vital success factors to achieve the stated objective?
Success factor # 1: Understanding your customers
The importance of understanding the customers cannot be overstated. As I wrote in a previous blog post (currently only available in Norwegian), most (!) companies operate without clear and well-defined understanding of true customer needs, what their customers actually value the most and the least, what they are willing to pay for and what would make them stay loyal. And, even if these factors are well understood, the ability to build and execute a competitive strategy is often lacking. So potential competitive strengths never materialize in the eyes of the customer.
Clearly, you can forget about profitable products if you do not understand your customers. So why are not customer buyer values and competitive strategies top themes of most innovation seminars? And why do so many product development projects actually take place without significant customer involvement?
Success factor # 2: Strong product management
I guess you did not see that factor coming as my prioritized #2. But in my view, the lack of proper organization and well-defined product management processes is an extremely typical cause of inability to bring even excellent product ideas to the market. Without an owner nothing is going to happen after the initial brainstorming. And even with a well-defined product owner, most required actions will not take place unless the processes are in place to get beyond the idea stage. Make sure the product owner is not merely a ‘technical’ one, but in fact measured on all 3 components of my initial objective: profitability, time-to-volume and customer satisfaction.
And with ownership and customer understanding in place, we can start moving.
Success factor # 3: Ability to identify and focus on the best product ideas
This factor is probably the most obvious, and already covered by my own product idea evaluation checklist as well as by most articles about innovation. But I still want to underline the word focus. Far too many companies try to develop too many product ideas at the same time. Try to avoid that pitfall!
So now we have a deep understanding of customer needs, strong and clearly focused product ideas, and management and processes in place to move forward. What could possibly go wrong?
Success factor # 4: The right product architecture
What happens when you move from the stage of product idea into deeper analysis, design and engineering? Different people take over. So we must make sure we create a handover where the new people really understand what’s vital. And do we manage that? Rarely.
I’ve worked a lot with software products and software development, and seen so many glitches in handling over the product’s competitive strategy and cost requirements from the idea phase to design and implementation. Quite often, the few unique selling points get buried under hundreds of pages of functional requirements and detailed design specifications, implying the projected competitive strengths will never be achieved. And what about critical requirements for time usage and operational costs, e.g. for setting up a new customer or user once the solution is operational? Often such requirements are not even covered by the requirements specification! So even if we reach a certain level of competiveness in the eyes of the customer, we may not make money.
Normally, there is no easy way to ‘tune’ a product architecture once products have been built and launched based upon that specific architecture. It’s like building a house: You better find out whether you need an elevator before you have already built the first three floors. It is not impossible to redesign afterwards, but it is extremely expensive and time consuming. And often you are better off scratching whatever you built and start with blank sheets of paper.
Success factor # 5: Strong project management
This success factor is also rarely on the radar of the ‘innovation people’. But true innovation is not about generating ideas, but about execution. Ideas are not very valuable unless they are properly implemented, which brings me to the hard disciplines of managing time and costs, benefits and risks, team members, contractors and vendors, issues and requirements, tasks and milestones. And all the other good stuff related to project management. Project management? Yes, proper product development requires heavy involvement across typical boundaries between departments and business areas. So the project form is nearly always better than implementation through a line organization.
Managing product development projects is not extremely different from managing other projects. But there are a few vital add-on points: First, make sure the scope of the project does in fact cover all required tasks to successfully launch the product, not only the technical engineering tasks. Secondly, make sure that you periodically measure project status according to the same criteria that were used to give the initial go for the product.
So if you use my product idea evaluation checklist to create the foundation for a go/no-go decision, use the same checklist to evaluate project status at certain intervals during project execution. This will help you keep the project on track, not only in areas like time and cost, but also regarding projected market potential, profitability and competitiveness.
Success factor # 6: Support for customization
Unless you have worked heavily in the software business, you probably would not put this factor on your short-list. But I have seen so many examples where the rate of innovation trends towards zero (and maintenance cost skyrockets) due to inability of separating changes to the product core from customer specific customization.
In a previous blog post (also only in Norwegian), I wrote about the fictional software companies BigSoft and SmallWare, and the need to evaluate both consumer needs and the needs of large accounts to find a proper balance between cost effectiveness, scalability and support for customization. I have seen may BigSoft’s that did not get this right, with the consequence that they have to maintain nearly as many product versions as there are customers.
Getting the customization issue right actually has to do with most other success factors. It is related to understanding which customer needs are customer specific, and which are ‘generic’. It is about building a product architecture that enables customization. And it’s about the way customer projects are run and how different customer groups are involved in regular product development projects.
Bringing it all together
So here we are. Handling these 6 factors well does not guarantee success. But it is a long step in the right direction.
And it will certainly help bringing the innovative ideas out from the boardrooms, brainstorming teams and speaches – and in the direction of the customers.