Monday, January 26, 2009

Involve customers in new product development.

A 1989 McKinsey study showed that products that got to market on time and 50% over budget eventually earned only 4% less than those that were on time and on budget. Products that got to market six months late and on budget earned 33% less than those that were on time and on budget. In a fast changing world, it’s especially important to get new products and services into the marketplace as early as possible rather than waiting to perfect them. Once they hit the market, no one can anticipate where that will lead or whether they’ll succeed or not. Sanctioning experiments with uncertain outcomes is the best way to make progress quickly. The penalties in being late to market in a growing business far outweigh overruns in development costs or the potential waste of having to shut down a development team. Strategies that move organizations in the right direction can be quickly refined through rapid experimentation and adjustment when managers concentrate on failing and learning faster than the competition. Every new product decision has two parts. First you make it, and then you decide to continue it or change it.

As the president of a hi-tech company explained to me recently, “We’re making products daily that are still evolving, delivered to a market that’s still emerging, using a technology that’s still changing on a daily basis.” In uncertain times, much of the route forward may be invisible from the starting point. The only way to see the road ahead is to start moving because clarity emerges more readily from error than from confusion. In a business environment where progress depends on serendipity and spontaneity, high risk and high rewards go hand-in-hand. In many organizations, however, the quest for efficiency drives out opportunities for experimentation. This is a mistake. The quick rise of Casio and Sharp in hand-held calculators and of Ricoh, Canon and Sharp in plain-paper copiers came largely from launching more new high-quality products that the competition did. Time-to-market is as important for success as proprietary technologies and processes. If you wait to move until everything is certain, you can be sure your competition will get to market before you.

Business and product development strategy should be driven primarily by customer needs, values and priorities. Ask, “How do the customers we’re targeting want to deal with us?” Then design the product from the outside in. Make the customer’s use of the product, not the technology, central to all product development. Employees need to develop an instinctive understanding of target customers. Don’t launch a product just because engineering loves a new technology. Consult target users at every step of the way, from the initial idea stage to the actual rollout. Customers don’t want drills; they want holes. Strive to move customers into the design arena, making them part of the design process, developing them into “prosumers” rather than just accepting them as consumers. Success comes not from satisfying customers, but from keeping customers reasonably dissatisfied with what they have so they’ll welcome new products.

In high technology companies, the products are complicated and the people who use them often know as much about how the products work as the people who develop them. Researchers at MIT found that 77% of the innovations in equipment used to make semiconductors and circuit boards came from customers. As technologies become more complicated and users more sophisticated, customers are no longer the passive recipients of a company’s products but the engines of innovation instead.

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