Managing Risks in Product Development
Staying competitive in the world of business is vital to every company, especially if it hopes to grow and expand, instead of just earning a decent profit from period to period. To achieve competitiveness, a business must always stay ahead of the game in various aspects, such as marketing, personnel management, and production management. Needless to say, product development is also an area where businesses, particularly those engaged in manufacturing, should focus on if they want to make sure that they stay ahead of the competition and will always have something new and fresh to offer to their market.
In this article, you will learn about 1) a basic introduction to product development, 2) the importance of product development, 3) stages of product development, and 4) risks associated with product development.
PRODUCT DEVELOPMENT INTRODUCTION
When you say product development, you are likely to immediately think about new product development. You wouldn’t be wrong. However, that is not all there is to it.
Product development is, simply put, the creation of new products, or products with new features or specifications that offer added or entirely new benefits to end users. It may involve:
- Formulation of an entirely new product that will meet the demands of a new market niche, or satisfy newly defined wants or needs of the target market; or
- Modification of an already existing product.
However, product development is not limited to the design and creation of the products alone; it also covers the marketing of the new products that have been developed. This means that product development is such a broad field, it covers the whole process, from coming up with an idea of a new product or product innovation, putting it through the production process, and getting the finished new product to the market.
Unfortunately, it cannot be said that product development is simple or straightforward. It takes a lot of dedication and commitment, not to mention a lot of resources on the part of the business. The business should be willing to spend money and spend a lot of time on it. Aside from paying attention to the customers and their needs, there is also a need to keep an eye on your business rivals or competitors. The whole process of developing a new product must be carefully thought through, which means it entails a lot of planning.
IMPORTANCE OF PRODUCT DEVELOPMENT
Let us talk about the reasons why all businesses should be serious about product development.
- To maintain competitiveness. This has already been briefly touched on earlier: in order to keep up with the competition and the constantly increasing and evolving needs of your customers, there is a need to keep coming out with new offerings. It is important to see to it that the business has a steady flow of new products, and that is where product development comes in. This is considered to be the main reason why product development is given a lot of attention by businesses.
- To maintain or increase the flow of income. This is just common sense: in order to ensure that the company will have a steady inflow of cash and a stream of revenue or income, it has to be ready to give its customers what they need.
STAGES OF PRODUCT DEVELOPMENT
Here are the main stages generally used in the product development process.
- Research Phase. Product development starts with the customers. What do they want, and what do they need?
- Spec Phase. From the answers gleaned in the first phase, you will be able to come up with product specifications, or the specific features that the product must have.
- Design phase. This is where the product is designed, in accordance with the specifications listed earlier. This is also where costing takes place.
- Testing phase. This could be one of the several pre-launch stages. Create a prototype or a pilot version of the product for testing or trial runs. This is the phase that may be repeated over and over until they get the product right.
- Final launch. This is where the new product is finally rolled out to the market.
RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT
There is one fact that is overlooked by many that are engaged in product development: not all product development projects are the same. Depending on several variables – such as the nature of the business, the type of products, the current state of the market and the economy, to name a few – that will greatly affect how a project development project will go. What worked for one business does not necessarily make it effective in another, and vice versa.
With that being said, it is safe to say that product development is not without its risks. Businesses that are engaged in product development processes are bound to be faced with these risks, and it will be up to them how to manage these risks so as not to hamper the future plans of the business for growth and development.
Risk #1: The new product may not be what the customers want and need.
This is considered to be the main risk faced by businesses when it comes to new product development.
This risk is higher when you base your ideas for a new product merely on a whim, or without conducting enough market research. Businesses that are not in touch with their customers are also likely to suffer from this. For example, a business may decide to come up with a new product simply because they got hold of a new technology for it. Just because you can do it does not mean you should.
One problem often encountered by product developers is deciding on what features must be included in the product. There is that fine line between a product having too little features and having too much. The first one may be deemed too simple by customers while the second one turns them off for their complexity. There is a need to pinpoint exactly what these relevant features are.
How to manage it:
- Get to know your customers and keep yourself updated on any changes in their needs and preferences. Conducting periodic market research will help minimize this risk.It would also be a good idea to involve a specific group of customers as your source of feedback.
- Produce a product prototype and perform a series of product testing. Start with testing the product within the company. Then test the product with a select group of customers.There are two main reasons why it would be a good idea to build a working prototype:
- To check if the product works, or does what it is designed to do.
- To assess customer reaction to the product, especially on how it looks, how it feels, and how it functions.
Risk #2: The product development process may involve technical hurdles and operational risks that must be overcome.
The business may be developing an entirely new product that will provide new and better benefits to customers. It may also decide to modify its existing product by adding new features that will make it more appealing to the market. In these cases, it is probable that there will be technical processes that will have to be performed. These include the need for new technology or even new tools, machinery or equipment.
It is also inevitable, in most cases, that they have to deal with operational risks. For instance, there may be components that have to be supplied on a regular basis, and sourcing these materials can be a problem. There may also be problems regarding transporting these materials.
How to manage:
- Choose the right people to be in the product development team. The people tasked with developing the new product must have all the relevant skills and knowledge, especially regarding the technical aspects that will be required in developing the product. It is often advised that the team be composed of all areas or departments of the business, from production to marketing and finance.
- The objectives of the product development team must be clear to everyone involved. Be prepared for any glitches or setbacks.
- Draw up a timetable for the completion of the product development process, and schedule a regular or periodic review.
- Hire experts or get help from outside. Many companies avail of the services of technical personnel in order to facilitate the development of new products.
Risk #3: Product development always comes with a financial risk.
You can never do away with this risk when developing a new product. It is possible that the new product that you have developed will not be able to generate enough demand at a price that will bring profit for the business. The cost of production, as well as the costs of marketing the product, may not be covered by the selling price.
The high utilization of resources during the product development stage is also a downfall for most companies. Under the assumption that they will get better results if they throw more resources into the project, they will end up spending more than they should have. Thus, costs become unreasonably high.
How to manage it:
- Agree on an overall budget for the various parts of the project and make sure they stay within the limits.
- When preparing the budget, work with the core team responsible for developing the product, since they are the ones most knowledgeable about the costs that will be incurred.
- Employ strategies to reduce production costs for the new product, such as:
- Find ways to simplify the manufacturing process. If the assembly process is too complex, look for ways to work around it and make it simple, without sacrificing quality. One way to do this is to consider subcontracting part of the work, or buy parts that have already been partially assembled, cutting down a couple or more phases in the production process that you will have to perform.
- Look for alternative parts or components. Find components that are of the same quality, but with a cheaper purchase price.
- Look for other sources that offer these components at a lower price. Do not stick to just one potential supplier; shop around and compare prices.
Risk #4: Sticking to only one development plan may lead to losing other, better, opportunities.
Businesses tend to stay within their comfort zone. Why fix something that is not broken? Why step into unknown territory when we can stay in one place that has already worked out for us? As a result, they tend to have tunnel vision and put everything they have on that one, single, plan.
How to manage it:
- Conduct in-depth study of features. Identify what features may be added, and proceed on evaluating them, to be left with a shortlist of the relevant features. Engage the participation of key customers in this study.
- Perform testing, even if it has to be repeatedly done, and proceed on reworking or tweaking the product design, until such time that it is found to be satisfactory.
Risk #5: Conducting product development projects in an ill-timed manner.
There is the risk of starting a product development too soon. It could be that the preliminaries have not been set up yet, or that market research has not been completed yet, and the company immediately proceeded towards developing a new product. It could also be that the company is still in the middle of pre-launching a new product, and it is already starting another one.
Prematurely starting developing a product without getting all the bases covered is a sign of poor planning, and we all know that poorly planned projects are doomed from the start. Another possible result of this is spreading the resources of the company too thinly, and the business will suffer if it will start pouring its resources on another project while the previous one has not yet provided any returns to recoup the amount of money spent on it. One new product may also face delays if there is another “player” in the scene, sharing the resources.
How to manage it:
- Establish a reasonable timetable, and don’t rush. This is to control the rate or pace of implementing projects.
- Make sure everyone in the organization is aware of the objectives of the company and what their priorities are.
Managing risks in product development can be summed up in a few points:
- Gather sufficient information by conducting market research. Focus on getting data on customer demand and pricing.
- Always keep abreast of what is going on with your customers, suppliers, and competitors.
- Make sure that the core team responsible for product development has the skill sets and qualifications that are aligned to your objectives.
- Keep tabs on the risks by constantly monitoring the progress of the product development.
The best way to manage these risks, however, is to be proactive. Make sure that you identify what the risks are, and take action before they fully affect the whole project adversely. It will not do you any good to just act when the problem has already grown so big. You’ll only end up “putting out fires”, spending your resources on damage control instead of investing them on the new product.
In this article, you will learn 1) why it is important to have a good tax advisor for your …