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Management of Technology Lesson 3

Innovation and New Product Development

OBJECTIVES
Product

Development Process Designing for the Customer

Design

for Manufacturability Measuring Product Development Performance Economic Analysis of Development Projects

New Product Development

Renovation renewal of old product, may be an incremental change. Innovation ideas applied successfully in practice to make a substantial and positive change for the better.

Invention an new idea is made manifest

Innovation
innovation

generally refers to the creation of better or more effective products, technologies, or ideas The goal of innovation is positive change, to make someone or something better. Innovation and the introduction of it that leads to increased productivity is a fundamental source of increasing wealth in an economy.

Schumpeter and Innovation

Joseph Alois Schumpeter
(8 February 1883 8 January 1950) Austrian American Economist and political scientist.

Identified innovation as the critical dimension of economic change. Economic change revolves around innovation, entrepreneurial activities and market power

Theory of Business Cycles

Circular flow in the economy when there are no innovative activities leading to a stationary state and an equilibrium. The entrepreneur disturbs the equilibrium by introducing innovation in the product attributes, new applications etc or cheaper, better raw material, more efficient conversion process etc on the supply side. The market economy changes to a cycle on a different plain with different players.

Product selection
Product Mix Selection of products we desire to produce Factors to be considered

Sales reports, forecasts Design Specifications Product characteristics Relation to other products/models Type of labour force available Financial resources Space limitations Availability of Raw materials Availability of processes

Product selection Process

Continuous

activity Search, screen, develop, commercialize New products, modify existing lines, phase out the marginal or unprofitable lines. Idea Generation sources
Organized consumer, laboratories, work place (in the field) scientists and technologists Unorganized from any where competitors, salesmen, distributors, consultants, bankers, administrators etc.

Idea Generation
Creativity

can be learned Work is play, Brainstorming is a science, Most important rule is to break the rules Dont say Yes, but Say Yes, and

Idea Generation
Special

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techniques

Attribute listing Morphological analysis Brain-storming session Delphi method Problem inventory analysis

Brainstorming
Defer judgement Build on ideas of others Stay focused on topic One person at a time Go for quantity 150 in 30 to 45 minutes Encourage wild ideas Be visual; e.g. sketch ideas to help others understand them

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Product selection process

Screening

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critical evaluation of ideas

Feasible ? Suitable ? Viable ? Satisfy consumer needs ? Generate sales volume ? Profitability ? Objectives of the company?
Methods

of screening

Check-list Rating method

Product selection process

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Detailed business analysis

Break-even analysis Discounted cash flow Risk analysis

Product development
Prototype development Drawings and designs Testing Pilot production Field trials Test marketing commercialization

Product Development and Design

Customer

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requirements ranked in order of importance Technical specifications evolved Involve customer into design specifications - Quality Function Deployment

Product design Process

Design

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and Manufacturing outsourced

Core

competency characteristics

Provides potential access to wide variety of markets It increases perceived customer benefits It is hard for competitors to imitate.

Typical Phases of Product Development

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Planning Concept Development System-Level design Design Detail Testing and Refinement Production Ramp-up

No 0

Product Development Phase Input Output Process

Planning Corporate strategy, technology development, Market objectives Project mission target market, business goal, key assumptions, constraints

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Concept Market needs, development alternative concepts, evaluation, select and short list for further development and testing System Level design

Product concepts with each giving form, function, features of product, set of specifications, analysis of competitive products, economic justification

Define product architecture, sub-systems, components, final assembly scheme. Provide geometric layout, functional specification of each subsystem and preliminary process flow diagram for final assembly.

Product Development (continued)

No Phase
3 Design details

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Input
Unique parts - Complete geometric specification, materials and tolerances. Identify all standard parts. Process plan and tooling for each part to be manufactured in-house

Output
Drawing of each part and toolings for manufacture, specification of purchased parts and process plans for fabrication and assembly of product.

Testing and Refinement

construction and evaluation of multiple preproduction / prototype versions - manufactured to the same size and material specifications but not with the same production process to be employed. Prototypes tested to see whether the product will work as designed and will satisfy customer needs.
Product is made using intended production system to train the workers and work out remaining problems in the production process. Products sometimes supplied to preferred customers to evaluate and identify remaining flaws. Gradual transition from ramp-up to regular production. At some point the product launched and available for widespread distribution.

Production Ramp-up

Variants of Generic Development Process

technology

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push products, platform products, process intensive products, customized products, high-risk products, quick build products and complex systems.

Development Process
Process Type Description Distinct features Examples

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Market pull (Generic)

Begin with market Process includes all opportunity. Select phases appropriate technology to meet customer needs
New proprietary technology finds appropriate market Planning involves matching technology and market. Concept development assumes proven technology.

Sporting goods, furniture, tools

Technology push

Teflon sheet insulation for cables, artificial veins, fabric for outer wear, dental floss PVC - foot ware, tiles, coatings, bags Polaroid film, Apple operating system, transport mechanism of walkman,

Platform Products

Built around preexisting technological subsystem

Similar to Technology push. But platform has already demonstrated its usefulness to customers. simpler to develop.

Development Process
Process Type Process Intensive Description Characteristics constrained by production process. Produced at high volume Slight variations of existing configurations Technical or market uncertainties with high risk of failure Rapid modeling / prototyping many design build test cycles Decomposed into several subsystems and components Distinct features Existing process specified or both product and process to be developed from start Examples Breakfast cereal, noodles, designer paper

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Customiz ed Products High risk products Quick build products Complex systems

Streamlined and highly structured process Risks identified and tracked during development. Early analysis and testing Detail design and testing phases repeated till budget runs out Subsystems built by many teams in parallel followed by integration and validation

Motors, switches, batteries, containers Pharmaceuticals, space systems Software, cellular phones

Airplanes, jetengines, automobiles

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Economic Analysis of Project Development Costs

Using

measurable factors to help determine:

Operational design and development decisions Go/no-go milestones

Building

a Base-Case Financial Model

A financial model consisting of major cash flows Sensitivity Analysis for what if questions

Designing for the Customer

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House of Quality

Quality Function Deployment

Ideal Customer Product

Value Analysis/ Value Engineering

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Designing for the Customer: Quality Function Deployment

Interfunctional teams from marketing, design engineering, and manufacturing Voice of the customer
House of Quality

Designing for the Customer: The House of Quality For Car door
Correlation:
X X X X

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Water resistance

Energy needed to close door Door seal resistance Check force on level needed Energy ground open door to Accoust. Trans. Window

Strong positive Positive Negative Strong negative

X = Us A = Comp. A B = Comp. B (5 is best) 1 2 3 4

Customer Requirement s Easy to close

Engineerin g Characteris tics

Competitive evaluation

X X AB

AB

Stays open on a hill 5

Customer requirements information forms the basis for this matrix, used to translate them into operating or engineering goals.
The McGraw-Hill Companies, Inc., 2004

Easy to open

XAB A XB X A B

Doesnt leak in rain 3 No road noise 2 Importance weighting Target values

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Reduce energy level to 7.5 ft/lb Maintain current level

Reduce force to 9 lb. Reduce energy to 7.5 ft/lb. Maintain current level Maintain current level

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Relationships:
Strong = 9 Medium = 3 Small = 1

Technical evaluation 4 3 (5 is best) 2

1

B A X

BA X

B A X

B X A

BXA

BA X

Designing for the Customer: Value Analysis/Value Engineering

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Achieve equivalent or better performance at a lower cost while maintaining all functional requirements defined by the customer Does the item have any design features that are not necessary? Can two or more parts be combined into one? How can we cut down the weight? Are there nonstandard parts that can be eliminated?

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Design for Manufacturability

Traditional

Approach

We design it, you build it or Over the wall

Concurrent

Engineering

Lets work together simultaneously

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Design for Manufacturing and Assembly

1.

2.

3.

Greatest improvements related to DFMA arise from simplification of the product by reducing the number of separate parts: During the operation of the product, does the part move relative to all other parts already assembled? Must the part be of a different material or be isolated from other parts already assembled? Must the part be separate from all other parts to allow the disassembly of the product for adjustment or maintenance?

Measuring Product Development Performance Measures Performance Freq. Of new products introduced Dimension
Time-to-market

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Time to market introduction Number started and number completed Actual versus plan Percentage of sales from new products

Productivity

Engineering hours per project Cost of materials and tooling per project Actual versus plan Conformance-reliability in use Design-performance and customer satisfaction Yield-factory and field

Quality

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Typical Costs of New Product Development

Development

cost ( design, testing and refinement cost up to production ramp-up) Ramp-up cost Marketing and support cost Production cost Sales revenue

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Analysis of development Costs

Estimate

time and magnitude of future cash flows and then compute

NPV (Net Present Value).

Inputs

- Project schedule, Project Budget, Sales volume forecast and estimated production costs

Sensitivity

analysis to understand

trade-offs What If questions to consider changes in factors considered.

Example
Product

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Development of CI700 photograph printer Polaroid Corp. Take more time top develop product for multiple computer platforms? is delay to market too costly? Increase development spending to increase reliability of product? Economic analysis can evaluate those factors which are measurable.

Useful in Go/No Go milestones Should we develop product for new market opportunity? Should we proceed with implementation of selected concept? Should we launch the product we developed? Operational Design and development decisions Do we spend Rs 100,000 to outsource component development and save time? Should we launch product in 4 months cost 450 or wait 6 months when cost can be reduced to 400?

Economic analysis

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Interest Rate Effects Effect of interest accumulation The effect of interest accumulation can be counted in two ways 1 Compute value over the time period into the future as the compound value 2 Reduce all future sums to present day rupees or the present value Value of Rupee 1 at 10% interest after 3 years is Rs 1.331. Value of Rs 10 is 13.31

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Interest Rate Effects

Compound

value of an annuity Annuity is the receipt of a constant sum each year for a specified number of years. Usually it is received at the end of the year and does not earn interest in that year.
Receipt at end of year Compound interest Factor (1+i)n (1+0.05)2 (1+0.05)1 Value at the end of third year 11.02 10.50

Year

1 2

10.00 10.00

X X

10.00

(1+0.05)0
Total

10.00
31.52

 Present

value of a future payment Present value is used to determine the current value of a sum or stream of receipts expected to be received in the future. A rich uncle offers you a gift of Rs 100 today or Rs 250 after 10 years which would you choose? Assume rate of inflation in the economy is 10% per year. Compound value V = P (1+i)n Present value of Rs 250 is 96.39

Interest Rate Effects

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Present

value of an annuity value of an annual amount to be received over a future period expressed in terms of the present Rs 100 received annually for 3 years.
Amount Received at the end of year 100 100 100 300 X X X Present Value Factor at 10% 0.909 0.826 0.751 Total Present Value 90.90 82.60 75.10 248.60

Year 1 2 3 Total

Polaroid CI -700 Cost Estimates Amount Rs

Development cost
Ramp-up cost Marketing and Support cost Unit production cost

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5,000,000
2,000,000 1,000,000 / Year 400 / unit

Sales and production volume

Unit price

20,000 units / year

800 / unit

Assumption : All revenue and expenses of prior dates are sunk costs