Product Development and Productivity - Principles of Management

The creation and commercialization of new products form a central mission in many organizations. Indeed, without a powerful new product development engine, many businesses would ultimately go into decline as their products are made obsolete by the advances of others. Computer companies, wireless phone companies, and consumer electronics concerns must regularly produce smaller, better, cheaper, faster new products—or lose market share.

Automobile companies have to develop new models and update their old ones—or lose share. Pharmaceutical companies have to develop new drugs to replace those that come off patent and go generic, or their growth will falter. Frozen food companies must produce better food that contains superior ingredients, tastes good, and can be prepared easily—or lose share to competitors.

Breakfast cereal companies have to develop new brands to increase their market share, as Kellogg’s has recently done with its new varieties of Special K that contain freeze-dried fruit. Nor is it just manufacturing companies that must develop new products. For example, one way that financial institutions compete is by developing new financial products that they can use to attract business, as Merrill Lynch did in the early 1990s when it created the first cash management accounts that combined a traditional brokerage account with the features of a checking account to give customers greater financial flexibility. In short, creating new and better products is how many firms differentiate their offerings from those of competitors and gain competitive advantage.

Product development is so important for so many businesses that we devote a significant part later for discussing the product development process and what managers can do to manage that process effectively and efficiently. Here we note that if a firm wishes to increase productivity and reach the efficiency frontier in its industry, it must design products that can be manufactured easily.

Design for manufacturing is a philosophy that tries to increase productivity by designing products that are easy to manufacture. For example, by cutting the number of parts that make up a product, R&D can dramatically decrease the required assembly time, which translates into higher employee productivity, lower costs, and higher profitability. After Texas Instruments redesigned an infrared sighting mechanism that it supplies to the Pentagon, it had reduced the number of parts from 47 to 12, the number of assembly steps from 56 to 13, the time spent fabricating metal from 757 minutes to 219 minutes per unit, and unit assembly time from 129 minutes to 20 minutes.

The result was a substantial decline in production costs. In another recent example, Toyota took a close look at the grip handles mounted above the doors inside most cars. By working closely with suppliers Toyota managed to reduce the number of parts in these handles from 34 to 5, which cut procurement costs by 40 percent and reduced installation time from 12 seconds to 3 seconds.

Design for manufacturing requires close coordination between the production and R&D functions of the company. R&D and production personnel have to work concurrently on product design issues so that production issues are foremost in the minds of product development engineers when they design new products. The creation of cross-functional teams that contain production and R&D personnel who work jointly on design problems is a popular way of achieving this.

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