anatomy of the NPD model, how it all works
Our business is contract product development, industrial design, assistance in putting products into production.
We work with a wide variety of products: electronics, mechanical engineering, pharmaceuticals, furniture, food products, FMCG, machine tool manufacturing, transport, rehabilitation equipment, IT, banking and insurance products… – the approaches to creating all products are very similar, so we deliberately avoid product specialization, and attract subtle competencies in the form of external teams.
For work and training purposes, we visit many companies in Europe, North America, and Southeast Asia, where the processes of creating and launching new products are set at a highly efficient level.
We helped some clients build NPD* processes and organizational structures; we are talking about companies that, after working with us, wanted to build effective product processes within their companies.
NPD* – (New Product Development) / New product development is an established term used to denote the full cycle of creating and launching a new product on the market, from the birth of an idea to the beginning of the commercialization of the product. NPD includes the following processes:
– generation of new product ideas;
– development of a new product concept;
– development of a business model for a new product;
– product testing at all stages of development;
– creation of industrial design of a new product;
– engineering design;
– putting the product into production;
– launching the product on the market.
The illustration below shows the reference organizational structure of a product company; it reflects the general principles of distribution and interaction of departments involved in the processes of creating and launching new products.
This organizational model is a summary of the results of our research into companies strong in product creation, which we were able to delve into, as well as projects with our clients, where we participated in building NPD processes.
The basis of an effective organizational structure of a product company is the following role model:
1st role – someone must be the initiator of the product creation, be responsible for its success or failure, this someone must determine the properties of the product, check the product for economic viability, evaluate the marketing potential, and he is also responsible for financing the product project – this is a product manager (PdM).
The number of product managers in a company is determined by the number of product groups; with the emergence of a new product group, a new product manager appears in the company.
In small and medium-sized companies, product managers report directly to the CEO; in large companies, the director of development often takes on the management of product managers.
The main KPI of a product manager is the marginal income of the product group he manages.
2nd role – someone must transform the ideas about the new product, which product managers formulate in the form of a brief, into a construct – determine how exactly the product will perform its functions, interact with users, what technologies it will be built on…, this same role involves the production of prototypes, the development of design documentation, the selection of components, ingredients… – and these are the developers (on the R&D diagram).
In instrument making, mechanical engineering, furniture industry… R&D includes industrial designers, designers-developers (mechanics, electronics, programming, optics…), a prototyping section or a pilot-experimental section. It is important to understand that a good designer is a good technologist.
In food products, pharmaceuticals, cosmetology… R&D includes technology developers, designers, packaging designers, and also a prototyping section.
The main KPI of R&D is the timely completion of development projects, as for quality – until the development meets all quality criteria, it is not taken into account in principle.
3rd role – someone must put the created product into production and replicate it, i.e. produce it in accordance with the needs of sellers, with maximum repeatability and compliance with the target cost – This is Production.
The production includes a technology department, production workshops, repair and maintenance services, a division that ensures quality management…
The main role in putting a new product into production is played by the technology department. Their task is to develop technology documentation based on design documentation and, with the participation of the R&D department, to consistently work out pre-production batches, pilot batches, installation batches, and first production batches.
The main KPI of Production related to new products is the speed of putting new products into production.
4th role – someone has to do something to make target customers and users aware of the new product, and to make them want to buy the product – This is Marketing.
In fact, the marketing department is a marketing agency within the company, where the product managers are the task setters and the funding providers.
Marketing KPIs are related to the effectiveness of marketing campaigns and most often boil down to the start of sales of a new product and its growth from period to period.
5th role – someone must exchange manufactured products for customers’ money or create conditions and mechanisms for this – this is Sales.
The key Sales KPI is too obvious to be specified.
Another important quality that makes an organizational structure truly effective is the construction of its divisions in accordance with the principles of strategic business units, i.e. each division is built in such a way that if it ends up outside the company, it can become an independent business capable of earning a profit.
This leads to a model of internal cooperation, where one department acts as the customer and the other as the contractor, which is much more effective than traditional interaction between departments.
