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Operations Strategy – Student Study Guide
CHAPTER 12
PRODUCT AND SERVICE DEVELOPMENT AND
ORGANIZATION
Introduction
The development of new and innovative products and services is clearly of
tremendous importance to most organizations. Without a stream of appropriate
innovation a company leaves itself vulnerable to having to react to however its
competitors decide to innovate. In fact many authorities would disagree with our
decision to cover the topic in just one chapter and as part of operations strategy at all.
They would say that new product and service development is one of the three major
processes that any organization must master in order to succeed (the other two of
course being operations and marketing). We would agree with this. In fact, it is
because the topic is so important that we include it within our broad treatment of
operations strategy; it is not that new product and service development is a subset of
operations strategy, rather it is that no operations strategy could regard itself as
complete without an understanding of how it interrelates with new product and
service development strategy. The way have decided to treat the subject is to look at it
through an operations strategy “lens” and explain it in terms of one of the models we
introduced earlier – the operations strategy matrix. Most of the chapter is devoted to
developing that particular perspective. However, prior to that it discusses the
relationship between new product and service development and process development.
Key points

While the development of new product and service ideas has always been a
significant activity in most companies, it is getting more important. The chapter
opens by looking at some of the reasons for this, and more importantly, dividing
them into those which are based on an operations resource perspective and those
which are based on a market requirements perspective. It makes a compelling
case. But consider that the case is made particularly compelling by describing it in
operations strategy terms. In other words, because product and service
development is itself a process, it can be analyzed using operations strategy
models.

Following on from the point above, the chapter uses a similar calibration of the
degree of product or service change to that which was used when describing
process change. Although this calibrated scale, which again moves from
“modification, through extension and development to pioneer” is described as a
four-stage process; it is, of course, a continuum.
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Operations Strategy – Student Study Guide

Product and service development and process development should be considered
together. The box that describes the development of the ballpoint pen illustrates
the obvious but important point that attempting extensive product or service
change at the same time as extensive process change increases the degree of
difficulty.

Don’t ignore the theory box on modular design and mass customization. Both are
significant developments, both are interrelated, and both have done much to
overcome the trade-off between cost and variety in new product and service
design. For example, think of the way ordinary domestic paint is now sold.
Whereas some years ago a paint company would develop a range of colors,
manufacture those in its factory and distribute them as separate products to the
retail stores, much paint is now sold “made to order” in the store itself. The
customer simply chooses a color from an incredibly wide range of alternatives and
the paint is mixed there and then. This is only possible because each color is
comprised of a defined set of “modules” of component colors. This “recipe-based”
approach allows a degree of mass customization because a relatively small
number of “modules” or colors can be mixed together in a far wider variety of
ways.

The chapter devotes some space to explaining the various stages of new product
and service development. Here it is important to remember the warning given in
the text that, although many organizations have a model that looks like the stages
described in the chapter, it is really a huge simplification of reality. Stages will
merge with each other and the process will often cycle backwards and forwards.
So, don’t think of this as a prescriptive set of steps but rather a description of the
activities that, in some order, generally take place during the new product and
service development process.

Think about the overall design process as progressively filtering out potential
designs and thus reducing uncertainty, until the final design is reached.
A market perspective

The design activity is itself a process that can be judged in the same way as any
other operations process, that is in terms of quality, speed, dependability,
flexibility and cost of the designs or development ideas that are produced.

All the five generic performance objectives are important, but in recent years there
has been an increased emphasis on the speed of new product and service
development.

This speed issue is often referred to “time-to-market”. That is, the time between
the original concept and the product or service starting to earn revenue in the
marketplace. It is an important performance measure and in most industries is
getting shorter.
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Operations Strategy – Student Study Guide

Later in the chapter several determinants of fast time-to-market performance are
identified. But the main ones are generally held to be;




simultaneous overlapping of development phases (sometimes called
simultaneous or concurrent engineering);
the early resolution of design conflict;
project-based organization structures.
The financial consequences of fast time-to-market are best illustrated by the figure
shows that a delay in launching a product or service usually means a far longer
delay in the financial payback from that product or service.
An operations resource perspective

The four general categories of operations strategy decisions (capacity, supply
networks, process technology and development and organization) are all relevant
(and indeed important) in managing the new product and service development
process at a strategic level.

Capacity is particularly interesting. The issue here being that, unlike the day-today production of products and services, demand for new designs is not always
smooth. This “lumpiness” in demand can lead some companies to be reluctant to
invest in development capacity – often a mistake.

The idea a product and service development network (a similar idea to a supply
network) is a useful way of thinking about whether any organization should
develop products and services themselves or subcontract the activity. Occasionally
organizations do subcontract all their new products and service development
activity (book publishers an obvious example!) but generally it is a question of
how much development activity to subcontract, if any at all.

An interesting development that is likely to get more important is the issue of
involving customers in the development process. For example, the Boeing 777
aircraft development famously included several of the large airlines during its
development process.

The idea of process technology in the product and service development process is
a relatively recent one. In manufacturing, computer-aided design (CAD) only
became common during the 1980s. Defined more broadly, process technology
includes such things as knowledge management technologies, expert systems and
simulations. All of these are becoming common in the design of services.
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Operations Strategy – Student Study Guide

One of the areas that has attracted considerable interest has been the organization
and development aspects of new product and service development. This interest
started in the late 1980s when several authorities began to identify the advantages
of dedicated project teams to manage the development process. Prior to that
development had often been organized in a functional manner with responsibility
being passed from one function to another in some kind of pre-planned sequence.
This process became known as “throwing the design over the wall”. In other
words, after one function has finished with the design, it merely passed it on to
another function without significant communication. The concepts of
simultaneous engineering and overlapping development between design phases
clearly required a new approach.

In fact, as the chapter identifies, one can imagine a spectrum of organizational
design between pure functional organizations to pure project organizations. There
has been a general more towards increasing project orientation.

The general problem in organizing new product and service development can be
illustrated by reading the box “….. but then Netscape changed”. This box briefly
discusses the issue of how some aspects of creativity can be sacrificed as markets
demand faster and more efficient new product and service development processes.
Hints on answering the Project Orlando at Dreddo Dan’s case
exercise

This case exercise covers many issues found in new product and service
development projects. In particular the case examines a new type of product that is
to be launched in an uncertain and unpredictable market and which also carries
some development risks. Above all, the project is a significant development for
the company with both the potential for major competitive benefits and some
downside risk.

Think about the degree of change, both in terms of the product itself and the
process that will make it, this project implies for the company. What implications
does this have for the company?

Think about the performance objectives for this project. Start with the five generic
performance objectives (quality, speed, dependability, flexibility and cost) but
adapt them and introduce new ones if you think it is appropriate.

What are the major decisions that the company faces and how do these relate to
the four conventional operations strategy decision categories of capacity, supply
networks, process technology, and development and organization?

At this point you should be able to draw an operations strategy matrix that
articulates the key issues for the company.

Use the matrix to make recommendations to the company.
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