New Product Development | Process, Stages & Strategy Explained

Innovate Your Way to Better New Products.

What is new product development?

New product development (NPD) usually follows a product development process, often divided into stages, phases or steps, by which a company conceives a product idea; refines the definition; designs and develops it; and then brings it to market.

Figure 1: New Product Development Process in Four Steps.
Figure 1: New Product Development Process in Four Steps.

What are the characteristics of successful new product development?

  1. It starts with new product concepts (organization, customers or partners) that fill customer needs
  2. The best new product design concepts are aligned with the product development strategy
  3. The ideas are nurtured by a flexible, light weight process for idea generation
  4. Agile cross functional teams perform the work in the new product development process
  5. The result is a new product that delights customers while growing the business

A product development process includes the entire set of activities through which a company invents, conceptualizes, develops and then launches a new product concept to the market. New product development includes more than process. It also includes innovation, product strategy, cross functional teams, and decision-making.

An innovative new product concept, or idea generation, might originate from customers, or in a lab or a workspace. New product development is the capability that allows a company to realize these nascent product concepts and present them to customers reliably and predictably – but always responding to customer needs.  

In addition to a product development process, NPD also includes such elements as product development strategy and product portfolio management. Often it is performed by cross-functional teams that come together to develop a new product and then disband, with their resources assigned to other projects. 

Most essential to an effective new product process is to have the right governance to select novel product concepts; enough funding to allow these ideas to grow; and a process for vetting and prioritizing them. 

What are the four steps of NPD?

In the past, a product development process tended to have six or seven steps, with lengthy, onerous reviews and gates between each step. For new product development, it is important to highlight the first step (this normally results of product portfolio management planning activities).  These reviews were hoops through which the teams had to pass in order to continue to justify their existence to the managers of the new product development process. 

If the product being considered replaces, or could impact the current set of products on the market, there should be a solid analysis of the product life cycle (and marketing mix) to ensure there is little or no cannibalization of similar products. 

Today’s agile organization can ill afford frequent reviews that don’t add value to products. Companies are better served by having a Minimum Viable Process that emphasizes the front end of innovation that yields truly new products.  

A Minimum Viable Process for a typical (incremental) product development process has three steps. For companies that want to emphasize bold, new products, the product development process can have four major steps, with an additional step in the front end: discovery. This framework template (above) outlines this four-step process for new product development.

Step 0: Discovery (Idea Identification & Idea Screening)

Activities for the Discovery step in the NPD process ensures that new product concept ideas are not only generated but also explored thoroughly (this applies to completely new opportunities that may have come outside the company).  Using effective product discovery techniques can help ensure that there is product-market fit for new product ideas. This is the first step of idea generation – and it should be expansive. 

Although time to market may seem longer by going through Discovery, you will see big improvements if you do step correctly even though it appears to increase development time. Although brainstorming is included in this stage, by no means is it the only source of ideation.

  • Product ideas come from the bottom of the organization upward
  • Greenlight ideas that fit the strategy and where there’s a sufficient market size 
  • Small project teams with broad charters are best suited for new product development
  • The team uses agile methods to refine new product ideas
  • The technology is wrung out and proof points established as an integral part of the new product development process
  • The Product/Market fit is tested

Step 1: Definition (Business Analysis & Concept Development)

Activities for the Definition step of the process ensures that the proposed new product idea is fully explored in the fuzzy front end. 

  • The concept is tested early in the new product development activities and ideas are screened early
  • The team is agile and is free to innovate and iterate to refine the idea generation down to one approach
  • The technology is tested, major risks are identified
  • Projects are staffed properly with the right resources in the early stages of the new product development process
  • Projects are free from anything that impedes fast and iterative development
  • There is a meaningful commercial potential

By the end of this step in the customer requirements process, the team should have a clear leader with entrepreneurial capability. The team should demonstrate to management that the time-to-revenue is foreseeable as demonstrated by early market testing with potential customers, and that the potential market-share is large, and that the revenue potential is significant enough to make a difference to the company to justify new product development.  To compute ROI, the team should also estimate development costs at this stage.

The proposed business model should be adjacent to the company’s overall model and underpin all investments in the new product development process. That means that the business model for the project, and the marketing strategy, should resemble how the company, in general, does business. Market research, competitive analysis, and target market analysis should be performed. At this stage, metrics and KPIs are established to verify the business case and set expectations for the product team.

At the end of this step, the development team has a brief check-in with management to establish the Boundary Conditions for the project and to ensure that the proposed project meets the company’s current strategic priorities. The company now commits the capital to bring through the next phase.

Step 2: Design

Tasks during this step in the product design process include:

  • The technology is vetted in the product concept
  • Architectural design and performance established
  • Agile development continues with sprints and customer feedback as an integral part of new product development
  • Team develops estimates of the full cost of development & launch
  • Commercial potential confirmed and quantified 

By the end of this step in NPD, the team should perform prototyping and have tested models with users to confirm fit with the intended market and marketing strategy. They should have not only identified use cases but also pegged where the solution best fits its market. Test marketing should be complete. The technical and market risks associated with the project should be eliminated or greatly reduced.  Product pricing should be established in order to support the margin requirements of the business.

To move on to the next step, the team also needs to demonstrate that it has finished the basic design, has estimated the costs associated with developing and marketing the product, and has estimated its profit potential in the design stage of new product development. Usually this is summarized in a spreadsheet model, typically relying on standard templates, authored by the Finance group.

During a check-in at the end of this phase, the team defines the product in greater detail, and demonstrates its technical feasibility.  Again, the company must invest the capital, the largest amount to date, to bring the product to launch (this includes product launch costs, too).

Step 3: Development (including Commercialization)

Tasks during the Development step in the process include:

  • Developing the feature-complete product 
  • Performing testing and validation during this stage of the new product development process
  • Refining the go to market plans
  • Developing customer success functions
  • Developing launch plans  

The Development stage in the process is where the product is fully realized and made ready to scale to meet real customers’ needs – this is the heart of the product development process. During this phase, the team iteratively finishes the development and testing on the final product (and process). 

If the product is a software product, a Minimum Viable Product (MVP), and precede the launch of the fully featured version to test viability and get early feedback from the market and distributors or partners.  This gives the team a second or third chance to perform iterations before a big launch.

If this is a manufactured product, tooling is made, and pre-production prototypes are tested. A final confirmation of the fit to the marketing strategy should be performed, too.  This step winds down when the product is launched. 

Tips for Improving New Product Development 

  • Have a long-term vision for the new product development process
  • Integrate technical and customer perspectives into the executive team leading NPD
  • Support NPD with appropriate funding 
  • Create a product portfolio strategy to guide new product development
  • Make sure the organization is right-sized for the task
  • Have a method for capturing the Voice of the Customer
  • Avoid the tendency to overcommit on features

What are the characteristics of a strong new product development NPD organization?

Besides having a solid process, companies that turn out a stream of innovative new offerings are agile (agile with a small “a”) in product development. That means that they are able to respond to market and technology changes rapidly – and this is especially important in new product development. Since the half-life of skill sets is shrinking, effective new product developers are able to learn and acquire new skills.They are adaptive, for example, they’re able to re-envision older technologies to apply to new markets and to reimagine their products to compete in markets adjacent to their core offerings to sustain their lead in the new product development process. 

An underrated characteristic of effective new product development organizations is their effectiveness at program management and leadership. Having a product development process is no substitute for experienced, talented product managers or product owners. Having people with these product- and customer-oriented talents and skill sets is essential for making good product portfolio decisions. And, of course, companies that succeed also have the technical skills and resources required to execute development products and turn ideas into real world products.

The best NPD organizations also have within their product development process a proxy for the marketplace. They build customers input in their product development from the very beginning of the process. They also have a means to translate customer voices into designs, be it through methods such as Design Thinking or some other method. 

Companies that succeed with product development, or NPD also have a strong culture of senior management sponsorship. These firms have senior managers who are aware of early stage products and create a protected space to nurture them all along the stages of the new product development process. They champion the best ideas from the very beginning, enabling them to have the funding and resources they need to be successful. It is also recommended you have a good escalation process, in case your teams is impacted by an unforeseen risk.

How do you create innovative, truly new products?

The way for more mature companies to create a stream of product concept ideas is to rethink NPD in terms of a venture capital model. Think of the teams that develop innovations in product development, within an organization as so many start-ups, funded and monitored by venture capital. Within the company, new product development projects compete for unallocated funding, using a venture capital model, where a small number of executives continually sift through bottom-up ideas and fund the most promising.

Within this model for their new product development process, a company needs a governance structure that constantly selects teams pursuing new ideas and creates a protected space for innovation in product development. Next, it needs a process for vetting new ideas to reveal their potential. Finally, it needs an Agile funding model with a substantial budget earmarked for unpredictable innovation.

Figure 2: Step 0. Discovery
Figure 2: Step 0. Discovery
  • Governance: Get the right leaders to the table and give them oversight of fragile innovations. They allocate capital from the pool of venture funds, as and when needed. We call this team the venture board. They may or may not oversee all of product development
  • Process: Establish a process for receiving and selecting ideas; identify how to transfer ideas into development using clear entrance and exit criteria.
  • Finance: Create a specific investment for the strategic innovation portfolio and approve it in the budget year. Make it large enough to start at least three projects (in round figures, about $10M per thousand employees). Another rule of thumb is to allocate 10% of product development.

The venture board manages the innovation portfolio. It greenlights programs or segments for investment, reviewing the allocation of resources and the budgeting. The venture board performs a high-level review of the budget on a regular basis, twice per year in some companies. It is also this board’s responsibility as executives to foster any cultural changes needed to support the portfolio of innovative ideas. They own this portfolio and are tasked with maintaining this perspective.

How do you organize a new product development project?

The best way to organize product development is to have cross-functional teams that are empowered and have broad decision-making authority, within pre-established parameters. This is an exception management approach, which includes a clear and simple escalation process when projects drift away from a set of predefined quantitative targets. 

At the beginning of a product development project, the dev team and senior management agree on the key dimensions that will make a successful product. The leader of the dev team is usually a Product Manager or Product Owner, while the senior management in question might include the CEO, CMO, CTO/CIO at a startup, or Directors at a larger company. These agreed-upon dimensions of the product development project might include certain must-have features, a target dev cost, measures of quality, a desired velocity, and a timeframe for the project. The graphic below shows these five dimensions of the project as a polygon with one side for each dimension.

Boundary Conditions Diagram

The team and management then agree on clear, quantitative targets for each of these dimensions to guide product development. These are the boundary conditions, criteria by which the team and management will measure success. For example, in the figure above, the team and management agreed to a quality threshold: a defect rate of not more than 1% defects on average. This is the boundary condition for the quality parameter. Together, these conditions form a contract specifying what the team will deliver and what management expects.

Once the boundary conditions are set and the product development project begins, management needs to leave the team alone, provided that the team continues to expect the project to hit its targets. If it looks as if the project will not achieve its boundary conditions with respect to one or more of the five dimensions – we call this a boundary break – the team must: 

  1. Inform management immediately (hours-days; not days-weeks), and 
  2. Propose a solution to the boundary break.

These communications trigger the rapid fire out-of-bounds process. This is an escalation process designed to get teams back on track quickly if they anticipate a boundary break. 

After senior management receives the communication from the team that a boundary break is likely, with its proposal on how to remedy the situation, management can either agree or disagree with the team’s proposal. If management agrees, then each side confirms a new quantitative measure for the boundary condition(s) at risk, and the project moves ahead with its new specs.  

It is important that this process take place within a sprint, and that the retrospective date for that sprint does not move.

If management does not concur with the team’s proposal, then there follows a face-to-face meeting where the team and management negotiate a new contract, setting new boundary conditions for the project. The team then continues with the project based on this new agreement. 

It is essential for this process that senior managers respond to any out-of-bounds communications from the teams rapidly. This rapid, agile style of management – agile with a small ‘a’ – enables teams to do their best work, while ensuring management that teams will deliver reliably.

Is there a tradeoff between innovative new products and speed?

Some companies settle for a rapid follower approach to product development or “me too” strategy because they believe there is a dichotomy between innovation and speed. They believe that if they slow down their NPD process to introduce truly new and innovative products, then their time to market will increase. This is a classic false dichotomy.

Companies that create truly innovative offerings, companies like Amazon with its platform, Apple with its iTunes, or Uber’s drive sharing services, create their own markets. It’s impossible to be late to a market your company has created.

Even with less innovative offerings, often new technologies help to speed product development projects to market. Not only do new technologies spawn products and services but some of them enable fast time to market.

With the approach described above, combining agile teams, managed by exception, along with the right governance, funding and process, companies can have both innovative products and fast time to market. 

One of the keys to having the best of both worlds is to have a prioritized list of only the most essential features. Narrowing the product definition to the essential few features favors NPD speed.

Do you have any tips for improving NPD?

Have a long-term vision

New product development requires patience. Past the start-up stage, a “quick win” mentality won’t get it done. Creating a stream of new products over a long period of time necessitates a vision, a strategy on how your company will get there, and the budgets and governance structure to support and execute the strategy. 

Integrate technical and customer perspectives into the executive team leading NPD

Tech companies tend to be tech driven, but the right executive team to serve as a board for approving investments in NPD (venture board) includes both technical and customer (Product Management) skill sets. Make sure the customer perspective is present when decisions are made about product development, especially about product selection.

Support NPD with appropriate funding

Sure, it’s basic, but how many companies nurture early stage NPD to get the best return from their product portfolio? Seed funding for new ideas, tied into budgets and strategy at the corporate level, is essential to grow new product concepts into fully fledged offerings in the marketplace through the new product development process.

Create a product portfolio strategy

Companies that create a stream of new products allocate their investments strategically within a portfolio of offerings. Divided between their core business, products in adjacent markets, and completely innovative new products. The investments in these different categories are determined strategically, often based on the company’s risk profile.

Make sure the organization is right-sized for the task

Effective NPD depends upon sufficient resources. In larger companies, often too many resources are committed to maintaining existing products and the skills needed for tomorrow’s products are limited so product development for truely new products is limited. Also, too many key resources, like a coder with specialized skills, are overloaded. The right mix for product development is to have these key contributors on not more than two projects at a time.

Have a method for capturing the Voice of the Customer

Whether it’s Design Thinking or some other form of market-driven product definition, it is essential to have a lifeline to the customer in the fuzzy front end. It is also important to then have a means of translating the voice of the customer into new product concepts with the most saleable features.

Avoid the tendency to overcommit on features

Too many companies promise the moon when it comes to features and then underdeliver. Begin with an MVP and then get it in the hands of customers as part of the product development process, as soon as possible. Customers will help you understand which features are crucial. Overcommitting and under-delivering reflects poorly on the brand. Delivering on your promises, and then improving the product incrementally over time is the better alternative.

Product Development Expert

John Carter is a widely respected expert on product development. He is an inventor of Bose’s Noise Cancelling Headphones and designer of Apple’s New Product Process. As Founder of TCGen Inc., he has consulted for Abbott, Amazon, Apple, Cisco, HP, IBM, Mozilla, Roche, and 3M.