Table of Contents:
Should you Outsource?
Outsourcing product design /development:
When is it appropriate to oursource development of products? Some specialized design firms, such as companies like IDEO Product Development have specialized in outsourced innovation, and product design to the level where it starts becomming really appealing to use services like these. They say that "brainstorming is a science". But, when does it make sense to outsource? And, when should you keep development inhouse?
Focusing on your core competency
Deciding whether or not to outsource either production or design process is a strategic decision with long-term implications. It involves determining your core competency, and deciding what are your Competitive Advantages over your competition that you can sustain for a long period of time. If you think you need to develop product design as a core competency for your long term success, then dont consider outsourcing as an alternative.
This sounds obvious on the surface, but its amazing how many companies got this wrong. In the short term desire to cut costs, many companies outsource production to Asia, only to find out that without the production, they loose their advantage in design and in development. With the hassles of producing, you have the advantage of learning, which is essential to long term competitive advantage (if that is the route you choose). Companies such as Xerox discovered this when they outsourced production to Fuji. As did a whole host of industries from TV's to appliances.
One option to consider: Just outsoucing Production (not design)
If you decide to focus on the design of products, and outsource production to someone else, you may look for contract manufacturers, in such fields as electronics, furniture, etc.
Optimum Product Mix:
This type of calculation is done to model the costs/ benefits of different production mixes on overall profitability. It is often associated with cost accounting and with effective operations managment.
For more, please see our discusson on product mix decisions
Crowd-sourcing design
An interesting trend is for companies to tap the collective creativity / knowledge of a community to develop products. This is not as crazy as it seems, and is actually resulting in quite profitable companies. Please see our discussion on crowd sourcing for more discussion...
Product Development Economics
When a company needs to decide which project to finance, that decision is called "capital budgeting". When evaluating projects for value, the analysis is called financial modeling.
How do you choose which product to develop? How long to spend on development? Should you spend more time to make the product better, or rush and be first to market? How many premium features should you include? Should you increase spending on the product to increas reliability?
There are many factors that mush be considered when making these decisions. Using the techniques of financial modeling can be very helpful for managers of projects. But, remember that pure financial modeling normally only captures the quantatitive factors (that can be measured) and ignores some of the important qualitative factors (such as customer satisfaction, loyalty, etc...that can not easily be measured or calculated).
Please see our discussions on
When to use Product Development Economics techniques
(both quantitative + Qualitative techniques)
1. Go / no-go milestones: use the analysis at each moment of the project when you need to make a decision to either continue with the project, or send it to the trash heap. These decisions occur at the end of each milestone.
2. Operational design & development decisions: These are the moments when you need to decide whether or not to hurry the product to market, or to wait and design a more robust product? Should you outsource to hurry development? Should you spend extra to make the product compatable across many platforms? At these moments, its useful to conduct economic analysis using financial modeling to assess the "sensitivity analysis" of the various options.
How-to guide for financial modeling:
see our discussion on financial modeling
Links from KookyPlan
More links from KookyPlan:
product life cycle
product life cycle Product life cycle The product life cycle goes through many phases and involves many professional disciplines and requires many skills, tools and pro…
Unknown User edited 3 mos ago
- Value Chain
marketing of a product. The value chain, also called the commodity chain and production-consumption chain, is described as a comprehensive set of activities that are required to bring a product from a concept s…
brian edited 8 mos ago
- Innovation
exported in the product life cycle to the rest of the world. This assumption has been recently challenged as other markets have developed in their ability to produce global innovations. As an example, we discussed the e…
- Marketing
websites Product positioning: Once you segment the market, and have a clear understanding of who you are marketing to (ie. single males vs. older, family coulples, etc), then you should think about what marketi…
- strategy
strategy"? or a "product differentiation strategy"? Strategy is about matching a companies resources and capabilities with the opportunities and threats in the marketplace. In the end, strategy is about crea…
- entrepreneur
international product cycle is being inverted as products are being first developed to be marketed to Latin America and Asia. We see this happening with such companies as Quanta Computer, and Asustek who are marke…
- Comparative Advantage
tailoring their product or service offerings to match local tastes. The final layer that was mentioned by the authors was the goal of achieving “worldwide learning and knowledge”. This was the goal that a firm would…
- Outsourcing
to develop product design as a core competency for your long term success, then dont consider outsourcing as an alternative. This sounds obvious on the surface, but its amazing how many companies got this…
Unknown User edited 3 mos ago
- fast failing
successful new product, service, or business is often the result of lots of learning from lots of failures. The key is to fail fast and fail cheap. The classic mindset is to try to get a business plan or product 95…
briandbutler edited 10 mos ago
- patent
a single product. Moreover, it is equally common for competitors in such fields to license patents to each other under cross-licensing agreements in order to gain access to each other's patents. A cross license agreemen…
brian edited 9 mos ago
- Business Clusters
increase the productivity with which companies can compete, nationally and globally. This concept, also known as a competitive cluster, industry cluster by Paul Krugman in Geography and Trade and Cluster develo…
Unknown User edited 5 mos ago
- making technology affordable
international product cycle is being inverted as products are being first developed to be marketed to Latin America and Asia. We see this happening with such companies as Quanta Computer, and Asustek who are marke…
- research funding
organisation and production technique, or even in marketing. A classic example is that of Wilkinson Sword and Gillette in the disposable razor market, where the former has typically had the technological edge, and the l…
brian edited 1 yr ago
- near sourcing
educational product developer Leapfrog; and web development tool maker Macromedia (which later merged with San Jose, California-based Adobe Systems). Mr. Chaves moved on from there, recently opening up operatio…
Unknown User edited 5 mos ago
- core competency
competency In product design , deciding whether or not to outsource either production or design process is a strategic decision with long-term implications. It involves determining your core competency, a…
Unknown User edited 4 mos ago
- international expansion
work on you product differentiation, local adaptations, segmentation and positioning. Then, conduct a breakeven analysis to figure out how many units you will need to sell to cover your fixed costs (which in…
- Competitive Advantage
lead to the production of above normal rents. An SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated. But these above-normal rents can attract new e…
- innovation clusters
Cluster U.S. movie production in Hollywood The UK post-production industry in London's Soho district The US automobile production plants concentration in Detroit The Wessex Media group Cluster WMG a British Regional Clu…
- intellectual property
then the production and replication cost is near to nothing. So, without the protection of patents and other trademarks, there is little incentive for someone to spend all that time and money (if they fear that so…
- Outsourcing business models
increasing product quality and/or substantially lowering firm and consumer costs (e.g., increases the quality to cost ratio). Because outsourcing allows for lower costs, even if quality reduces slightly or not at all, p…
Unknown User edited 3 mos ago
- business incubators
development of new products and services in high-tech industries. For science-based business incubators, an effective collaboration with universities and research institutions is essential to motivate researchers into t…
brian edited 1 yr ago
- startup capital
(ironically a product of a Y Combinator startup), but also the entire application. But, those details get in the way of what YEurope is really trying to do, which is encourage entrepreneurial spirit in Europe. Paul B…
brian edited 1 yr ago
- Open Innovation model
developing products and in doing amazing new things. This wisdom of engaging your customers, suppliers, competitors and academia in order to innovate and create new and better products and services is a fundamenta…
Unknown User edited 3 mos ago
- international product cycle
International Product Cycle Theory If you look at the state of trade in the world economy today, you will see that most trade is actually between the developed nations (between the US and EU, f…
brian edited 8 mos ago
- marketing mix
position of a product in the marketplace. optimizing the marketing mix is the primary responsibility of marketing. By offering the product with the right combination of the four Ps marketers can improve their resu…
brian edited 6 mos ago
- differentiation
does the product has? How am I better vs. competitors on something the customer cares about o Features (Tangibles –engineering, technology-) o Benefits (Intangible) see…
brian edited 6 mos ago
- positioning
will the product satisfy? If you start with Segmentation + Differentiation = positioning. Positioning – is a "mind game" – that says "I'm the best product" . In e…
brian edited 6 mos ago
- Localization
localization of your product should you make? If you are marketing a truely global brand, then maybe you dont want to change very much. But, maybe local requirements mean that you could sell more if you woul…
Unknown User edited 3 mos ago
- advertising
position of a product in the marketplace. Product (design) Place (where to sell, distribute) Promotion (includes advertising) Price (the 4 Cs of pricing) optimizing the marketi…
- Operations
comparison to product manufacturers that can produce, store, ship and then deliver...a services marketing role will make the service new at the same time as they are delivering it. For this reason (lack of t…
- pricing
furniture product, a table, and you have the idea that it can sell in stores such as Bloomingdales. So, before you do anything else, you should come to the USA, go to Bloomingdales, and see what your competi…
Unknown User edited 3 mos ago
External links:
http://en.wikipedia.org/wiki/New_product_development
See also
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