Digital transformation creates significant changes for an organization’s information technology department and processes. But it can also create the need for major changes in the management and processes of other business functions. A truly effective transformation will impact every area of the organization. The success of the digital transformation of a company depends upon how the other departments react to the introduction of digital technologies and systems or fail to react. This article is part of a series of articles that consider some of the changes and their implications in different business functions and departments. In this article, I will address changes that are needed within the departments and operations responsible for product development.
First, let us quickly review what we mean by digital transformation. The Institute for Digital Transformation defines digital transformation as, “The integration of digital technologies into a business resulting in the reshaping of an organization that reorients it around the customer experience, business value and constant change.” This definition recognizes that digital transformation is much more than just a change in IT technology such as hardware, software, or a digital platform. A digital transformation goes to the heart of the business processes and transforms them to leverage digital capabilities that were unavailable during the industrial age. Customer demands, including the customer experience, and business value are different in a digital business. Added to that, a digital business doesn’t stop and rest on its laurels, it embraces constant change to adopt and leverage new digital technologies and new business models. This is not your father’s industrial-age company.
Digital Technology and the Development of New Products and Services
Let’s identify some of the technology aspects of a digital transformation that would have a significant impact on the design of new products and services. This is an illustrative list, not an exhaustive list. In fact, the specifics of each of these technologies is changing almost monthly, so this list is really a list of categories of digital technologies.
- Smart devices are products or appliances that are characterized by sensors or monitors, a user interface, processing capability and digital communication. As such, these devices are essentially computers embedded in a product that is providing additional functionality. Most smart devices can also be customized with a personal profile or programmable functionality that enable the user to create a unique pattern of interaction with the device.
- The Internet of Things is a digital technology that has grown rapidly during the past few years. It is characterized by any device or equipment with digital communication capability along with sensors or monitors. The Internet of Things connects devices digitally across a network and allows either one-way or two-way communication.
- Analytics platforms provide aggregation of data into a dashboard or user interface. This enables a customer to monitor and control a process that has multiple connected devices. The analytics can also be used to troubleshoot and analyze the performance of the different steps in the process being monitored.
- Digital platforms are software applications that operate over the internet and connect individuals from different user group categories. Through the platform connection, the individuals or corporate entities can exchange information, purchase products or services, and promote a cause or product. Digital platforms can be very complex with many user group categories and extensive sharing capability for presenting and exchanging information. Or the platform can be very simple and focused on a small set of categories or type of information.
Each of these technologies are continually improving in their breadth and depth of performance. For the purposes of our discussion, the precise performance level is not critical, rather it is the impact that these technologies create on the design of new products or services.
Transformation the Development of New Products or Services
Let’s first consider how the nature of a product architecture changes in the digital age and then how the development process will change to accommodate that new architecture. The key change for the product development is that a new KPI has jumped to forefront and that is relationship management. The customer’s perspective of value in the digital age is more than the product performance, it is also the level of connectedness and relationship that accompanies a new product.
Essentially every product is now more than a widget, it is a service with a relationship. Customers want to connect with the product before they purchase it – either through reviews or forums from other users. Customers want to connect with the manufacturer or seller when the purchase so that they can easily purchase, install, setup, or customize the product to make it personal. Many customers want to connect with others in a community of interest and share experiences of product use. Many customers want the product to connect to platforms or networks so that they can control it remotely (“Alexa, turn …. on.”). Many customers want the product to track how they are using it so that the product will remember their behaviors and adapt to what they are doing or provide access to other similar or complementary products. All of this is dependent upon the product’s ability to create a relationship and very little has to do with the function and efficacy of the product. Even if the product is not powered and connected, customers will join user groups or provide feedback on the producer’s websites. Relationship management is an important aspect of value to customers in the digital age. Therefore, the product must be designed to facilitate the establishment and maintenance of a digital relationship.
While that is a fundamental shift in the design of many products, there is also a major transformation that occurs in the process of developing a new product or service. In an industrial age business, the designers and developers gathered customer requirements through focus groups. Then they crafted the new product and tested it in a laboratory or test facility to be sure it worked as expected. Once they were confident in the design, they created and setup the production facility so the product could be produced. Finally, the product was launched to the market. In the digital age, those steps are transformed by the digital technology capabilities.
The digital age development process starts with the customer needs, but this is often collected by direct inquiry with thousands of users or potential users through social media. This is both faster and broader than the focus group approach. The product development step in the process is transformed using rapid prototypes. 3-D printing technology and the creation of virtual twins can reduce the time in this phase of the development by an order of magnitude. An idea or concept is formulated one day, and it can be tested the next. Which brings us to the test and validation phase of development. Questions concerning user acceptance testing can be easily addressed with an A/B test with actual customers. Testing for extreme conditions and environments can be done virtually once a virtual twin has been calibrated. Again, this dramatically shortens the time and lowers the cost. Add to this that the development of the manufacturing processes can be quickly accomplished since digital manufacturing is using flexible work cells and lot size of one production scheduling. The combination of these effects is one reason that digital age companies can bring new products to market in a fraction of the time required for industrial age companies.
New Product Development Business Model
One of my favorite books concerning new product development is “Crossing the Chasm” by Geoffrey Moore. In this book he describes the difficulty of launching an innovative new product which Moore calls the “chasm.” This is the difference between the early adopters who try everything new just to have the newest widget and the acceptance of the product by the mainstream who want to make sure the innovative new product really does provide value before they are willing to buy one. In the industrial age, that chasm was often deep and wide. A tremendous pressure was put on marketing to make sure the new product crossed the chasm and business was able to receive a benefit from the investment in the new product.
Digital age technologies and systems bridge that chasm. The digital attributes of the new product can allow customers to experience the product before purchasing and thus selling them on the benefit. The community of early adopters can provide instant access to success stories that will further convince the main stream to adopt the product. And if there is a problem with the new product, immediate feedback is obtained, and the developers can correct the problem – demonstrating a strong commitment to customer success and satisfaction.
While that is the upside of developing new products in the digital age, there is also a down side, or at least a risk that a digital age company must be prepared to address. Since it is much easier for a new product to enter the market, that also means it is much easier for the competitor’s new products to enter the market and establish a commanding position. An interesting characteristic of digital age products is that updates and upgrades are regularly provided for the product. This constant refreshing of the product allows a product line to rapidly respond to new entrants in the market and gives the company a reason to re-engage and strengthen the relationship. In addition, most digital age products have interfaces with other 3rd party software applications such as digital platforms. These are also changing every few months and products must be updated to stay compatible. Due to these factors, the product development process must keep a constant stream of feature enhancements and performance improvements in the pipeline. Industrial age businesses could launch a new product and see its position in the market grow an remain stable for years with no product changes. Not so with digital age products. There must be something new on a regular basis, typically quarterly, to maintain market position.
New Product Development Operations and Control
The operational control of product development is the aspect of the process that does not need to undergo massive change as a company transitions from industrial age to digital age. Almost all industrial age companies are now developing new products using cross-functional teams and managing those teams with a stage-gate control process. This general approach is still used in the digital age, but the time spent in each stage can be significantly reduced. In addition, many organizations have been using Agile project management methodologies for IT or software development projects and this is a best practice for digital development. While Agile is not as well suited for hardware development as it is for software, the use of digital technologies like 3-D printing and digital twins make the use of Agile possible with any kind of new product.
The two significant differences for the management of the new product development is that the pace at which new products must be released is increased and the strategic decision to determination which digital platforms will be supported by the product. With regards to pace, the use of smaller upgrade projects is much more prevalent in digital age businesses. When you consider that every major product line should have a new version or update launched once a quarter, it quickly becomes apparent that many projects must be underway at any given time. The use of product pipeline and portfolio management becomes necessary if the company has many product lines in order to keep the projects coordinated. With regards to platforms, strategic decisions must be made concerning which digital platforms will be supported by the product and what level of personal information will be used with the product. The designers can easily adjust to any answer in these categories, but these decisions are critical strategic decision and should be made by business and product managers not the product designers. In order to support the management of the development process, a Project Management Office is needed to keep the many simultaneous projects on track and minimize conflicts between the projects. All of these issues mentioned are practices that have been occasionally used by companies during the industrial age. To be effective in the digital age, they are no longer optional.
Digital age new product development must accommodate the new KPI of customer relationship and engagement. This requires changes in the product architecture and may require significant changes in product designs. The process of product development can be accelerated by using digital technologies. This acceleration is welcome since most products will now require a new upgrade or release every few months to stay compatible and competitive. The challenge then for new product development is to manage this increased number of projects effectively.
Raymond Sheen, PMP® LSS BB, is president and founder of Product & Process Innovation, Inc. He is a veteran business leader with over 30 years of executive, engineering management, and project management experience deploying new technology and improving business performance. He has consulted and trained companies in various industries and business functions including marketing, engineering, manufacturing, service, IT, and Finance. Ray is author of the book, Guide to Building Your Business Case, published by Harvard Business Review Press. Ray received his B.S. in Mechanical Engineering from the United States Air Force Academy and his M.S. in Astronautical Engineering from the Massachusetts Institute of Technology and has a graduate certificate in Digital Leadership and Strategy from Boston University.