Critical success factors in early new product development: a review and a conceptual model

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  • Published: 05 July 2017
  • Volume 14 , pages 411–427, ( 2018 )

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  • Henrik Florén 1 ,
  • Johan Frishammar 2 ,
  • Vinit Parida 2 &
  • Joakim Wincent   ORCID: orcid.org/0000-0002-8770-8874 2 , 3  

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The literature on the front end in the New Product Development (NPD) literature is fragmented with respect to the identification and analysis of the factors that are critical to successful product development. The article has a two-fold purpose. First, it describes, analyses, and synthesizes those factors through a literature review of the research on the front end in NPD. Second, it conceptualizes a framework that features two types of success factors: foundational success factors (common to all the firm’s projects) and project-specific success factors (appropriate for the firm’s individual projects). The article makes recommendations for the management of this important phase of product development, discusses limitations of relevant previous research, and offers suggestions for future research. The article makes a theoretical contribution with its analysis and synthesis of the reasons for success in front-end activities and a practical contribution with its conceptual framework that can be used as an analytical tool by firms and their product managers.

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Introduction

New product development (NPD) projects tend to fail, either in the last stage of the development process or in the later commercial stage. The underlying causes of failure can often be traced to the beginning stage, in what is often called the front end of NPD. Broadly speaking, this stage is defined as the period between the initial consideration of a new product idea and the decision to begin or to abort development of the product (Kim and Wilemon 2002a ).

Prior research on managing NPD has shown that the front end of NPD often has a dynamic and interactive nature (Akbar and Tzokas 2013 ). This stage is characterized by complex information processing (Khurana and Rosenthal 1997 ; De Brentani and Reid 2012 ), ad hoc decision-making (Montoya-Weiss and O'Driscoll 2000 ), and conflicting organizational pressures caused by, for example, high degrees of complexity and uncertainty (Chang et al. 2007 ). These challenging characteristics frequently result in missteps, time delays, and product failure (Goldenberg et al. 2001 ).

Prior research also shows that ability to manage the front end of NPD, in which robust product definitions are developed, has a significant effect on product success (Cooper and Kleinschmidt 1987 ; Murphy and Kumar 1996 ; Khurana and Rosenthal 1997 , 1998 ). Vague or faulty product definitions may result in high costs and/or failure in subsequent stages of the development process (Bacon et al. 1994 ).

Most research on the front end of NPD concludes that this stage – from a managerial point of view – is different from later product development stages. Therefore, the front end of NPD must be managed following a different logic (Markham 2013 ). However, the extant front-end literature, which relies considerably on anecdotal evidence, lacks a comprehensive conceptual framework that identifies, describes, and synthesizes the key success factors in front-end management.

This article, which reviews the literature on the front end of NPD, focuses on these success factors. The article then uses these factors to create a conceptual framework that firms can use to manage the front end of NPD. Although the literature on the later stages of NPD is well developed (e.g., Brown and Eisenhardt 1995 ; Cooper et al. 2002 ), we still lack a conceptual understanding of how firms that seek to enhance their front-end competence should proceed (e.g., Florén and Frishammar 2012 ; Chang et al. 2007 ; Kim and Wilemon 2002a , 2002b ). Our conceptual framework is intended to provide that assistance.

The article is structured as follows. We begin by describing how we conducted our literature review. Based on the results of this review, we present a discussion of success factors for the front end of NPD, including commentary on robust product definition, open innovation, and on go/no-go decision-making in NPD. We distinguish between foundational success factors and project-specific success factors. We then present our conceptual framework that that is based on these factors. Thereafter we discuss our findings with reference to previous research and describe our practical and theoretical contributions. We conclude with suggestions for future research.

Method and research procedure

Choosing sources for literature review is a process of inclusion and exclusion. We followed several steps to minimize this risk of including the “right” literature and excluding the “wrong” literature.

We searched for articles on the front end in NPD that were published in the last fifteen years in well-known, peer-reviewed technology and innovation management journals. We found that the articles use various terms to refer to the front end of NPD. We identified the following synonyms for “front end”: e arly, discovery, idea, concept , and predevelopment . We also identified three words that refer to the time in which front-end activities are conducted: stage, process, and phase . Last, we identified three terms that describe the work in front-end activities: product development, innovation, and NPD . We used these search words and terms, in various combinations, in selected databases to produce a list of articles for our review.

We searched the following databases: Business Source Elite, Emerald Insight, ABI/Inform, JSTOR, IEEE Xplore, and Blackwell Synergy. These are databases commonly used to review the published work of innovation and entrepreneurship researchers (George et al. 2016 ).

For various reasons, we excluded many of the retrieved articles from our review. For example, we found articles that only briefly addressed the importance of the front end of NPD and did not describe the success factors related to front-end activities. We also excluded articles that focused on sources of ideas for innovation (e.g. McAdam and McClelland, 2002 ; Salter and Gann, 2003 ). The reason for this decision was that most authors conceptualize the front end as beginning when firms already have an idea. We excluded other articles because they dealt only minimally, or not at all, with how to organize and manage the front end of NPD.

Success factors for the front end in the new product development literature

Many studies on the front end of NPD do not define success. However, for purposes of our conceptual framework, a definition of success is required. We agree with Kim and Wilemon ( 2002b ) that the success of front-end activities depends on whether they lead to a robust product definition that, in turn, leads to product development. A robust or corroborated product definition is one that is clear, stable, and unambiguous, and has passed business and feasibility analysis (Florén and Frishammar 2012 ). Product concepts, which are at the core of robust product definitions, are “representations of the goals for the development process” (Seidel 2007 , p. 523).

According to Montoya-Weiss and O'Driscoll ( 2000 ), a product concept requires a definition of the underlying technologies plus statements on customer benefits and evaluations of market opportunities. A product concept also includes analyses of market segments and positioning, competitors, and alignments with existing business and technology plans (Khurana and Rosenthal 1997 ; Montoya-Weiss and Calantone 1994 ; Song and Parry 1996 ; Cooper and Kleinschmidt 1987 ).

Popper ( 1959 , 1972 ) concludes that scientific laws are falsifiable rather than verifiable. We apply this reasoning when we state that robust product definitions derived from front-end activities cannot be verified as completely valid; rather, we argue they only can be evaluated as unflawed. Therefore, relevant actors at a firm (e.g., the development team, the review committee, and other decision-makers) must accept the robust product definition and agree that it has the potential to lead to product development.

We use the robust product definition as a proxy for front-end success. We acknowledge that such a managerial definition of front-end success potentially neglects alternative definitions that other decision-makers, with other NPD interests and perspectives, support. Such definitions typically do not align with the robust product definition that the firm supports. Examples are skunkworks projects that are generally found outside traditional NPD processes.

We claim that the front end of NPD begins when relevant key actors in the firm recognize the potential of an idea to lead to product development. The front end of NPD concludes with the go/no-go decision for a proposed product. The decision to begin or to abort product development is made with reference to the robust product definition. This means that the robust product definition exerts a powerful influence on product development.

Two major reasons explain a no-go decision. First, an idea is “killed” if decision-makers conclude the proposed product has no or low commercial potential. Second, an idea is abandoned if it does not fit with the firm’s current business model even though the idea may, in some respects, have commercial value. The latter reason leads to reflections on the open innovation paradigm,

In promoting the open innovation paradigm, Chesbrough ( 2003 , 2006 ) comments that ideas that do not align with a focal firm’s current business may still be successfully commercialized outside that firm. The implication is that a robust product definition can still lead to product development even if the focal firm chooses not to develop the idea into a product. Hence, we argue that a robust product definition is also a valid measure of the success of front-end activities when it leads to insights relevant to the open innovation paradigm.

Figure 1 presents our conceptual framework. Tables 1 and 2 develop the success factors in the framework. In agreement with Khurana and Rosenthal ( 1997 ), we distinguish between foundational success factors and project-specific success factors. Foundational success factors apply to all of the firm’s front-end projects whereas project-specific success factors apply to the firm’s individual front-end projects. Hence, top management should oversee the foundational success factors, and front-end project managers and teams should oversee the project-specific success factors.

A conceptual framework of success factors in the front end of new product development

Next we describe how these two groups of factors lead to corroborated or robust product definitions. We begin with the foundational success factors followed by the project-specific success factors.

Foundational success factors

Senior management involvement.

Senior management can support managers and teams who work with front-end activities in various situations and in various ways (De Cleyn et al. 2015 ). First, such support is essential when resistance to change is encountered (McAdam and Leonard 2004 ). Second, the momentum behind new product ideas is stronger if senior management is directly involved during the front end of NPD (Murphy and Kumar 1997 ; Lauto et al. 2013 ). Third, senior management’s support in front-end activities promotes greater innovation (Koen et al. 2001 ). Fourth, senior management can provide resources, clarify project objectives (Kim and Wilemon 2002a , 2002b ), and create vision statements (Koen et al. 2014 ). Fifth, senior management can coordinate individual activities that span functional boundaries (Khurana and Rosenthal 1998 ).

Early customer involvement

The value of customer involvement in the front end of NPD is somewhat controversial. For example, some commentators argue that customers rarely provide rich or diverse information to firms (Granovetter 1982 ; Krackhardt 1992 ). Alam ( 2006 ), who warns against asking customers to suggest solutions for product problems, thinks that firms learn more from asking customers about the benefits they seek.

However, other researchers support the positive effects of customer involvement in product development. For example, Bacon et al. ( 1994 ) claims that NPD teams that do not include customer input in their development projects seldom produce successful products. Other researchers agree that firms should explore customer expectations and requirements before product development begins (Kim and Wilemon 2002b ; Smith et al. 1999 ; Verworn 2006 ; Verworn et al. 2008 ). Such information is useful because it clarifies project objectives early in the development stages (Cooper 1988 ; Cooper and Kleinschmidt 1987 ; Zien and Buckler 1997 ; Robbins and O'Gorman 2015 ; Verworn et al. 2008 ; Murphy and Kumar 1997 ). In addition, customers may offer product ideas at the front end of NPD that developers have not yet§ considered (Cooper et al. 2002 ; Kim and Wilemon 2002a ).

External cooperation beyond customers

External actors (e.g., suppliers) can offer assistance in the front end of NPD (Harvey et al. 2015 ). Murmann ( 1994 ) found that partnering with competent suppliers in the front end may reduce technological uncertainty. Effective supplier cooperation has also been found to decrease time-to-market, reduce development costs, and improve product quality (Kim and Wilemon 2002a , 2002b ). Khurana and Rosenthal ( 1997 ) show that some firms take a broad perspective on the value chain in the front end of NPD. Such firms, for example, address their suppliers’ requirements in the front end in order to acquire useful input for concept development.

Alignment between NPD and strateg y

From a more strategic perspective, researchers have identified the firm’s alignment of NPD with its general business strategy as a critical front-end success factor (Koen et al. 2001 ; Schröder and Jetter 2003 ; Trimi and Berbegal-Mirabent 2012 ; Khurana and Rosenthal 1997 ). Some researchers recommend that firms use their core competences in front-end projects to ensure that their business strategy stays in focus (Bacon et al. 1994 ; Smith et al. 1999 ).

Costa et al. ( 2013 ) found that inadequate strategic planning has a negative influence on the front end of NPD. Khurana and Rosenthal ( 1998 ) found that successful firms link business strategy, product strategy, and product-specific decisions. Good alignment between NPD and strategy also highlights the need for firms to engage in product portfolio planning. An example is the need to think strategically when planning an optimal mix of product attributes that meet customers’ wishes and expectations (Kim and Wilemon 2002b ).

Adequate degree of formalization

Several researchers propose that orderly and predictable management that reduces uncertainty in the front end benefits NPD (Khurana and Rosenthal 1998 ; Smith et al. 1999 ; De Brentani 2001 ; Boeddrich 2004 ). Other researchers conclude success is more likely if front-end activities are broken into modules or sub-phases, just as they are in the later stages of NPD (Cooper et al. 2002 ; Flint 2002 ; Verworn et al. 2008 ; Williams et al. 2007 ; Van Der Duin et al. 2014 ). Khurana and Rosenthal ( 1998 ) claim that management should explicitly communicate around NPD, clearly assign decision-making responsibilities, and specifically identify performance measurements. Markham ( 2013 ) corroborates these recommendations.

However, the relationship between formalization and success is not necessarily linear. Rather, the literature suggests the relationship has an inverted u-shape: Too little as well as too much formalization seems to damage the chance of success of front-end activities (Khurana and Rosenthal 1998 ). In particular, too much formalization may lead to rigidity that dampens creativity (Gassmann et al. 2006 ) that – in turn – may risk negative effects, particularly in cases of radical innovation (Florén and Frishammar 2012 ). Furthermore, recent research indicates that a low degree of formalization in the front end, in a climate that promotes psychological safety, is a possible avenue to front-end success (Nienaber et al. 2015 ).

Cooperation among functions and departments

Cross-functional cooperation has been identified as essential to front-end success (Bocken et al. 2014 ; Kim and Wilemon 2002a , 2002b ; Smith and Reinertsen 1992 ; Verganti 1997 ). One explanation may be that cross-functional cooperation benefits task analysis and reduces uncertainty in the front end (Moenaert et al. 1995 ). A second explanation may be that idea selection often takes place in meetings with representatives from different functional areas of the firm (Verworn 2006 ). In such meetings, cross-functional cooperation facilitates screening of ideas. A third explanation may be that cross-functional cooperation is necessary for “keeping an idea alive and active” (Conway and McGuinness 1986 , p. 287) and for creating new knowledge (Heller 2000 ).

Various researchers have examined types of cross-functional cooperation. Kohn ( 2006 ) identifies the R&D and marketing relationship as the most likely cooperative interdependency in the front end of NPD. These two areas take responsibility for product definition and product concept, which is then shared among the firm’s other functions and departments. The areas of manufacturing and process design should also cooperate in the front end of NPD to assure the feasibility of manufacturing proposed products (Bacon et al. 1994 ; Verganti 1997 ).

Creative organization culture

Creativity is clearly essential in the front end of NPD (Koen et al. 2001 ), as good ideas emerge in innovation-friendly cultures that foster the communication and development needed in the front end (Koen et al. 2014 ; Schröder and Jetter 2003 ; Smith et al. 1999 ) . A creative culture encourages a firm’s employees to use their innovative talent to produce and refine a steady stream of ideas (Kim and Wilemon 2002b ; Murphy and Kumar 1997 ). A creative culture also reinforces a firm’s market orientation by promoting consistency, efficiency, and productivity in the front end (Langerak et al. 2004 ).

Project Management capabilities

The project manager has ultimate responsibility for managing a project through its various stages – one of which is the front-end stage, including its sub-phases. A good project manager requests support, lobbies for resources, and manages technical problems and design issues. Khurana and Rosenthal ( 1997 ) found that project managers at successful firms are involved in all these tasks. As far as the front-end tasks, project managers also define goals, prioritize work, and provide leadership (Kim and Wilemon 2002b ). Project managers influence the product definitions, promote teamwork, facilitate strategic alignment, create a sense of joint team mission, and define project objectives (Koufteros et al. 2002 ; Rauniar et al. 2008 ).

Although researchers have not yet extensively investigated the characteristics of successful project management in the front end, the extant research shows that front-end activities may vary greatly as far as sequences, degree of overlap, and relative time duration (Nobelius and Trygg 2002 ; Reinertsen 1999 ). This means that front-end project managers must have many and varied capabilities.

Project-specific success factors

Evaluating-phase success factors, environmental scanning and analysis.

Firms should ensure that relevant external information is made available to projects in the front end of NPD. Bacon et al. ( 1994 ) state that firms should pay close attention to competitors’ current and planned products. They found that successful teams generally make such analyses whereas unsuccessful teams do not. They also found it is essential that firms pay attention to the applicable regulations and standards related to their NPD.

However, information about competitors, regulations, and standards is often firm-specific or industry-specific. Therefore, Börjesson et al. ( 2006 ) warn practitioners against taking too narrow a focus that may lead to ideas for products already available. Hence, it is recommended that firms adopt a scanning process, which includes more experimentation than the strategy literature suggests when they engage in NPD (e.g., Bocken et al. 2014 ).

Idea visioning and product championing

Committed enthusiasts in leadership positions are valuable for overcoming firms’ inertia that tends to support the status quo (Grant 1995 ; Griffiths-Hemans and Grover 2006 ; O’Regan and Ghobadian 2006 ; Markham 2013 ). Such enthusiasts are typically referred to as product champions (Conway and McGuinness 1986 ; Kim and Wilemon 2002b ) or as idea visionaries (Griffiths-Hemans and Grover 2006 ).

The idea originator, the individual who is affected by a specific problem, or the individual with new product responsibilities are possible product champions (Conway and McGuinness 1986 ). Their involvement in front-end activities is essential.

Idea visionaries and product champions are, by definition, highly committed to product ideas. This commitment, which is reflected in their perseverance despite feelings of frustration and uncertainty (Kim and Wilemon 2002a ), contributes to front-end results that add strategic value to the firm. Thus, they exert persistent, forward pressure on their firms (Conway and McGuinness 1986 ). Moreover, in providing the linkage between the project and the firm, they assist in interpreting the strategic meaning of product ideas (Heller 2000 ).

Preliminary technology assessment

A product’s required technology must be determined before product development begins (Cooper and Kleinschmidt 1987 ). This determination, which is mainly aimed at reducing technological uncertainty, is essential before significant resources are invested (Murmann 1994 ; Verworn et al. 2008 ). Cooper ( 1988 ) states that evaluation of technology requirements should address the product’s viability. This means addressing the product’s required technical solutions, its manufacturing feasibility, and its cost. In most successful projects, pre-development technology uncertainty is relatively low when technical requirements are explicitly defined and are shown to be technically feasible (Verworn 2006 ).

Idea refinement

The front end of NPD is frequently said to begin when a firm first spots an opportunity (Khurana and Rosenthal 1997 ; Kim and Wilemon 2002b ). Individuals create ideas (Boeddrich 2004 ; Kijkuit and van den Ende 2007 ). A product idea is a mental image of a solution to a problem (Griffiths-Hemans and Grover 2006 ). The qualities of the initial idea typically “make or break the project” (Cooper et al. 2002 , p. 22).

As ideas are generally nebulous in their early stages, they need refinement so that risks and problems associated with them can be identified (Boeddrich 2004 ; Zien and Buckler 1997 ). As many, if not most, ideas eventually prove unviable, idea refinement is especially important in the front end. Poor idea refinement often results in costly problems in later stages (Cooper 1988 ). Therefore, careful refinement of ideas allows firms to move rapidly from new ideas to assessable concepts (Smith et al. 1999 ).

Defining-phase success factors

Creation of a preliminary product concept.

In the lead-up to the finalization of a robust product definition, a team prepares product specifications (Kalyanaram and Krishnan 1997 ) using different sources (Backman et al. 2007 ). Eventually a preliminary product concept is developed that allows the firm to decide whether further development is warranted. If the decision is to move forward, the preliminary product concept enables the prioritization of activities in the development phase (Khurana and Rosenthal 1997 ; Kohn 2006 ). A preliminary product concept can be visualized as a picture, a drawing, a three-dimensional model, or a mock-up (Dickinson and Wilby 1997 ). Often, however, the concept is only described in text that explains its primary features and its customer benefits (Parish and Moore 1996 ).

Researchers have found that careful concept development is associated with project success (Cooper and Kleinschmidt 1987 ; Kim and Wilemon 2002b ; Song and Parry 1996 ; Verworn et al. 2008 ). In addition, concept development influences the final go/no-go decision on product development (Cooper 1988 ).

Bacon et al. ( 1994 ) found that to create a robust product definition, information, including feedback, from all the firm’s main functions is required. Insufficient information from these functions may explain why firms report severe difficulties in clarifying product concepts (e.g., Khurana and Rosenthal 1997 ).

In sum, a well-defined preliminary product concept allows for a better understanding of many important matters, including development time, costs, technical expertise, market potential, risk, and organizational fit (Kim and Wilemon 2002a ).

Project priorities

According to Khurana and Rosenthal ( 1997 ), project prioritization requires making trade-offs among scope (product functionality), scheduling (timing), and resources (cost). After observing a great deal of confusion about project priorities, they concluded that fuzzy project priorities were the single most important cause of time delays and product over-engineering. Murphy and Kumar ( 1997 ) support this finding in their conclusion that the clarification of project requirements is a key objective in the front end. Bacon et al. ( 1994 ) provide additional support in their finding that a priority list (i.e., a ranking of key product features) is crucial for developing robust product definitions.

Formalizing-phase success factors

Screening of the preliminary product concept.

Deficiencies in screening preliminary product concepts often cause problems in the development phase (Cooper 1988 ). Hence, it is not surprising that effective screening has been found to be an essential activity in the front end (Elmquist and Segrestin 2007 ; Kim and Wilemon 2002a , 2002b ; Kohn 2005 ; Rosenthal and Rosenthal and Capper 2006 ).

The purpose of such screening is to evaluate product concepts. In principle, firms can make two screening mistakes: rejection of “good” product concepts or acceptance of “bad” product concepts (Reinertsen 1999 ). According to Lin and Chen ( 2004 ), abandoning inferior product concepts at an early stage often results in large cost savings since costs increase progressively in the NPD process. However, Cooper ( 1988 ) found that screening was most ineffective when it was used only to screen out obvious no-go projects. Firms should therefore assure that their screening activities are not conducted in a way that risks screening out good ideas and product concepts.

Murphy and Kumar ( 1997 ) found that screening takes place in two related domains: business analysis and feasibility analysis. In business analysis, the firm evaluates the viability of a new product concept as a business proposition. In feasibility analysis, the firm decides if it has the resources to support the development of a product concept.

However, if the screening of preliminary product concepts is too restrictive, potentially valuable ideas may be eliminated. Conway and McGuinness ( 1986 ) found that an overreliance on formal processes in the front end might slow the momentum that the concept acquired in the informal debate. An additional complexity is that research has identified a tendency for tacit rules to act as filters when screening ideas (McAdam and Leonard 2004 ). The conclusion is that firms need to consider both the formal and the informal aspects of concept screening.

Cross-functional executive review committee

Prior research shows that cross-functionality is a success factor at the executive level as well as at the department and functional levels. An executive review committee for the front end adds various competencies and perspectives. Khurana and Rosenthal ( 1997 ) found that product success in the front end is associated with the existence of a cross-functional, executive review committee. They state that the committee members’ roles and decision responsibilities must be well-defined. The review criteria must also be explicit. In addition, they emphasize the importance of the on-going interaction between the committee and the development team.

Discussion and concluding remarks

There are many explanations for the failure of new products. Some explanations relate to problems in the front-end activities of NPD. Complex information may be inadequately processed (Khurana and Rosenthal 1997 ), decisions may be taken on an ad hoc basis (Montoya-Weiss and O'Driscoll 2000 ), and/or conflicting organizational pressures may create unmanageable complexity and uncertainty (Chang et al. 2007 ). In explaining these problem areas, this article helps managers and their teams identify the factors that contribute to the success of front-end activities in NPD.

This article uses a review of the literature on the front end in NPD as the inspiration for the creation of a front-end conceptual framework. The framework is built on two groups of success factors for front-end activities identified in the literature: foundational success factors and project-specific success factors. The framework also highlights the interplay between these success factors that is relevant for firms working with new product ideas and concepts, regardless of firm size.

By visualizing these success factor groups in a conceptual framework, we provide firms and their managers with an analytical tool useful for working with front-end activities in NPD. In tabular and textual presentations, we list the success factors, ask key questions related to these factors, and describe the ideal condition/situation action responses. Product managers and their teams can use our conceptual framework to identify the front-end success factors and thereby better deal with this early stage of NPD. Use of the framework can reduce development time and mitigate the problems associated with rework in front-end activities that are characterized by great complexity and uncertainty.

At present, the theory on the front end in NPD is rather weak when judged by the evaluation criteria for theory development (Bacharach 1989 ; Edmondson and McManus 2007 ; Suddaby 2010 ). About 95% of the articles we reviewed do not address the issue of performance measurement (i.e., the dependent variables) although there are exceptions (e.g., Khurana and Rosenthal 1997 ; Montoya-Weiss and O'Driscoll 2000 ). We were not surprised, however, by our finding that the NPD literature, with the exceptions noted above, is not particularly theoretical. We were not surprised, however, by our finding that the NPD literature, with the exceptions noted above, is not particularly theoretical. As Daft ( 1985 ) explains, research topics behave like product life cycles. When a research field is new, many researchers add new knowledge. Because the front-end literature is relatively new, it is still open to new theoretical observations.

Given the gaps in the literature on front-end success in NPD, it seems worthwhile to address this topic more specifically. This effort requires an understanding of the front end itself. Where, when, and how does the front end begin? What does it look like? Where and how does it end? Khurana and Rosenthal ( 1997 , 1998 ), for example, who do not explicitly examine the creative act of idea generation, conceive of the beginning of the front end as the point when firms “first recognize, in a semi-formal way, an opportunity” (Khurana and Rosenthal 1997 , p. 106). This statement implies that when a firm has recognized an opportunity, that idea, which originates very possibly with a single individual, must be shared collectively among others in the firm. The statement also implies that sources of ideas (e.g., from customers, suppliers, etc.) fall outside the front end. Although relevant, our framework does not capture this view, but instead focuses on the management inside the company.

We found greater agreement among researchers that the front end concludes when firms decide to approve or to abort a NPD project idea (Herstatt et al. 2004 ; Khurana and Rosenthal 1998 ; Verworn 2006 ). Because the front end concludes with a go/no-go decision, the “output” of the front end should be a product definition rather than a product concept . The reason is that a go/no-go decision cannot be made without consideration of available resources, market estimates, and business plans (e.g., Herstatt et al. 2004 ; Verworn 2006 ).

To this background, our position is that the front end begins when the organization recognizes that an idea presents an opportunity, and that the front end concludes with approval or disapproval of the proposed project. Moreover, because the front end concludes with a go/no-go decision (i.e., when a robust product definition exists), we argue that a reasonable evaluation of front-end success depends on two conditions: the quality and status of the product definition when it “leaves” the front end; and the usefulness of the product definition relative to enlightened decision-making about product development (Florén and Frishammar 2012 ).

Our study adds to previous research on the critical success factors for front-end innovation (e.g., Russell and Tippett 2008 ) in that it presents a general synthesis of these factors that previous research has identified. This synthesis can be useful to researchers as they expand on this area of research, especially from a theoretical perspective, and to practitioners who can use our conceptual framework as an analytical tool when working with front-end activities in NPD.

Future research suggestions

We offer several suggestions for future research. We assume some success factors will moderate the relationship between front-end activities and front-end success. Extant research, however, does not clearly address the relationship between foundational success factors and project-specific success factors. For example, a creative organizational culture might moderate the relationship between early customer involvement/active environmental scanning and success in front-end activities. In firms that have a creative culture, idea refinement might advance creatively without early customer involvement/active environmental scanning, especially in the development of radically new products. Conversely, when firms lack a creative culture, early customer involvement/active environmental scanning might substitute for a creative culture. Therefore, we recommend that researchers conduct quantitative studies on the moderating role of foundational success factors in positive relationships between front-end development and front-end performance.

Another opportunity for future research stems from one shortcoming of extant research and of our conceptual framework. Our understanding of the iterative aspects in the front end is insufficient. While prior research emphasizes the importance of probing and learning in the front end (e.g., Verganti 1997 ; Florén and Frishammar 2012 ), it not clear how the success factors in our conceptual framework relate to such activities or how iterations play out as a consequence of such activities. Therefore, we recommend that researchers examine the relationship between the success factors of probing and learning in the front end of NPD.

We admit that our review does not reveal how the context of the front-end activities influences the success factors. Although, the results are developed based on empirical and conceptual studies, further investigation on how well the proposed successful factors holds in different context would be beneficial, for example in the context of new entrepreneurial ventures (George et al. 2016 ). From this follows that our study has certain limitations that should be considered when interpreting the results.

Thus, we encourage researchers from entrepreneurship and innovation management to take our study as a starting point for providing novel insights related to the front end of NPD.

Akbar, H., & Tzokas, N. (2013). An exploration of new product development’s front-end knowledge conceptualization process in discontinuous innovations. British Journal of Management, 24 (2), 248–263.

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Florén, H., Frishammar, J., Parida, V. et al. Critical success factors in early new product development: a review and a conceptual model. Int Entrep Manag J 14 , 411–427 (2018). https://doi.org/10.1007/s11365-017-0458-3

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Improving new product development (NPD) process by analyzing failure cases

Asia Pacific Journal of Innovation and Entrepreneurship

ISSN : 2398-7812

Article publication date: 5 December 2016

The purpose of this study is to develop an appropriate new product development (NPD) process of Company “T”, a medium-sized firm, by analyzing the existing NPD process and failure cases of the Company.

Design/methodology/approach

The proposed research framework is as follows: first, prospective studies of the NPD process are performed using the existing literature and preliminary references; second, comparative analysis between the current processes and a NPD process is performed; third, phase-based evaluations upon failed product cases are conducted with a NPD process so as to identify the abridged steps and root-causes of failures; finally, renewed priorities are set forth by utilizing the analytic hierarchy process analysis and questionnaire analysis upon the above identified causes of failures.

The resulting accomplishments include the establishment of NPD processes that resonates with the current states of Company “T”, which, in turn, ensures the increase of efficiency, the decrease in development duration and the strategy of capacity-concentration and priority-selection.

Originality/value

As Company “T”’s development process is outdated and products are developed without adequate market information research and feasibility analysis, the percentage of failed development project is as high as 87 per cent. Thus, this study aims to develop an appropriate NPD process of Company “T” by analyzing the existing NPD process and failure cases of the Company.

  • Analytic hierarchy process (AHP)
  • New product
  • New product development (NPD) process

Kim, Y.-H. , Park, S.-W. and Sawng, Y.-W. (2016), "Improving new product development (NPD) process by analyzing failure cases", Asia Pacific Journal of Innovation and Entrepreneurship , Vol. 10 No. 1, pp. 134-150. https://doi.org/10.1108/APJIE-12-2016-002

Emerald Publishing Limited

Copyright © 2016, Yeon-Hak Kim, Sun-Woong Park and Yeong-Wha Sawng.

Published in the Asia Pacific Journal of Innovation and Entrepreneurship. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at: http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

This is a case study that aims to develop an appropriate new product development (NPD) process of Company “T” by analyzing the existing NPD process and failure cases of the Company.

Company “T” is a medium-sized radio-frequency (RF) business firm which develops, manufactures and sells various equipment and components for both domestic and international base stations of mobile communications. Established in 1999, its main engine of growth has come from the areas of RF connectors and coaxial cable assembly within the scope of mobile communication services.

Mobile communication markets can be divided, according to the level of integration and roles, into system operation (SO) carriers, system integration (SI) and equipment and components. The markets can be also divided by usage into filers, antenna, unit materials for construction work, measurements, national defense and terminal equipment. Company “T”’s business accounts range from SO firms to equipment firms, and the most active transactions come from the components in the fields of filers and antenna for remote radio head (RRH) equipment. Most systems that integrate equipment and components do go through the process of integration, and the time and scope required for the review on each integral production tend to increase. Considering the characteristics of connector components which play critical and basic roles for the telecommunication systems, completion of connector components alone can allow for the next phase reviews to begin. Because of these reasons, development time for connector component is much shorter, and its application potentials are much greater than those of other equipment and systems. Base stations, previously called as BTS, used various connectors and cables in large quantity. But, recent transformation into RRH systems drastically reduced the necessity of connectors and cables. Hence, the inevitable process of evolution was brought in to meet the requirements of increasingly complicated system environments to make the assembly much easier and make the breadth of movement much wider and easier to control. Such system changes necessitated much more vigorous reviews and certification and development. This creates situations where tasks go beyond the capacity of the all staff members and employees. This caused the situation where all these tasks require more than the existing human resources and their capacities. It may explain why the reviews and examination process of product development were repeating the simplistic specification verifications only. Although the lead time for development projects became shorter, Company “T” showed patterns of having to manage increasingly large number of projects.

Managing too many projects caused many challenges for the product development process of the Company “T”; cases of discontinued projects or development failures kept increasing. Even after the completion of product developments, the sales figures, more often than not, did not yield much increase. Overburdening assignments of development projects have caused the processes to overlook the principal check points for marketability, profitability and technological feasibility, and, in some extreme cases, products were not even launched in the market after the completion of development.

It is quite common that a great number of small- to medium-sized firms attempt to launch new products without preliminary planning or market research. Against this background, well aware of such circumstantial connotation, this study aims to establish an appropriate NPD process that fits the current status of the Company “T” by focusing on analyzing failure cases.

2. Literature and practice review

2.1 concept of new product.

There are many contending arguments with regard to the variegated definitions and boundaries of the term “new product”. Crawford (1991) defines that it is “a product for which the company needs a new marketing, and in which the substantial changes are conveyed but excludes any changes that may require simple promotions”.

Booze, Allen and Hamilton set out to make a new standard in 1982 for new product classification according to the newness to the market and the newness to the firm, with six different categories. Also, calculations for relative frequencies at each category were schematized into the diagrams ( Figure 1 ). The diagram is schematized according to each classification of a new product.

2.2 Significance of new product development process and the meaning of process phase

In general, an NPD process is defined as the process of formalized planning or thoughts from the beginning stage of ideas down to market launching. Most of the previous studies on impacts and ramifications of the NPD process have their starting point where the definition of NPD phases is made. Despite the varying degrees of contenting theories, one can safely classify the whole process of NPD into 13 different phases. brain-storming of ideas; early stage idea screening; preliminary market evaluation; preliminary technology evaluation; preliminary production evaluation; preliminary financial evaluation; market survey and research; product development; in-house product evaluation; customer focus group test for new product; market test; financial evaluation before the product launch; and market launch. Studies in the past have proposed that the decision to go through each and every phase of the NPD process itself without any omission would guarantee a significant improvement of new product launch.

Capacity that can perform well at each phase of the product development process has a close causal relationship with profitability. Previous studies show the positive (+) relationship between the level of excellence for the NPD process and the degree of resulting success of NPD. However, the relative importance of capacity in each developmental phase all defers. For instance, Cooper’s (1979) analysis came to conclusion that the most important phase of NPD is the market launch phase and product evaluation by consumers, whereas Mishra et al. (1996) contended that it is the detailed market evaluation/analysis and preliminary idea screening that are the most important phases of the development process.

2.3 Studies on new product development process

This study thus far examined which phases of the previous NPD processes were considered most valuable for the purpose of analyzing the full contents of the current product development process. Second, the study also examined the difference between Company “T”’s product development process and those of the other models chosen from the various product development processes. The following excerpt shows which phases are omitted in the case of Company “T”’s NPD process.

Phase 1 : It is idea discovery.

Phase 2 : It is idea screening.

Phase 3 : It is concept development and test.

Phase 4 : It is business analysis.

Phase 5 : It is the development of the mix between product and marketing.

Phase 6 : It is market test.

Phase 7 : It is product launch.

Dividing rules and standards might vary according to the choices of researchers and companies. But what remains rather identical is the overall flows of each development phases. It should be noted here that different analytic models may cause different changes in total length of process or the contents of each phase, which will eventually integrate into the development processes. Figure 2 shows the role of each gate to demonstrate that products face higher probability of failure if the NPD process proceeds to the next phase without proper assessments and evaluations, thus emphasizing that the gates necessitate preceding examinations and preparation.

A general NPD process goes through each phase from idea management to product concept development and test, to business analysis and marketing plan, to product development and to market launch. This process can be either subdivided or simultaneously preceded according to the company size and particular business characteristics.

However, in the case of Company “T”, the firm is concentrating on the “product development phase in comparison to other NPD cases”. Nevertheless, one shall not disregard the evaluation process of pre-developmental processes such as the possibility of whether the product can be developed with current level of technology and the possibility of whether the product can expand to the main stream items by adding various similar product lines. Such consideration can unwittingly bring out the outcome which disregards the basic processes that could yield practical and tangible results.

2.4 New product development practices among small- and medium-sized Korean companies

A typical medium-sized company such as “T” comes up with the “new product idea” based on clients’ demands or direct order from the company owner, and the product development is launched without much selection processes. Once the prototype is completed, the company would begin to prepare for the commercialization and large-scale manufacturing plans ( Figure 3 ). The figure shows that the CEO is occupying the largest percentage of where the idea of new product and product developments are initiated from. If the product development processes are repeated without adequate studies on profitability and marketability, a series of internal problems tend to rise from within. Sales department will request more and more projects to the research department for the purpose of sales increase. The development department will lose efficiency during the course of variegated product developments without full considerations on priority and strategic importance. The final outcome of such processes would include products with low level of perfection, reduced ratio of development completion AND rise of the employment separation rate for newly recruited researchers, resulting rise of workload upon senior researchers and the failures and discontinuation of projects, which go beyond the scope of product development issues.

3. Analysis and results

3.1 outline of the analysis.

The purpose of this study is to establish an improved NPD process which can substantially increase the efficiency of the product development. To this end, this paper chose to use the research methodology as the following.

First, existing references and prospective research materials are reviewed to recognize and define the concept of new product, the importance and concept of an NPD process and the significance of phased evaluation of performances. Second, the appropriate models and phases of the NPD process are selected for the Company “T”, and the comparative analysis is performed between the current development process and the newly selected development process to identify the omissions and shortcomings. Third, each project was divided into two categories of “success” and “failure” based upon the new definition of “failure” at the stage of each case analysis. It is followed by the performance analysis on each phase of the NPD process based upon the research models that are derived from the selected cases of actual failures that took place, thus being able to categorize the causes of failures. Finally, surveys and questionnaires are conducted to ask for the causes of the categorized failures. These results are reexamined under the analytic hierarchy process (AHP) method, and the conclusions are drawn for the evaluation of the different levels of significance.

3.2 Analysis methodology of failure cases

3.2.1 definition of failure..

The objective of this study is to establish an appropriate NPD process that fits the Company “T”’s needs. To that end, the failed project cases in the past have been analyzed with particular attention paid to phase-based actions and the following results of the process. Hence, the categories of failures among the development projects are divided into two. First category is projects that were suspended or those proved to be failed at the end of the development. Second category is when no sales were generated after the completion of development or no profits were earned after the sales.

3.2.2 Classification and selection of the project.

Projects for analysis were selected among the ones that had been processed during the one year term of year 2014. Total number of registered projects was 877 cases, of which completed ones were 209 cases Table I . Of these 209 cases, ones that generated sales were 119 cases (14 per cent), and the ones without sales generation were 90 cases (10 per cent). Also, uncompleted cases were 668 cases, of which sale-generating cases were 73 cases (8 per cent) and no sale cases were 595 (68 per cent). Sales results from the uncompleted projects are by sample supply, not by finished product production.

In 2014, the failure rate reached 87 per cent. With too many failure cases to analyze, the study reduced the total target numbers by way of verifying the ones to be excluded. First, a total of 119 cases that generated sales were excluded. The number of projects that were processed progressively for the purpose of measurement or JIG, review projects, one-time projects, preliminary projects and projects whose details cannot be determined because of the retirement of researchers and the likes were 476 cases in total. Analysis was processed with 80 cases in the sequence of initiation date, out of remaining 407 cases. The guiding principles include, first, the ones that were completed, but did not generate any sales, and second, the ones that did not complete. More than half of the projects excluded from the analysis were originally executed by the retired researchers. They are usually low performers and/or involved in declining product departments. Hence their projects were regarded as less important and by the time they leave the company, the projects were dropped and classified as failed projects. But, as those projects were dropped by the company’s decision, they were excluded from the analysis.

3.2.3 Analysis of failure cases.

As it seems evident during the NPD process, the role of the gate is meaningful at the time of evaluation between the two phases. It cannot be processed to the next phase unless there is no result or the contents are inadequate. It is because the idea at the evaluation can be considered to be a failure. This study made the comparison among each failed case at the corresponding phase levels to see whether each criteria of the gate was performed.

3.2.4 Analytic hierarchy process analysis.

AHP is one of the supporting techniques to help make decisions by providing a structured evaluation scheme for alternatives when objectives and evaluation standards of the decision-making are multiple and mutually conflicting. Widely used for the decision-making with multi-criteria including qualitative factors. AHP methodology was invented by Thomas L. Saaty in the early 1970s for the purpose of assisting a rational decision-making process. Information necessary for the decision-making is collected by disassembling the stratum of evaluation index and alternatives. To determine relative importance of possible alternatives, weighted values of alternatives should be calculated using the pairwise comparison so as to clarify the priorities. It should be noted that qualitative standards are also accommodated for the sake of objectivity. That is, once the instrumentation was completed for the specific issue of decision-making, a pairwise comparison was performed upon the factors that belong to the sub-measurement categories, selected from the perspectives of the upper measurement categories, and such comparison will allegedly yield relative importance and weighted values, thus enabling us to attain priorities of the alternatives at the sub-measurement categories ( Choi et al. , 2008 ). If there are multiple choices of alternatives for the comparison of evaluation index, it normally requires highly complex calculations, for which computation programs can be used for the accuracy and the ease of use. AHP applications encompass most of the establishment activities that relate to the priority-setting such as strategic planning, calculation of weighted value for performance measurement index, location allocation, resource allocation, establishment of enterprise/policy and program allocation. This study segmented and formalized the causes of failures as collected from the case analysis. These formalized causes were put into pairwise comparison by the method of questionnaire so as to identify the key factors for the establishment of process.

3.3 Analysis of failure cases

3.3.1 selection of new product development process model..

Currently available references and preliminary research materials were used to select an analytic research model that can fit the case of Company “T”’s NPD process. These models were adopted from seven-phase model of Booze, Allen and Hamilton. The model was used as a preliminary working pattern for the analysis of Company “T”’s NPD process. The reasoning for selecting this particular model is that it could run the risk of oversimplification if the phases were fewer than seven, which makes it very difficult to review the contents and issues in detail at each phase. On the hand, it could run the risk of unrealistic pursuit away from the original objectives of the research if the phases were too many or too much segmented. It is certain that neither too few phases nor too much segmentation can bring the research outcomes that are expected. If the analysis is conducted according to the size of the company or the available resources, it might also cause difficulties in formulating an efficient NPD process. These are the main considerations for selecting the seven-phase model as proposed by Booze, Allen and Hamilton. Booze, Allen and Hamilton model comprises the following phases: idea creation and selection; establishment of product concept and test; establishment of marketing strategy; analysis of profitability; product development; market test; and commercialization.

3.3.2 Analysis of current new product development process.

Idea discovery or selection phase was missing. But, in-house development evaluations were conducted if there were requests from the sales department or direct orders from the CEO. Most of the projects, however, proceeded to the next developmental phase of designing and development without proper examination and evaluation.

Development process items and contents could not be found in the phase of establishment of product concept and testing.

Phase of establishing marketing strategy did not include any contents and items of development process. In reality, the only evaluation that was done was basic information analysis. In most cases, any concrete target objectives other than the development did not exist. There were, of course, understandings of the target markets, but the competition analysis and exterior environment analysis were not conducted.

Phase of business profitability analysis was substituted with the letters or request with specific details and contents. Evaluation of technological feasibility was analyzed, but, in most cases, any attempts to collect the information about market potential and demand estimation and to analyze the possible financial contribution were not found.

The product development phase was usually included within the development process through reception of development requests, and the detailed contents were identified including the review, verification, validity examination and development completion.

Phase of market test was included in the development process, but mostly within the scope of technological aspects. The review was performed upon standards of client’s request for development and upon the level of satisfaction about product specification. At this phase, some pilot manufacturing was performed to make sure that the large-scale production was ready.

Phases of commercialization and product launch were considered completed by transferring technology-related materials, thus closing up the whole development process. Analysis of defection risk during the product manufacturing and consequential revision was performed, yet any strategies for competition or product life cycle could not be found.

These significant flaws in the Company “T”’s NPD process came from the management style of current CEO and founder. As a developer, he recorded huge success until few years ago, based not on well-developed NPD process, but on his own instinct and discretion when choosing new products to develop. But, as the market matures and the environment changes unfriendly, his decision-making based on intuition does not work anymore. So, it was the right time to assess current process and develop more adequate process of NPD for the company.

During the course of the comparative analysis of the processes, a few considerable discoveries were made that might work very well for the reality of the Company “T”, which has been trying to establish the NPD process. First, the internal consensus must be reached within the firm upon whether a revision of the current downstream development process is necessary and whether establishment of upper stream NPD process is appropriate. The reason that the company’s practice for the past 10 years has become the habit and fixation, and the necessity of discerning the two different processes was never recognized. Second, full mandate and responsibility for evaluating processes at each phase must be ensured so that the supervisors must be separately designated. Third, a rational separation is necessary, because it is impossible to evaluate every process which varies because of the different product particularities and different levels of development difficulties. It becomes much critical that the newness of the product in the market and the newness of the product in the company must be the guiding principles to classify each product development process and to evaluate separately. Especially, it has been noted that in the case of Company “T”, design and performance of the connectors for the base station do not vary too much. Also, the equipment, systems, base stations and the related environments used for the products of Company “T” do not differ much, either. These products can omit some of the NPD processes such as idea discovery, idea screening, establishment of product concepts, test of product and the product developments. These findings are summarized in Figure 4 .

3.3.3 Analysis of failure cases.

Sequence of case analysis is as follows; first, classification of failed projects; second, selection of the failed project; third, identification of the causes and reasons for failure and formalize the pattern of causes; last, conducting surveys and questionnaires to select the categories necessary for the consideration with priority. At this phase, AHP analysis is conducted to confirm the reliability and consistency of the result.

First, this study went through the validation and matching task on the contents of the management register book of year 2014 and on the accumulated sales list on each product of year 2014 for the purpose of establishing a proper classification of failed projects, as seen in Table II . Second, failed projects were selected with two categories; the failure Category © is the ones that are completed but did not yield any sales, and the failure Category ® is the ones that are interrupted in the middle or never made to completion. The total cases were 407 projects, excluding the ones caused by the retirement of researchers and the ones developed not for the direct purpose of product sales. A total of 40 cases were selected according to the failure categories and in the sequential order of initiation date. Third, the reasons and causes of project failures were identified according to the prepared categories.

Main causes for the failure Category © is the most frequent cases (40 per cent) where development was proceeded without much market information and where product development did not produce any sales. It is confirmed that these failed projects proceeded without estimation of expected market size, target price range, practical possibility of large scale manufacturing and the very minimum information necessary for the development process. One particularly interesting finding indicates that the strong capacity of the long-time client can unwittingly work against product sales. The lesson of this revelation is that one must examine and comprehend the market environment and exterior situation of both first-tier client companies and the second-tier client companies. Main causes of the failure Category ® are the cases where the price competitiveness is very weak, followed by the cases where profitability evaluation was either omitted or poorly performed. Detailed reasons why the price competitiveness was weak were because of the poor information on competition companies, which caused the loss of competitive bidding and market dissatisfaction against product price. Lack of research capacities also contributed to the failures. In case where there was no evaluation for the business profitability and feasibility, the level of market information and intelligence was also weak. Also, some products with no potentials for the feasibility were also preceded for the development process.

This study continued with the analysis of the seven-phase gate evaluation for the NPD process, using the above-mentioned failed projects. The main findings are as follows: first, it is possible to calculate the failure costs for both expenditure and time at each phase if the concept of NPD process was properly comprehended or if the project management was properly executed; second, it is possible to calculate the additional failure costs for the cases of product completion without sales if the failure costs of the previous projects can be assessed. This is the direct consequence of the negligence toward the obviously expected failures. If those projects improperly executed at the very first phase could be decisively stopped in the middle of the development process, the additional costs could have been saved and the focus could have been rendered for the projects with higher probability for success.

3.3.4 Findings through analytic hierarchy process analysis.

Causes of the project failures have been identified based upon the case analysis. Of the cases in the Category ©, the prominent reasons included the failures in market analysis, price competitiveness, bidding failures for the first-tier clients, developmental capacities, disruption of the project earmarked for the first-tier clients and poor managements of the projects. Of the failure Category ®, the major causes included the failures in price competitiveness, commercialization feasibilities, market analysis, developmental capacities, bidding failures for the first-tier clients and disruption of the project. As for the bidding failures for the first-tier clients, the causes included many probabilities involving the price competitiveness of either Company “T” or the clients. If there were clear responsibilities for the failure on the part of Company “T”, the reason for such result was price competitiveness issue. Also, if the reason or price competitiveness of the client company was unclear, then the responsibilities belonged to the first-tier client. Figure 5 shows the summary of the findings.

AHP analysis using questionnaires and surveys was conducted for the purpose of determining the priorities among the important items that are worthy of careful attention while dealing with the NPD process of the categorized failure causes. Survey was conducted for 26 persons from five different departments (sales department, R&D department, technology department, quality control department and production department) Respondents’ average work experience was 13 years and 2 months. Those eight people who misunderstood the questionnaire were asked again to receive the answers. Table III shows survey items to determine priorities among the important items using the AHP methodology.

The results of questionnaires with weighted values are seen in Figure 6 , and the consistency ratio was 0.00896, which is deemed trustworthy based upon the examination of the weighted values of each factor and the criticality and consistency.

4.1 Establishment of N new product development PD process

The NPD process for Company “T” is seen in Figure 7 . It was simplified into a six-phase model by integrating the first and second phases that were used for the research model of seven phases. The biggest reason for such simplification is that the origin of the idea about business-to-business (B2B) products was the needs from the first-tier and second-tier clients.

Evaluation contents at each phase led to the decision of choosing the major projects that must be executed based upon the research contents this far. Each corresponding phase allocated both responsibilities and performance supervision appropriately so as to not overburden the research department to avoid the findings of previous development processes. For instance, at the phase of business profitability analysis, sales department shall share the overall information deriving from client preferences with other relevant internal departments, as it has been the cases. In the future, the task force organization will be formed and will be responsible for conducting marketing or profitability reviews.

At Gate 1, what needs to be identified includes which idea shall be adopted based on customers’ needs and, subsequently, what the customer values should be and what requirements need to be met for the purpose of commercialization potentials from the technological points of view. At Gate 2, product concepts must be defined, and the analysis for client purchase intention must be evaluated. At Gate 3, further considerations must be articulated about future market demands, possible boundaries and scopes for the target markets apart from the existing clients. For the purpose of evaluating the targeted market potential, the timeline of review has to be set at least for a three-year-long period. At Gate 4, as the product development is completed, preliminary financial evaluation is in order based upon the materials from the preceding phases. Preliminary trouble shooting also has to be done in the preparation for the large-scale manufacturing. Accordingly, pilot product needs to be produced and product test has to be evaluated. Last, at Gate 5, post-production evaluation needs to be done from the large-scale manufacturing or from the already launched products. Such information as client satisfaction (possibly including that of the competitions) and other relevant issues must be collected. Also, further evaluation is necessary for examining the shortcomings at the preceding phases or the modifications so as to identify the future amendments for the next product development and for the extended applications.

4.2 Process verification

Performance evaluation for each phase of the failed projects was done to verify the validity of the NPD process. The projects for evaluations were seven in total, which were all completed but never generated the sales, as seen in Table IV . Verification methodology is such that performances of each project and evaluation phases were substituted into the NPD process so as to confirm whether the assigned task at each phase was properly executed and the corresponding results were achieved.

Commercialization of potentials needs to be evaluated first with the technological feasibility as requested by the clients. Most of the products were technologically feasible. To judge whether there are purchase intentions from clients, the information previously collected from that client must be examined and further consideration must be given to future volume of manufacturing, production timing and target price for the clarification. If clients suggest such detailed requests, the client’s purchase intension might be verified. Estimated demands can also be verified with the same methodology as the purchase intention, and the profitability verification must review preliminary production costs based upon the design-related materials. The results of the product test did not contribute at all for sorting out the project evaluation. Marketing strategy, too, did not contribute in a meaningful way under the B2B purchase conditions. However, each corresponding phase will certainly contribute meaningfully if the preceding phase proceeds with substantial integrity, and simultaneous marketing strategy is executed at the same time. Last, validity evaluation was executed persistently at the development process level, but it was evident that the failures at Gates 2 and 3 were not recognized, and further unnecessary resources were invested without interruption.

The results of process verification clearly demonstrated that the projects that are highly unlikely to succeed can be discontinued at Phases 2 and 3 instead of Phase 1. As the purpose of this process is to increase the odds for the project success and make sure the unpromising projects are stopped with substantial evaluation standards, this practice was deemed worthy of efforts.

4.3 Expected effects

The following effects can be obtained from establishing a proper NPD process.

First, the rate of projects failed or suspended will be drastically reduced than the current level. Accordingly, the projects with no possibility to succeed after the launch will be more likely to be stopped in advance, and important projects will ensure much more time and costs. Second, there will be reduction of the incidents adding up the failure costs by continuing the projects without a proper evaluation phase. The fact is that there were frequent occasions where the completion and mass production of the products did not generate the sales, or occasions where fully developed products were not forwarded to the sales department. By establishing the process, sales department staff members will share as much responsibility as the development department members. Third, efforts will increase to secure the references and frameworks of objective and adequate decision-making for the proposition of project priority and its importance factors.

5. Conclusion

As Company “T”’s development process is outdated and products are developed without adequate market information research and feasibility analysis, the percentage of failed development project is as high as 87 per cent. Thus, study aims to develop an appropriate NPD process of Company “T” by analyzing the existing NPD process and failure cases of the Company.

To this end, We conduct our research as follows; first, prospective researches of the NPD process are conducted using existing literature and preliminary references; second, comparative analysis between current processes and an NPD process is conducted; third, phase-based evaluations upon failed product cases are conducted with an NPD process so as to identify the abridged steps and root-causes of failures; finally, renewed priorities are set forth by utilizing the AHP analysis and questionnaire analysis upon the above identified causes of failures. The resulting accomplishments include the establishment of NPD processes that resonate with the current states of Company “T”, which, in turn, ensures the increase of efficiency, the decrease in development duration and the strategy of capacity-concentration and priority-selection

However, this study has some limitations. First, it must be self-evident that the NPD process shall not be limited only to the R&D departments. Rather, it is a company-wide process, by definition, with this limited analysis falling short of cross-departmental examinations, which will bring out much valuable outcomes for the purpose of efficiency improvements. Second, there has been an omission of verification results for the new NPD process that was deduced for the research purpose of this paper on analysis and outcomes. It should be noted that the above-mentioned choices are indeed the superior directions for the market competition, given the limitation of resources and capacities which could optimize the efficiency of the process through verifying the feasibility evaluations upon NPD progress.

The future plans for establishing an NPD process appropriate for the overall environment of the Company “T” revolve around overcoming numerous challenges that have been identified.

First, it must be closely examined whether the evaluation results of each gate were meaningful, as it was verified through the validity tests of the NPD process. It must also be carefully examined whether data of the preliminary market analysis did contribute, with certain acceptable degree of accuracy, to the forecast and the analysis that were performed. Next, the level of perfection and refinement has to be further improved by periodically analyzing the projects within the two failure categories, as it has been done throughout this study.

research paper on new product development

Classification standard for new product

research paper on new product development

Role of gate (evaluation) in NPD phases

research paper on new product development

Leaders of NPD in small- and medium-sized businesses

research paper on new product development

“T”’s NPD process compared to a standard process

research paper on new product development

Categorized causes of failure

research paper on new product development

Evaluation results with weighted value and verification using AHP analysis

research paper on new product development

Suggested NPD process for company “T”

Classification of success and failure of development projects at “T” (unit: case)

Evaluation of completion ratios for failure Categories <1> and <2>

AHP survey items for determining priorities among important items

Results of verification for the NPD process

Booz, Allen, & Hamilton ( 1982 ), New Products Management for the 1980s , Booz, Allen, Hamilton , New York, NY .

Choi , S.M. , Lim , J.K. , Oh , S.G. and Seo , C.H. ( 2008 ), “ A research for weight decision of waterproofing methods selection evaluation item using the AHP ”, Proceedings of 2008 Autumn Conference Korea Institute of Building Construction , Seoul, Korea .

Cooper , R.G. ( 1979 ), “ The dimensions of industrial new product success and failure ”, Journal of Marketing , Vol. 43 , pp. 93 - 103 .

Crawford , C.M. ( 1991 ), New Products Management , 3rd ed. , Richard D. Irwin , Homewood, IL .

Kim , J.Y. and Hahn , J.H. ( 2009 ), “ The impact of NPD (New Product Development) process planning proficiencies on NPD performance ”, Journal of the Korea Academia-Industrial Cooperation Society , Vol. 10 No. 9 , pp. 2440 - 2450 .

Mishra , S. , Kim , D. and Lee , D. ( 1996 ), “ Factors affecting new product success: cross-country comparisons ”, Journal of Product Innovation Management , Vol. 13 No. 6 , pp. 530 - 550 .

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NEW PRODUCT DEVELOPMENT NEW PRODUCT DEVELOPMENT An Empirical Study of the Effects of Innovation Strategy, Organization Learning, and Market Conditions

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Janet Fritzmont

research paper on new product development

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ABSTRACT New product development,(NPD) in food processing industries is often one element,which determines,whether companies,are able to remain competitive in rapidly changing ,consumer ,markets. Current research suggests that well managed,NPD should be organized as a continuous learning process. It should have strong ,information linkage across functions and outside the company ,to suppliers ,and customers. We examine,NPD in Thailand’s food processing industry

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Use of New Product Development Methods (NPD) may benefit New Zealand SMEs and entrepreneurial firms in gaining greater market share. In this paper we review the literature on New Product Development, NPD theory, and methods for early stage product design and development. Our reading suggests that product design has greater success when the customer is involved in the design effort. It also recommends methods of approach to new markets in the (NPD) life cycle. The literature further elucidates methods for identification of product design criteria based on customer needs identification. In essence, customer-product interaction in the early stages of product development is important to product success in new markets for entrepreneurial firms and SMEs. Of particular interest are early-stage NPD research methods and their influence on the company's marketing strategy. Citation: Coleman, E. B., Frederick, H., & Mellalieu, P. J. (2006). Customer-Product Interaction - A Model for New Product Development in Entrepreneurial Firms. In Third AGSE International Entrepreneurship Research Exchange (AIREX-2006). Auckland: Unitec Institute of Technology. Retrieved from https://www.academia.edu/1513318/Customer-Product_Interaction_-_A_Model_for_New_Product_Development_in_Entrepreneurial_Firms Related: Coleman, E. B. (2004). Water & Food Safety Testing Products for New Zealand Mollusc Aquaculture Organisations: A Case Study in New Product Development (Industry-Based Research Project Submitted in partial fulfilment of the requirements for the degree of Master of Business Innovation and Entrepreneurship). Unitec Institute of Technology, Auckland. Retrieved from http://fgcu.academia.edu/ElizabethBColeman/Papers/1629049/

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John Nicholas

Efforts continue to identify new product development (NPD) best practices. Examples of recognized studies include those by the Product Development and Management Association's Comparative Performance Assessment Study and the American Productivity Quality Center NPD best practices study. While these studies designate practices that distinguish top-performing companies, it is unclear whether NPD practitioners as a group (not just researchers) are knowledgeable about what represents a NPD best practice. The importance of this is that it offers insight into how NPD practitioners are translating potential NPD knowledge into actual NPD practice. In other words, are practitioners aware of and able to implement NPD best practices designated by noteworthy studies? The answer to this question ascertains a current state of the field toward understanding NPD best practice and the maturity level of various practices. Answering this question further contributes to our understanding of the diffusion of NPD best practices knowledge by NPD professionals, possibly identifying gaps between prescribed and actual practice. Beginning the empirical examination by conducting a Delphi methodology with 20 leading innovation researchers, the study examined the likely dimensions of NPD and corresponding definitions to validate the NPD practices framework originally proposed by Kahn, Barczak, and Moss. A survey was then conducted with practitioners from the United States, United Kingdom, and Ireland to gauge opinions about perceptions of the importance of different NPD dimensions, specific characteristics reflected by each of these dimensions, and the level of NPD practice maturity that these characteristics would represent. The study is therefore unique in that it relies on the opinions of NPD practitioners to see what they perceive as best practice versus prior studies where the researcher has identified and prescribed best practices. Results of the present study find that seven NPD dimensions are recommended, whereas the Kahn, Barczak, and Moss framework had suggested six dimensions. Among practitioners across the three country contexts, there is consensus on which dimensions are more important, providing evidence that NPD dimensions may be generalizable across Western contexts. Strategy was rated higher than any of the other dimensions followed by research, commercialization, and process. Project climate and metrics were perceived as the lowest in importance. The high weighting on strategy and low weighting on metrics and project climate reinforce previous best practice findings. Regarding the characteristics of each best practice dimension, practitioners appear able to distinguish what constitutes poor versus best practice, but consensus on distinguishing middle range practices are not as clear. The suggested implications of these findings are that managers should emphasize strategy when undertaking NPD efforts and consider the fit of their projects with this strategy. The results further imply that there are clearly some poor practices that managers should avoid and best practices to which managers should ascribe. For academics, the results strongly suggest a need to do a better job of diffusing NPD knowledge and research on best practices. Particular attention by academics to the issues of metrics, project climate, and company culture appears warranted.

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Elsevier Full-Text Article

The role of product development practices on new product performance: Evidence from Nigeria's financial services providers

Nkemdilim iheanachor.

a Strategy and International Business Group of Lagos Business School, Pan-Atlantic University, Lagos, Nigeria

Immanuel Ovemeso Umukoro

b Information Systems & Digital Business Transformation, Lagos Business School, Pan-Atlantic University, Lagos, Nigeria

Olayinka David-West

c Professor of Information Systems, Lagos Business School, Pan-Atlantic University, Lagos, Nigeria

Associated Data

  • • Impact of product development practices on the performance of newly launched products.
  • • When key product development practices are not well implemented the likelihood of product failure increases.
  • • Development of financial service products affect adoption, use and product penetration.
  • • Management teams of various financial service providers should invest in developing sound product development practices.

This study investigates the impact of product development practices on the performance of new financial products and services through the analysis of ten in-depth case studies. We argue that weak product development practices negatively affect product performance. This study finds that in Nigeria, new financial product performance is suboptimal because of poor product development practices. This study further shows that when poor execution follows inadequate product development practices, the likelihood of product failure increases, as evidenced by poor product performance and low adoption. The processes adopted in the development of financial services affect the adoption, use, and overall penetration of the product in the target market. Therefore, this study suggests that the management team of various financial service providers invest in developing sound product development practices in the actualization of their goals of increasing the adoption and use of their products.

1. Introduction

In emerging markets, financial services innovation (whether in products or business models) is critical to a provider's sustainability and competitiveness ( David-West et al., (2019) ). Technological innovation has disrupted the financial services sector by establishing novel ways of creating and delivering value to customers ( Hine and Greenaway, 2016 ; Li, 2016; Madeira, 2016 ). This warrants additional investments in information technology (IT) assets, resources and capabilities. As IT investments increase, customer needs are also becoming more diverse. Financial service providers (FSPs) must also strengthen their processes to meet and surpass the needs of their customers who are the most influential yet volatile stakeholders ( De Oliveira and Rabechini, 2019 ; Kim et al., 2018 ; Ouma et al., 2017 ; Pollari, 2016 ).

Understanding consumer pain points remains a critical driver in creating and delivering a compelling customer value proposition that meets their diverse financial service needs. David-West et al., 2019 report that customer value propositions (CVPs) such as affordability, accessibility, ease of use, service reliability and security characterize financial products and services. FSPs need these CVPs to acquire and retain customers. To achieve and sustain these attributes in their products, FSPs must continually review their customer value propositions and product fit amidst changing consumer behaviours. The continuous review of product development practices is one such approach. This is undoubtedly true, especially in an era where new non-bank financial technology (Fintech) firms are challenging the incumbents and disrupting the financial services space with new value propositions.

Financial product development requires the commitment of critical resources and an understanding of customer needs, characteristics and behaviours to gain the adoption, customer satisfaction ( Brockmann, 2017 ; Laukkanen, 2016 ; Park and Koh, 2017 ), and continuous use of financial services ( David-West et al., 2019b ). Well-developed financial products yield benefits such as improved market shares, higher profits, returns on equity, customer loyalty, and long-term survival ( Albers et al., 2018 ; Lalic et al., 2018 ; Mikkola, 2018 ). For new products to be successful, organizations must ensure that product development processes such as ideation, prototyping, testing and launching must be carefully and systematically executed ( Roy et al., 2017 ; Yoon and Rim, 2018 ; Claudy et al., 2016 ). Beyond the value proposition, pilot and launch strategies that FSPs adopt can also affect product acceptance. There is, therefore, a need to be innovative in the product development process. Such processes require a competent team, efficient operational processes, and a strategy for managing emerging product risks.

The spike in financial product failure in emerging economies is caused by a lack of adherence to good product development practices ( Albers et al., 2018 ; Lalic et., 2018; Mikkola, 2018 ). For instance, low financial inclusion rates in Nigeria can be attributed to poor product adoption resulting from poor product-customer fit and other exclusion enablers. Evidence of failed financial products abounds in Asia ( Kim et al., 2016 ) and Africa ( Karabag, 2019 ; Šoltés et al., 2017 ; Gumel, 2017 ). These products often fail to address customers’ pain points. Likewise, product failures have significant impacts on customers, employees, profitability, market share, brand equity, investors, and the economy at large. Such failures can erode consumers’ trust in a brand and could be capitalized upon by rival firms. This study investigates the impact of product development practices on the performance of newly launched products by financial service providers by relying on evidence provided by ten case studies of purposively sampled FSPs.

The goal of product development practices is to meet consumer needs while keeping a focus on profitability and business sustainability. Products are one dimension of competition in the financial services space. The practices that produce the products must receive adequate attention. They are vital to improving the quality of services to promote customer adoption, consumer satisfaction, customer retention, profitability and long-term sustainability.

1.1. Rationale

The concept of product development has been widely discussed in the literature, especially in innovation management research. However, the analysis of the literature on product development practices shows that most references and case studies are in the manufacturing ( Akroush and Awwad, 2018 ; Chang and Taylor, 2016 ; Vinayak and Kodali, 2014 ), telecom ( Namusonge et al., 2017 ), aviation ( Naghi Ganji et al., 2017 ) and transportation sectors. Studies on product development practices of financial service providers remain sparse, especially those from an emerging economy perspective. This phenomenon is essential given the low level of adoption of financial services in Nigeria, resulting in a low financial inclusion rate despite the broad spectrum of financial products and services offered by Nigerian FSPs. Where financial products exist, their adoption and utility are usually low. The adoption of financial services (used interchangeably with financial products) is a significant phenomenon as it plays a critical role in enabling Nigeria to attain its financial inclusion goals of 80% by 2020. Despite the high number of bank and non-bank FSPs in Nigeria, approximately 36.8% (36.6 million) of the adult population remains financially excluded. Additionally, 14.6% (14.6 million) of adults are underserved. The underserved segment resorts to the use of informal channels and services ( EFInA, 2018 ), which could be costly and risky.

The challenge of financial inclusion in Nigeria and its consequent negative impact on economic development continues to attract the attention of scholars and governments at all levels. Several factors are responsible for this low level of adoption. While a demand-side approach may amplify the voice of financial services consumers, a supply-side approach provides a broader perspective on the processes through which FSPs conceptualize and develop products. This can offer insight into how product development practices may contribute to low financial service adoption and, by extension, low financial inclusion. Financial exclusion can be due to lack of product-customer fit, often resulting from flawed research and development efforts. This can be because of insufficient business case analysis, ineffective market segmentation, the absence of product prototype development, and insufficient testing and refinement, among other causes.

Specifically, the study examines the following:

  • 1 The nature of product development practices (PDPs) among financial services providers (FSPs) in Nigeria
  • 2 The impact of product development processes on new product performance in Nigeria
  • 3 How the risk management strategies of financial services providers affect the performance of the new products of financial service providers

1.2. Research questions

The following research questions guided this study:

  • 1 How do Nigerian FSPs undertake product development?
  • 2 To what extent do best product development processes guide Nigerian FSPs in their new product development efforts?
  • 3 What is the role of product development processes in the performance of new products developed by Nigerian FSPs?

We organize the rest of this paper as follows. The section after this introduction provides a brief review of the related literature on product development practices. It aims to explore the relevant literature and outline extant theories within the context of product development practices. The method section follows the literature review. The results and discussion sections are next; followed by a conclusion, recommendations, implications for practice and directions for further studies.

2. Literature review

2.1. product development and product development practices.

The term product development or new product development refers to the transformation process of a market opportunity and a set of assumptions regarding product technology into a product accessible to the market ( Chang and Taylor, 2016 ). It is a process that leads to introducing new products into a market as a response to a market opportunity by logically combining a set of activities. Product development practices (PDPs) are a defined set of tasks, steps and phases that describe the standards by which a company repetitively converts embryonic ideas into sellable products or services (Kahn, 2004). They are firm practices that translate into the development and launch of new products as a response to new market opportunities. PDPs are "success drivers of new product development efforts" ( Troy et al., 2008 , p. 136) because when properly implemented, they can positively impact an organization's market share, profitability and long-term survival. PDPs include practices that help business organizations arrive at quality and viable products that meet market needs and can capture value for the organization while creating value for customers (see Fig. 1 ). The concept impacts three broad aspects of organizational success: operational, financial, and marketing performance.

Fig 1

Product development framework ( Source: Author's representation ).

Nguyen et al. (2018) note that practices such as the development of product programmes, research and development (R&D) and innovation can translate into the success of a new product. There are two categories of PDPs – process speed and integrative practices.

  • ■ Process Speed: This refers to the compression of activities ( Kiss and Barr, 2017 ) versus traditional sequential new product development practices. Process speed could be agile development, early feedback or late decision-making product development practices for accelerating the speed of the product development process. Agile development is characterized by rapid development iterations used to gain feedback combined with overlapping processes where the next iteration begins before the current iteration finishes ( Haidar et al., 2017 ; Mohan et al., 2010 ). Agile development contrasts with the traditional waterfall development methodology that focuses on preparing a complete and detailed design specification before the execution phase begins ( Guntamukkala et al., 2006 ; Roems, 2017 ). Early feedback  refers to regularly gathering feedback from multiple constituents at the earliest stages of the product development process ( Lakemond et al., 2013 ; Thomas, 2014 ; Narasimhan et al., 2006 ). Late decision making is a process in which product concepts, capabilities and designs are not finalized until the last phases of the development process ( Buganza et al., 2010 , 2009 ). Late decision-making contrasts with the traditional stage-gate style processes where product development is in a sequential structure of decision gates (Kahn, 2004). At each decision gate, a facet of the product is agreed upon and frozen before moving to the next gate.
  • ■ Integrative P ractices: These are processes used by the organization to regenerate its knowledge base (Eisenhardt and Martin, 2000; Kogut and Zander, 1992 ; Marsh and Stock, 2006 ). They include foundational customers and supplier participation. Foundational customers are customer representatives who participate in the new product development process in a manner that helps shape the requirement analysis ( Carbonell et al., 2009 ; Gatignon and Xuereb, 1997 ) for new product development. In-depth requirement analysis of market realities is critical for the success of financial products. Validating initial market assumptions requires engaging customers that can provide a near real-life input to the requirement analysis and initial product design stages. Supplier participation refers to the various roles that suppliers play in the product development process. It ranges from merely delivering parts based on a specification to substantial involvement in the design process ( Ragatz et al., 2002 ; Gatignon and Xuereb, 1997 ; Cusumano and Takeishi, 1991 ). Suppliers are a critical category of stakeholders in the product development process. The interface with customers provides useful feedback on customer buying and consumption behavior. Lau, 2011 also state that supplier involvement and inter-functional integration can also eliminate barriers that lead to new product failure.

2.2. Product performance and performance measures

Product performance refers to how well a product performs across defined measurement indicators. The indicators could be how product development promotes customer attraction (market share) and retention, revenues and net profit, brand equity, customer satisfaction and feedback, among other indicators ( Namusonge et al., 2017 ; Ganeshkumar and Nambirajan, 2013 ; Schilling and Hill, 2005 ). Product performance reflects the financial and market performance of a firm's new or existing product ( Najafi-Tavani et al. (2016) ). Product performance measures or outcomes are the actual performance of a product against the expected level of performance. They are indicators that measure changes that the firm needs to manage the transition towards defined goals. In examining how firms benefit from new product development, we can broadly categorize product performance into four distinct dimensions:

  • ■ Profitability (financial) Performance : Financial performance is the degree to which the product exceeds or falls short of the expected profitability level ( Cooper, 2019 ). The profitability dimension includes both the level of profit and profit objectives. On average, the level of profit is scored relatively higher than the score for profit against the objective. It, therefore, implies that firms expect a higher level of profit from introducing new products.
  • ■ Sales and Market Performance : Market performance is the extent to which the product exceeds or falls short of achieving market expectations ( Cooper, 2019 ). Sales performance illustrates the performance of new products and comprises measures of performance relative to sales objectives, and measures of total sales. Sales performance is growth in sales against the aim.
  • ■ Customer Satisfaction :  This is the level of the purchaser's affective response. It is an assessment indicator of how well financial services perform. High adoption is due to customer satisfaction with the product. However, Umukoro and Tiamiyu (2017) warn that in the context of e-services, the absence of better alternatives may increase use without necessarily translating into customer satisfaction. One way of ensuring customer satisfaction is for FSPs to define a product value proposition in ways that address customer needs ( David-West et al., 2019b , 2017 ; Mbiti and Weil, 2013 ).
  • ■ Enhanced Opportunities : These are the gains of product development practices to the firm as an entity rather than solely accruing to the product. This factor illustrates the long-term benefits that can be derived from introducing a new product. Repositioning the firm, creating a new market, and platforms for the introduction of additional new products or new product features increase the potential for long-term prosperity.

2.3. Product development practices and product performance (success)

Schilling and Hill 1998 suggest that for a firm to be successful at new product development, it must simultaneously meet two critical objectives: maximizing profits through customer needs and minimizing the time to market. While these objectives often pose conflicting demands on a firm, there is a growing body of evidence that a firm may adopt strategies to meet these objectives successfully. Successful companies are known for articulating their strategic plan and leveraging their R&D portfolio to achieve a fit between their new product development goals and their current resources and competencies. Namusonge et al (2017) posits that strategic product development practices have a positive and significant influence on financial performance.

Many products fail too quickly because of weak market analysis, poor design (weak products), regulatory risks, weak and unvalidated market assumptions, and late arrival to market, among other reasons. Ateke et al. (2015) note that firms can also measure the performance of a new product in terms of the levels of customer adoption and satisfaction, the profitability of the new product, and how long the product survives competition from rival products. It is important to note that how well a new product performs in terms of financial performance, customer adoption, growth in market share, and customer satisfaction is a function of the product development practices that the firm adopts ( Nguyen et al., 2018 ).

Successful products need a strong product development team to conduct practices that foster the success of developed products ( Naghi Ganji et al., 2017 ). Product managers must, therefore, understand the business impacts of product development decisions and the need to have the right product development practices in place ( Nguyen et al., 2018 ). Often, product development managers are quick to isolate the causes of poor product performance and may tackle them individually. However, a combination of these factors may exist. Cassia et al. (2012) argue that new products and ideas fail because they lack structured product development processes or practices. The absence of efficient product development practices such as risk management, product development strategy, research and development and other practices can lead to weak products (Almeida and Miguel, 2007). This can lead to poor market and requirement analysis resulting to products that do not align with customer needs.

2.4. Product development practices include the following

  • ■ Research and Development: Product innovation begins with an understanding of a need and how well to solve the need. Frankort (2016) reports that knowledge acquisition through R&D is positively associated with product performance both in terms of product breadth and market performance. Many organizations, including those in the financial service sector, are engaging in R&D to be more deliberate in the products they introduce. Organizations such as Google, Apple, and Microsoft take R&D further and include the establishment of research, development and innovation labs to aid their product development efforts. With greater involvement in R&D, products perform better in terms of profitability, adoption, and usage ( Cuervo-Cazurra et al., 2018 ; Santoro et al., 2017 ; Homburg et al., 2017 ; ). Considering this, we argue the following:

Proposition 1: Research and development practices enhance new financial product performance.

  • ■ Well-established or Structured Product Development Processes: Product development involves a logical implementation of a set of activities ( Chang and Taylor, 2016 ; Kahn, 2004). Good product development practices include well-thought-out processes that follow a product development methodology. Although many methodologies exist, certain features characterize them. For instance, product requirement analysis is a necessary process or practice that must be undertaken to understand customer and market dynamics and validate initial market assumptions. A well-structured product development process also considers critical activities in the product development life cycle. These activities include customer empathy and ideation, the determination of a business case, design and prototyping, testing and launch, and product performance assessment. Given these assumptions, we argue the following:

Proposition 2: Structured product development processes contribute to the success of new financial products.

  • ■ Product Development Strategy: The product strategy is a plan that focuses on the product efforts directed towards achieving business goals. It is a set of actions in a sequence explaining why this is the right approach. Poor products can also result from a poor product strategy, given that the strategy determines the products’ impact and performance. Product development efforts become aimless without a defined strategy, just as a strategy is useless without execution. The product development strategy helps contextualize the problem that the product will solve, for whom, when and where should a new financial product be introduced. A well-articulated product strategy helps a firm to assess how its product development capabilities match the market opportunities. Such capabilities may include leadership, functional and technical skills. Where existing capabilities are inadequate for exploring market opportunities, the firm must strategize on how to play, where to play, and when to play to win (Ogechie, 2018). This can significantly increase the chances that the proposed product will perform well when finally developed. Consequently, we argue the following:

Proposition 3: The existence of a product development strategy enhances the success (performance) of new financial products.

  • ■ Risk Management: New product development efforts often face risks that, when not well managed, may lead to product failure; and sometimes, product development efforts may not even materialize. Risks differ across different organizations and product lines. While the risk profiles for different financial products may not be identical, it is essential to identify where on the spectrum a company wants to be to plan risk mitigation measures. Consequently, we argue the following:

Proposition 4: Risk management practices can enhance the performance of new financial products.

2.5. Theoretical foundation and research framework

The dynamic capabilities (DCs) theory extends the well-established resource-based view (RBV) theory. The dynamic capabilities theory emphasizes the ability of a firm to integrate, develop and reinvigorate its internal capacity to address challenges arising from rapidly changing business environments ( Teece et al., 1997 , p. 516). From the above definition, we can infer that DCs promote continuous change and the configuration of the productive resources of a firm to adapt better to the environment.

The literature provides empirical evidence that suggests that the management of various competitive organizations invests in product development practices as a strategic solution for long-term survival in some dynamic environments (e.g., Pavlou and El Sawy, 2011 ; Schilke, 2014 ). Regular product development practices (PDPs) and product introduction require a variety of activities that are the driving forces to regenerate and renew the routines and competitors' strategies of a firm, ensuring environmental adaptation in various industries ( Helfat and Winter, 2011 ). The DC theory provides the underpinning for this case study on the product development practices of financial services as it helps to explain how financial service providers develop and integrate assets, resources and capabilities for new product development as a response to the needs of a changing business environment.

Fig. 2 shows four critical product development practices – product development processes, risk management, research and development, and product strategy – as factors that affect the performance of new financial products.

Fig 2

Research framework.

3. Methodology

This paper is an exploratory study. It adopts a qualitative method using multiple case studies of eight (8) financial services providers to investigate the product development practices and the effects of these practices on new product performance. Case studies provide very engaging and rich explorations of a project as it develops in a real-world setting ( Berkowitz, 1997 ). The study uses a cross-case analysis given its robustness for analysis and synthesis of data across multiple sources, unlike the individual or intra-case analysis approach that restricts the analysis to a single case ( Cruzes et al., 2015 ; Miles et al., 2013 ; Berkowitz, 1997 ; Mahoney, 1997 ;). We collected data on product development practices using semi-structured interviews.

Theories and concepts from the existing literature were identified (see Table 1 ) and used in the development of question items for the interview guide. Pertinent questions were framed and validated for each of the constructs. We derived the questions from an item generation process while incorporating themes, noting patterns, seeing plausibility, clustering, making metaphors, counting, contrasting/comparing and partitioning variables ( David-West et al., 2018 ; Miles et al., 2013 ). The final instrument is a semi-structured interview developed from the validation of questions conducted through several iterations of expert review. Convenient and purposive sampling of FSPs (cases) was conducted to select the respondents who were within reach. The purposiveness of the sampling approach ensures that the data were collected from product development managers or senior team members (see Table 1 ) at FSP headquarters, where product development and decision-making processes are located.

Profile of interviewees.

*All respondents interviewed are of the managerial cadre.

Table 1 highlights the sampling profiles used in the study. Embedded research ethics protocols guided the practices used in seeking formal participation consent and session recordings. An a priori list of codes guided the coding and analysis of interview transcripts. The hierarchical code structure from the a priori list of codes was replicated in an Nvivo QDA environment ( David-West et al., 2018 ).

4.1. Demographic characteristics of the interviewed FSPs

In Table 2 , we present the main characteristics of these ten FSPs. For the reason of confidentiality, financial services providers have been anonymized in the table.

Main features of selected FSPs for multiple case studies.

Many of the FSPs interviewed mentioned that several financial services were developed within the last five years. As noted earlier, a plethora of financial products has always characterized the Nigerian financial service market. However, many of these products underperform. The products shown in Table 2 can be broadly grouped into savings, credits, insurance, pensions, utility and bill payment, corporate banking, SME banking, and remittance products.

4.2. Product development practices and level of implementation by FSPs

Table 3 summarises the different product development practices of FSPs and the FSPs' performance levels on each of those practices reported. The dominant product development practices of FSPs include R&D, product design and prototyping, risk management, product performance measurement, strategy formulation and execution, and impact measurement. As shown in Table 3 , all FSPs reported engaging in all the product development practices that were identified. In attempting to assess how product development practices affect new product performance, the study also assessed the level of implementation of these product development practices. The results are presented in Table 3 .

Product Development Practices (PDPs) and FSPs Scorecard on each PDP.

The results presented in Table 3 show that the level of execution of product development practices varies across different FSPs. However, similar patterns exist among FSPs with similar assets, resources, and capabilities (ARCs). The results are discussed in the following section.

5. Discussion

5.1. nature of product development practices among nigerian fsps.

We assess the product development practices conducted by the different financial service providers to understand the differences and similarities and the attendant's reasons for the level of PDPs conducted.

  • • Product Development Practices among Mobile Money Operators (MMOs): Mobile money operators (FSPs 2, 4, 8, & 9) performed low or moderate across the PDP measures. These institutions primarily provide payment services through mobile devices. They rely mainly on the quality of mobile network connectivity and the spread of their agents across different locations of interest. MMOs typically offer higher-priced services because of the high service charges they incur from different partners who provide the service delivery channels. Manpower costs are high, which limits the product development capabilities of these providers. The assessed risk is average as payment services do not involve the extension of credit. MMOs have a significant need for high-quality talent, which is expensive and scarce. Market sizing and product viability assessments are non-existent. Market and occupational segmentation are also not visible, although product development and deployment are driven by profitability assessments. Low levels of ideation and market testing are observed.
  • • Product Development Practices among Pension and Insurance Providers: Pension and insurance providers scored low in R&D, customer empathy and ideation, business case determination, product design, prototyping, testing and launch, and product impact assessment, although both FSPs (7 and 10) scored moderately in their risk assessment practices. These institutions primarily focus on providing affordable retirement savings to working individuals to make them financially secure and independent in their old age. Most product offerings are homogenous, and the product design exists only within the regulatory boundaries defined by PENCOM.

These regulatory safeguards are heavily skewed towards risk management with little incentives to potential savers compared with other FSPs that offer them credit. They mostly engage in product adaptation rather than developing new products to meet the needs of banked and served consumers. Risk management here is very strong while leveraging the risk management capabilities of the parent pension companies. Market sizing and product viability assessments are very scant. They do not have products that are gender specific, but they have products that speak to the general needs of the consumers outside the pension net. We also observed a low level of prototyping and product testing among pension and insurance providers.

  • • Product Development Practices among Microfinance Banks/Institutions: These institutions (FSPs 1 and 5) also exhibited similar product development practices. While they score moderate across several PDPs, more attention is given to business case analysis, product design, and prototyping. These institutions are part of the FSP segment in Nigeria that customizes services with ethical lending practices in the form of small business loans to unemployed, low-income individuals. These people would otherwise have limited or no access to other financial products, especially in semi-urban and rural areas. There are no procedures for how to track product performance. The most popular products are near-identical. It takes from two months to two years for them to launch new products. The prototyping and actual product development process are also unclear. MFBs do not have products that are gender specific, and they have fewer cost reduction initiatives in terms of interest rates. MFBs identify the need for new products through agent networks, organic movement, and interviews (FGDs) that provide them with an understanding of the dynamics of consumer behaviours and locations.
  • • Product Development Practices among Deposit Money (Commercial) Banks: Although deposit money banks (FSPs 3 & 6) are not very similar in product development practices, none of the DMBs scored high in any of the product development practices. DMBs have well-resourced product development teams that come from diverse functional areas in the organization. Providers in this area conduct more product adaptation and offer the same product to virtually all consumers. Minimal customization occurs. These factors lead to low product adoption; and where adoption exists, customer attrition is high. Risk assessment is high, and this could reduce adoption. Market sizing and product viability assessments are very scant. Market and occupational segmentation are shallow as providers rely more on customer feedback to gage market needs, some of which are unstructured or inaccurate. For DMBs, product development is better resourced. Product testing and roll-out can take an average of 2 to 3 months with regulatory approval not serving as a major impediment. A low level of ideation is widespread and could be the reason for the product homogeneity that is observed among DMBs.

5.2. Product development practices and product performance

Proposition 1: Research and Development Practices and Product Performance

In the first proposition, we argue that R&D enhances new financial service performance. All FSPs studied scored low or average on R&D efforts. The findings of this study suggest that poor R&D practice is one reason financial services fail in Nigeria. For instance, a respondent stated the following:

"…our research and development are mainly on market research to map out where the unbanked and under-banked customers are located. That way, our products can be more targeted in our marketing efforts."

This is not an R&D effort that defines the product development direction, but rather it is research that helps the marketing of the product. Beyond demographic profiling, R&D entails behavioural and psychometric profiling of the target market segments to understand their economic lives and the reasons for their behaviours. R&D efforts that consider human-centred design approaches can unravel the various consumer archetypes across various demographic profiles. It is in this stage that the team empathizes with the customer to ideate and refine the value proposition. A good R&D effort provides a clear picture of the problem and potential solutions. A respondent notes thus:

"…I have been involved in some ideation where we have to engage women in some market places to ask them what are the pain points, what are the things that we need to know. We are trying to build a product that will help them to save more and trying to attach some new product to it but we found that what we were thinking about was not what they even wanted and that led to the introduction of a new product to them."

Grimpe et al. (2017) note that innovative product design, packaging, pricing, and promotion that are rooted in R&D can significantly drive the performance of new products. Processes driven by R&D can guide the product development team during the design, prototyping, and testing phases. We conclude that the low level of research and development among FSPs is a driver of the poor performance of new financial services (products) in the Nigerian market.

Another respondent states the following:

"The number of unbanked and under-banked adults in Nigeria is about 50 percent of the adult population. We aim to reach those in places that no one is interested in."

Products developed with this mindset will fail. While the market may exist, not all of it is addressable. Serving a dynamic market such as Nigeria requires quality R&D effort. D'Este et al. (2016) stress that there is clear evidence that firms' knowledge creation capacities, especially internal R&D activities, are decisive for their product performance.

Proposition 2: Product Development Processes and Product Performance

We argue for structured product development processes. They include customer empathy, ideation, concept testing and refinement, requirement analysis and market validation, prototyping, piloting, product lunch and performance assessment. They contribute to the success of new financial products. The data show that FSPs scored low on each product development process except on indicators such as business case determination, design and prototyping, and ideation where a few FSPs scored high (see Table 3 ). Many FSPs deploy homogenous products to consumers without following a rigorous product development process guided by an established product development methodology. Some FSPs do not conduct customization that ensures that the products meet the needs of the diverse mass market they aim to serve. Homogenous products do not address diverse customer needs and may lead to poor product performance. One of the senior executives interviewed remarked the following:

"…we trust our product development team because they come with a wealth of experience having worked in the manufacturing industry for years. They understand how to carry out product development, and we give them full support once they can show the profitability of the product."

The products that meet the needs of this market may vary across demographic groups and would require understanding customer needs, defining product requirements and business cases, and scenario planning. Good product development practices require product teams to be methodological ( Kauffman et al., 2015 ; Orbach and Fruchter, 2011 ). These methodological approaches can help in developing products in a manner that considers different customer archetypes across different demographic profiles. This helps to achieve well-defined use cases and customer-centric products with guaranteed wide adoption and profitability. Well-defined and executed product development processes can also help reduce product failures ( D'Este et al., 2016 ) as product development teams can run more iterations of prototypes, allowing for quality checks and determining the product's desirability, viability and feasibility. We conclude that the absence of or a poor implementation of these processes can translate into product failure.

Proposition 3: Product Development Strategy and Product Development Performance

Here, we argue that the availability of a product development strategy enhances the success (performance) of new financial products, given that strategy is required to serve a market efficiently and profitably. Grimpe et al. (2017) posit that a well-developed strategy is critical to successfully taking a product to the market as it considers market forces, especially the threat of substitute products, barriers to entry and other forces that may lower product performance. Product strategies are unique to specific products. The route-to-market (RTM) also differs across locations and demographics. The findings also show that all the FSPs scored low on the product strategy indicator. What many FSPs treat as a product strategy are marketing plans detailing how they will undertake branding and advertising. A respondent notes as follows:

"…sometimes we have partnerships to deploy some products, so we have to work with banks, like I said pension companies, sometimes we . . …there is a small scale pilot which is with the internal customers, which is me and my colleagues so we are the internal customers, and then expanded retail team, who are the guys who manage the retail product on the field and then we also sample a number of our key agent for a soft life deployment before giving out the products to the customers in general…"

Product pricing is the responsibility of the finance department, just as operations are an HR concern. There was no strategy document showing how the product will translate into the realization of the overall organization vision. The absence of this has resulted in poor product performance measurement. Drawing from Danneels's (2002) first- and second-order competencies, we can explain that a product strategy helps product managers and teams build marketing innovations that help in aligning new product performance metrics to the overall organizational goal. The absence of this can negatively affect product performance as there are likely to be undefined indicators or approaches for measuring product performance or for taking appropriate corrective measures.

Proposition 4: Risk Management Practices and Product Performance

Proposition four argues that risk management practices can enhance the performance of new financial products. The study observes that the risk management practices in product management are suboptimal among Nigerian FSPs. Few FSPs (mainly MMOs), however, prioritized risk. An MMO representative stated as follows:

"Like I said at the product conceptualization and development, all the functionary units including risk are involved. So, all the risk exposure deliberations are handled at that stage. We have what we call the product papers…in that document every aspect of that product is articulated and documented including the risk mitigants."

A key area where risk is dominant is the platform and not risks relating to product development. FSPs are more concerned with managing risks that are associated with the security of their platforms while neglecting risks that may arise from non-approval by regulators. Such risks, when poorly managed, may lead to products not making it to the hands of the target user groups because of non-approval from regulatory bodies.

6. Conclusion

New financial products in Nigeria struggle to perform well because of poor product development practices. Although the financial service sector has grown over the years with an improved regulatory environment, this study shows that product development practices seeking to guarantee new product success are poorly implemented. The resultant effects are poor product performance and low adoption. The processes adopted in the development of financial services affect the adoption, use, and overall penetration of the product in the marketplace. Financial inclusion rates will therefore remain low if the adoption and use of financial services remain low.

Evidence suggests that several financial services are inappropriately designed and unsuited to the needs of the diverse segments of unbanked and underbanked Nigerians. Additionally, there is an overestimation of the market size owing to lack of adequate market research and R&D, which can cause products to not meet financial projections. Products also fail because of poor product designs stemming from inadequate requirement analysis and a lack of well-designed and tested prototypes before products are launched. This can also translate to wrongly positioned, priced, or advertised products that underperform in terms of adoption and profitability. One reason highlighted by this study is that the different FSPs have insufficient product development skills. Most times, product development teams comprise software engineers and those with a manufacturing background whereas financial products are service-oriented. The absence of a skilled and well diversified team can translate to high development costs, which may lead to unprofitable products ( Olson et al., 2001 ).

Addressing these concerns requires FSPs to reconfigure their product development teams. The teams must possess the capabilities needed for the development of quality financial services (products) that meet validated market assumptions. With the right set of product development capabilities, poor product performance can be closed using industry-wide market research that incorporates human-centred design (HCD) and design-thinking techniques. These can lead to the development of financial services that are customer-centric and widely adopted, trusted by consumers, and compliant with market regulations. Additionally, market knowledge breadth that flows from rigorous R&D can help firms transform novel ideas into new products, thereby intensifying product performance ( Jin et al., 2019 )

Good R&D practices such as the adoption of approaches such as human-centred design can help product managers and the broader product development teams to provide answers that validate initial market assumptions. These could be assumptions on consumer needs, buying behaviour, market share, rival firms, and other prevailing market conditions. These methodologies can help answer questions such as the following: 1) What non-existing value is being proposed by the new product? 2) What use cases exist, and what is the addressable market? 3) Is there an effective product development process? How competent is the product development team? 4) What is the time frame between ideation and launch? 5) How efficient is the operational process? 6) Is the product prototype tested before or after launch? 7) Are there strategies for mitigating risks emerging from new financial product development? 8) What are the feedback channels for customers' opinions on new products? 9) How does management respond to unfavourable feedback on new financial products?

7. Managerial implications

The literature ( Schilke, 2014 ; Pavlou and El Sawy, 2011 ) provides empirical evidence that suggests that the more an organization invests in product development practices, the higher the likelihood of product success. Effective product development practices (PDPs) serve as forms of competitive strategies, especially in an industry with multiple players ( Cheng and Yeng, 2019 ). DC theory argues for the development of capabilities that help a firm meet the demands of a dynamic environment of business. In the Nigerian financial sector, management teams of FSPs must build the capabilities required for product development to ensure the high performance of their products. It should be noted that executive commitment and support are key success factors for both product development teams and ultimate product performance.

7.1. Study limitations and directions for further studies

A limitation of this study is the limited number of respondents, which makes the generalization of the findings challenging. Moreover, the busy nature of the category of respondents (being c-level executives) meant that some were unavailable, and single interviews were sometimes conducted twice to enable the authors to gather rich data. This reduced the number of respondents for some FSPs to one, making it difficult to achieve diversity across functional roles in the product development spectrum and, to a certain extent, leading to potential data loss. Further studies should aim to reach a larger sample size and involve several respondents in a single organization to achieve a higher level of saturation. Future studies can further distil the issues into distinct FSP types such as banks, insurance companies and pension providers in the Nigerian market.

Author statement

All persons who meet authorship criteria are listed as authors, and all authors certify that they have participated sufficiently in the work to take public responsibility for the content, including participation in the concept, design, analysis, writing, or revision of the manuscript. Furthermore, each author certifies that this material or similar material has not been and will not be submitted to or published in any other publication before its appearance in the Technological Forecasting and Social Change .

Biographies

Dr Nkemdilim Iheanachor is a Faculty member in the Strategy and International Business Group of Lagos Business School, Pan-Atlantic University, Ajah, Lagos, Nigeria. Nkemdilim holds a PhD Degree in Management from Pan-Atlantic University.

Mr Immanuel Umukoro is a Research Fellow in Lagos Business School, Pan-Atlantic University, Ajah, Lagos, Nigeria. Immanuel holds a Master of Science Degree in Information Science from University of Ibadan

Professor Olayinka David-West is a Professor of Information Systems in Lagos Business School, Pan-Atlantic University, Ajah, Lagos, Nigeria. Olayinka holds a Doctorate in Business Administration Degree from Manchester Business School.

Supplementary material associated with this article can be found, in the online version, at doi:10.1016/j.techfore.2020.120470 .

Appendix. Supplementary materials

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The firm is sharing Sora with a small group of safety testers but the rest of us will have to wait to learn more.

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“We think building models that can understand video, and understand all these very complex interactions of our world, is an important step for all future AI systems,” says Tim Brooks, a scientist at OpenAI.

But there’s a disclaimer. OpenAI gave us a preview of Sora (which means sky in Japanese) under conditions of strict secrecy. In an unusual move, the firm would only share information about Sora if we agreed to wait until after news of the model was made public to seek the opinions of outside experts. [Editor’s note: We’ve updated this story with outside comment below.] OpenAI has not yet released a technical report or demonstrated the model actually working. And it says it won’t be releasing Sora anytime soon. [ Update: OpenAI has now shared more technical details on its website.]

The first generative models that could produce video from snippets of text appeared in late 2022. But early examples from Meta , Google, and a startup called Runway were glitchy and grainy. Since then, the tech has been getting better fast. Runway’s gen-2 model, released last year, can produce short clips that come close to matching big-studio animation in their quality. But most of these examples are still only a few seconds long.  

The sample videos from OpenAI’s Sora are high-definition and full of detail. OpenAI also says it can generate videos up to a minute long. One video of a Tokyo street scene shows that Sora has learned how objects fit together in 3D: the camera swoops into the scene to follow a couple as they walk past a row of shops.

OpenAI also claims that Sora handles occlusion well. One problem with existing models is that they can fail to keep track of objects when they drop out of view. For example, if a truck passes in front of a street sign, the sign might not reappear afterward.  

In a video of a papercraft underwater scene, Sora has added what look like cuts between different pieces of footage, and the model has maintained a consistent style between them.

It’s not perfect. In the Tokyo video, cars to the left look smaller than the people walking beside them. They also pop in and out between the tree branches. “There’s definitely some work to be done in terms of long-term coherence,” says Brooks. “For example, if someone goes out of view for a long time, they won’t come back. The model kind of forgets that they were supposed to be there.”

Impressive as they are, the sample videos shown here were no doubt cherry-picked to show Sora at its best. Without more information, it is hard to know how representative they are of the model’s typical output.   

It may be some time before we find out. OpenAI’s announcement of Sora today is a tech tease, and the company says it has no current plans to release it to the public. Instead, OpenAI will today begin sharing the model with third-party safety testers for the first time.

In particular, the firm is worried about the potential misuses of fake but photorealistic video . “We’re being careful about deployment here and making sure we have all our bases covered before we put this in the hands of the general public,” says Aditya Ramesh, a scientist at OpenAI, who created the firm’s text-to-image model DALL-E .

But OpenAI is eyeing a product launch sometime in the future. As well as safety testers, the company is also sharing the model with a select group of video makers and artists to get feedback on how to make Sora as useful as possible to creative professionals. “The other goal is to show everyone what is on the horizon, to give a preview of what these models will be capable of,” says Ramesh.

To build Sora, the team adapted the tech behind DALL-E 3, the latest version of OpenAI’s flagship text-to-image model. Like most text-to-image models, DALL-E 3 uses what’s known as a diffusion model. These are trained to turn a fuzz of random pixels into a picture.

Sora takes this approach and applies it to videos rather than still images. But the researchers also added another technique to the mix. Unlike DALL-E or most other generative video models, Sora combines its diffusion model with a type of neural network called a transformer.

Transformers are great at processing long sequences of data, like words. That has made them the special sauce inside large language models like OpenAI’s GPT-4 and Google DeepMind’s Gemini . But videos are not made of words. Instead, the researchers had to find a way to cut videos into chunks that could be treated as if they were. The approach they came up with was to dice videos up across both space and time. “It’s like if you were to have a stack of all the video frames and you cut little cubes from it,” says Brooks.

The transformer inside Sora can then process these chunks of video data in much the same way that the transformer inside a large language model processes words in a block of text. The researchers say that this let them train Sora on many more types of video than other text-to-video models, varied in terms of resolution, duration, aspect ratio, and orientation. “It really helps the model,” says Brooks. “That is something that we’re not aware of any existing work on.”

“From a technical perspective it seems like a very significant leap forward,” says Sam Gregory, executive director at Witness, a human rights organization that specializes in the use and misuse of video technology. “But there are two sides to the coin,” he says. “The expressive capabilities offer the potential for many more people to be storytellers using video. And there are also real potential avenues for misuse.” 

OpenAI is well aware of the risks that come with a generative video model. We are already seeing the large-scale misuse of deepfake images . Photorealistic video takes this to another level.

Gregory notes that you could use technology like this to misinform people about conflict zones or protests. The range of styles is also interesting, he says. If you could generate shaky footage that looked like something shot with a phone, it would come across as more authentic.

The tech is not there yet, but generative video has gone from zero to Sora in just 18 months. “We’re going to be entering a universe where there will be fully synthetic content, human-generated content and a mix of the two,” says Gregory.

The OpenAI team plans to draw on the safety testing it did last year for DALL-E 3. Sora already includes a filter that runs on all prompts sent to the model that will block requests for violent, sexual, or hateful images, as well as images of known people. Another filter will look at frames of generated videos and block material that violates OpenAI’s safety policies.

OpenAI says it is also adapting a fake-image detector developed for DALL-E 3 to use with Sora. And the company will embed industry-standard C2PA tags , metadata that states how an image was generated, into all of Sora’s output. But these steps are far from foolproof. Fake-image detectors are hit-or-miss. Metadata is easy to remove, and most social media sites strip it from uploaded images by default.  

“We’ll definitely need to get more feedback and learn more about the types of risks that need to be addressed with video before it would make sense for us to release this,” says Ramesh.

Brooks agrees. “Part of the reason that we’re talking about this research now is so that we can start getting the input that we need to do the work necessary to figure out how it could be safely deployed,” he says.

Update 2/15: Comments from Sam Gregory were added .

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