Visions - March 2009

risk in a tough economy —
the dual role of NPD

Katherine Radeka

Katherine Radeka, President, Whittier Consulting Group Inc. ( katherine.radeka@whittierconsulting.com)

It’s been tough going for corporate America over the past six months. For some companies, earnings fell off a cliff in the fall and a recovery seems far away. Others are holding their own, but barely. This leads to the question, “What should be the role of product development in supporting its company through such a downturn?” The author tackles this tough question.

During times like these, research and development (R&D) budgets seem ripe for steep cuts: all those juicy resources working on projects that won’t pay off for months or years, when the earnings report is due next quarter and it isn’t going to look very good.

These are not normal times. The credit crisis and the drop off in demand have been felt in every sector by now. Some companies are in survival mode, others are cautious, and a precious few have the resources to seize the opportunities.

Product development has two roles to play during this time: supporting the current business through efforts to improve im-mediate sales and operating cash while serving as the guardians of the post-crisis future.

Current product support for the present

Many companies define product development much too nar-rowly, focusing efforts entirely on products that will be new to the market. But in times like these—when buyers may be more conservative and when the organization is under heavy pressure to reduce cost—sometimes the greatest contribution that the R&D group can make is to revitalize a current product line.

Now is a good time to gain management support for initiatives to take design complexity and cost out of a product, to look for ways to eliminate waste in manufacturing that may require sup-port from engineering for design changes, and to listen to current customers to learn how a product can be enhanced to better meet their needs for the same price or a lower one.

Although these efforts may not be as glamorous as the next big thing, the technical challenges will keep your R&D teams productively engaged in addressing the company’s immediate business needs.

New product development for the future

The company cannot forget the need to prepare for the future. Whether the economy begins to recover this year or next year, eventually your customers will be ready to buy again. Will you be ready with the right products? Can you take advantage of your competitors’ idleness and come out with something that knocks their socks off?

In the December 2008 issue of Visions, an excellent article by Al Eidson titled “How to Launch a New Product in a Downturn” provided justification and ideas for how to continue momentum on new product and technology development. However, I believe

that an important insight could be added to that list: The competi-tive landscape is shifting and you want to be prepared when you land. Economic downturns are also good times to work on the long-range projects that tend to get shuffled aside when things are going well.

It’s a question of priority

If things get really bad, chances are that your product develop-ment portfolio process will come under heavy pressure. Budget cuts and cash-flow restrictions can cause things to be delayed or canceled that were once seen as vital to the company’s success. It is important to be able to recognize which things should be canceled altogether because their moment has passed, which things can be “mothballed” for later, and which things must be protected.

When you have to cut your budget by a substantial percentage and every project canceled is painful, how can you decide what to keep? Here are some decision criteria to help you think through the situation:

• Impact on short-term cash. What is the likelihood that this proj-ect will generate immediate new revenue for the company?

• Long-term competitiveness. How important is this project to your company’s future? Even the most pessimistic analysts admit that this crisis won’t last forever. How does this project contribute to your company’s expected rapid recovery when things begin to turn around?

• Product family health. How does this project help your bread-and-butter product lines maintain their place in the market?

• Key resource utilization. How does this project help you keep your key personnel—those people whose knowledge and experience are hard to replace—focused on projects that contribute immediate value? How does this project keep them motivated when all the news is discouraging?