Product idea evaluation and selection in an electronic industry company

Abstract

Companies lose money if they are developing the wrong products. Not only because of the wasted money for the development, but primarily because it prevents them from designing really successful products. And companies lose money, too when good product ideas are killed too early and successful products are not realized. Eventually businesses need innovative and successful products to survive on the free market on the long run. As academic research proves, innovative products are no coincidence, but the result of a thoroughly planned and disciplined use of innovation processes. One critical element of the innovation process is the evaluation and selection of the product ideas at very beginning, the so called fuzzy front end. Academic research acknowledges that the processes differ between businesses and each company needs to design its one incl. an evaluation and selection process which suits best to its environment. Frequently used for evaluation and selection are financial methods, which include e.g. the calculations of Net Present Values of project ideas. But many researchers argue that the usage of financial methods only suits for incremental innovations which usually are more predictable. But these methods usually fail when used to screen other type of innovations, e.g. radical innovations, because in such cases the financial figures are vague and only incomplete information is available. According to studies, best NPD performing companies rely not only on financial but also other methods to screen their new product ideas. This Master Thesis reviews currently known evaluation and selection methods which use quantitative as well as qualitative criteria for product idea screening. Than a framework is developed which suits to the needs of a company in the electronic industry. It was tested by comparing the framework's results with the actual decisions of a past Product-Approval-Committee (PAC) meeting about new product developments in this particular company. The decisions in this meeting were based on managerial judgment and financial methods. Results show that the model can very well reflect the decisions of the PAC meeting except in one case were the PAC relied mainly on financial methods. This particular product was intended to be sold into a new market segment and subsequently financial figures were vague. The model, which relies also on qualitative criteria, suggests killing the project whereas the PAC was unsure how to proceed. Eventually it could be shown that this framework can be a better alternative to pure financial methods and therefore are a good base for final managerial judgements.