It is the day after a new product brainstorming session with your most creative people and your desk is piled with innovative ideas that could lift your company's cash flow to the next level — or could turn out to be costly, frustrating dead ends. How can a business owner tell the difference?
At most companies, the process of new idea evaluation amounts to the owner or CEO using experience, intuition and gut feelings to sift through possibilities and, hopefully, identify a winner. Given the fact that approximately 55,000 new products are introduced each year for sale in grocery stores alone, however, most companies could probably do better at this. And the place to start is at the beginning.
The most critical stages for product evaluation, according to a study from North Carolina State University, are the first ones. While any new product should be reviewed throughout development, accurately identifying strengths and weaknesses at the very first review is closely linked to a eventual success, while later reviews matter less.
There are a number of different methods for evaluating products. All have as their basic goal identifying innovations that will succeed and, ultimately, have a positive effect on cash flow. To that end, they should ensure that appropriate experts review and provide input about costs, obstacles and other concerns. They also should permit reviewing lots of ideas without consuming too many resources, as well as accommodating refinements to initial ideas as part of the evaluation process.
Among the simplest and most useful is pass-fail evaluation. During this process, an idea is subjected to a series of screens. One might be cost. Another might be potential revenues. A third could be the effect on cash flow based on timing of payables and receivables. If an idea doesn’t pass a screen, it’s dropped. Pass-fail is good for filtering a group of ideas for the most promising. Start with simple criteria and don’t be too rigid. If modifying an idea helps it pass a screen, consider keeping it in the mix.
An evaluation matrix can further scrutinize ideas that made it through pass-fail. With this, ideas are numerically scored on a number of variables, such as cost, time to market, relevance to existing products and so on. The highest total merits further consideration. Avoid having too many variables and, again, be flexible. For instance, let scorers add explanatory notes to consider along with numeric scores.
Next, SWOT analysis can further winnow down ideas. This venerable management tool focuses on Strengths, Weaknesses, Opportunities and Threats. By employing several different perspectives, it provides valuable insight into an idea’s prospects. Here again, evaluators can use numerical scores and verbal comments to zero in on the best of the bunch.
The best technique varies by industry, market, product and individual company. For instance, a radically innovative product may require all these steps and more, while a simpler extension to an existing product line could be adequately evaluated by the CEO’s hunch.
No technique is fool-proof, especially in fast-changing markets. A good multi-disciplinary team of reviewers from marketing, finance, operations, sales and other key functions is vital no matter what technique is used. And, while the first review may be most important, it shouldn’t be the last. The best new product developers subject ideas to recurring evaluations throughout development, prototyping, test marketing and rollout. Because while good new ideas explain many business successes, bad ones can explain business losses.
United States Department of Agriculture
NC State Newsroom, Finding Good Ideas: How To Improve Product Development
New Zealand Institute of Food Science and Technology
ETL Tool Product Evaluation Worksheet Example
Insights on the top cash flow challenges business owners are facing today.
Browse All Articles »
Receive an email with featured articles and valuable insights for today’s business owners.
Give us a call at 1-855-762-2365 or fill out our simple form and a PNC Business Banking representative will get in touch with you.
Request a Contact »
PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”). This article has been prepared for general information purposes by the author who is solely responsible for its contents. The opinions expressed in these articles are those of the author and do not necessarily reflect the opinions of PNC or any of its affiliates, directors, officers or employees. This article is not intended to provide legal, tax or accounting advice or to suggest that you engage in any specific transaction, including with respect to any securities of PNC, and does not purport to be comprehensive. Under no circumstances should any information contained in the presentation, the webinar or the materials presented be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy or should it be considered legal or tax advice. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc., will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. Banking and lending products and services, bank deposit products, and Treasury Management products and services for healthcare providers and payers are provided by PNC Bank, National Association, a wholly owned subsidiary of PNC and Member FDIC. Lending and leasing products and services, including card services and merchant services, as well as certain other banking products and services, may require credit approval.