Fuzzy Front End Management

Developed by Tabea Ramirez Hernandez

In many organizations the pressure on the Product Development Process (PDP) has increased through the demand of greater product varieties and shorter lifecycles. Organizations aim for a structured way of speeding up the Product Development Process while not loosing effective scoping in the identification of market needs. Often they have succeeded in structuring the procedure using the Stage Gate Process - or a customized version of it. Yet the application of the Stage Gate Process has shown that it depends largely on the tools applied. Since all innovations, incremental and radical, bring market, technological and organizational uncertainties, which only vary in their intensity, it is key for the project manager to select suitable tools to manage them. Especially during the initial stages of the Product Development Process - the Fuzzy Front End - the uncertainties are highest accompanied with the severeness of the decisions taken during this period. To release some pressure from the project management in the Fuzzy Front End the application of the Delphi Method, Quality Function Deployment and Risk Assessment is proposed. If applied in a flexible way and in combination with other tool these methods can answer to each type of uncertainty and guide the project management to success in effective and efficient product development.

The "Fuzzy Front End"

Figure 1: Process Model of Innovation and the Fuzzry Front End

The Management of Innovation can be divided roughly into 4 stages:

1. Search - Finding opportunities for innovations
2. Select - Selecting the ideas to pursuit
3. Implement - Development of the product and launching it on the market
4. Capture Value - Capturing value from the innovation

On one hand most of the parameters for the later success or failure are set in the first two stages. On the other hand project managers are reluctant to make fast decisions because these stages are characterized with the highest risk and uncertainty levels of the whole process of innovation. The Search phase involves detecting signals in the environment like e.g. technological opportunities or changing requirements in the market. Here opportunities can be easily overseen. In the Select phase the inputs from the Search phase are distilled and very few converted into innovation concepts. Based on these concepts the whole organizational mechanism can now implement the innovation and capture value. Hence in Innovation Management the Fuzzy Front End is considered the period between when an opportunity for a new product is first considered, i.e. the Search Phase, until the concept if the innovation enters the formal product development process, i.e. the Select Phase.

Innovation management distinguishes two types of innovations: incremental and radical. Incremental innovations are characterized by minor changes in existing products which cumulatively improve their performance. The Fuzzy Front End is characterized by a comparably low level of uncertainties since; an earlier version of the product is already on the market, the market is known to the company and risks like the technical feasibility or market adaption can be estimated therefore quite well.

Radical Innovations on the other hand, also breakthrough innovations or discontinuous innovation, completely change the nature of the product and bring a very high degree of novelty. These innovations often change the rules of their industry through opening up new opportunities but also challenging the existing players to reframe their operations. Therefore the Fuzzy Front End of this type of innovation is characterized through a high degree of market and technological uncertainties. Furthermore they often have to "fight" for the internal acceptance within the company and bring therefore organizational uncertainty.

Project Management

Definition and Relevance for Innovation

The aim of Project Management is that projects are properly planned and controlled so that the risks are limited, opportunities seized and project goals reached on time, quality and within budget. It is defined as a set of management tasks, organization, techniques and materials for the development of a project. Typical for product development projects is that in the very initial stages the resource commitment is still low, while there is a very high degree of uncertainties. Throughout the project the uncertainties decrease but the resource commitment increases strongly. In many cases high resource commitment can create a "lock-in" effect and leads organizations into pursuing projects which will fail in the end hoping, since they have invested heavily already for a high return on invest. To avoid costly "lock-in" effects project management is highly relevant not only for the successful execution of the goal within quality, costs and time, but also regarding the correct setting of the goal. In terms of the project management in the field of product development this means to choose the "right" ideas to implement and launch as innovations on the market.

Challenges of Project Management in the Fuzzy Front End

In both cases, incremental and radical innovations, project managers need to cope with market and technology uncertainties as well as potential internal resistance from the organization. However individual projects differ in the degree of severity of these uncertainties. What is more is that innovations are not divided into incremental or radical only - all kinds of steps in between are also possible. Hence project managers in the Fuzzy Front End need to find a way to deal with individual severity of uncertainty in his/her project. In general it can be said: the higher the amount of planning is in the beginning of the project, the higher the success. But planning refers not only to the time-scheduling, the detailed definition of work-packages to be done and the assignment of resources to the project. In this case planning also refers to the extinction of uncertainties or assessing them as risks. Therefore the planning work of the project manager in the Fuzzy Front End determines the later success.

Project Management of Innovations in the Fuzzy Front End

The Stage Gate Process

Many organizations succeeded in structuring the project execution of an innovation. The most typical way to orchestrate the innovation process is through the Stage Gate Process - or an individualized version of it. It resembles a structured process with milestones - the "Gates" - which force the team to make stop/go decisions at each of them. Along with the "go" decisions comes an increased resource commitment. The further the project develops, and the higher the resource commitment gets, the more seniority will have the staff to make the stop/go decisions.

Figure 2: The Stage Gate Process of Cooper

The original Stage Gate Process was developed by Cooper in 1993 and included the following five stages:

1. Preliminary investigation - a fast examination and scoping of the project
2. Detailed investigation - detained analysis which results in a business case, a project definition and project plan
3. Development - design and development of the actual product
4. Testing and Validation - trials on the marketplace and laboratory to test the market and technical feasibility to reach a product validation
5. Full Production and Market Launch - commercialization, full production, marketing and sales

Nowadays many companies have changed the nature of their innovation process however from a linear process to a model of feedback systems between the individual stages - creating "learning loops" and enabling later adjustments. With respect to the Fuzzy Front End the first two Stages - Preliminary Investigation and Detailed investigation - are of interest since they set the scope for the following development project. In terms of project management it is key to identify the most promising ideas. Since, as described above, this period is characterized through market, technological and organizational uncertainties tools like the Delphi method, Quality Function Deployment and Risk Assessment can be applied. In the context of the Stage Gate Process they help the project manager to control the spending of resources and to ask frequently "Should we go on?".

Reduction of market, technological and organizational uncertainties

Delphi-Method

Customer Market surveys, Internal Analysis (e.g. Brainstorming), Scenario Development based on computer simulations and external assessment like the Delphi Method are only a few examples of how organizations try to gain insight into potential markets and henceforth reducing market uncertainties. However each of the methods has its restrictions. Sometimes a consumer does not know what he wants exactly since he only speaks and desires what is known to him. Therefore it is difficult to gain valuable insight from customer surveys about potential innovations, which deviate from known solutions. A similar effect can be observed by the internal analysis or the computer based scenario development. Creativity and knowledge about markets and their needs are limited within the organizations and therefore employees see the problem through the internal "lens". To find unusual solutions organizations have started to search outside of the company-boundaries through e.g. the application of the Delphi method or in a broader context, open innovation.

The Delphi method can either be used in cases of high uncertainty or for long time horizons and is typically applied in the "search"-phase of the Stage-Gate Process. Because it bases on the opinion of experts it is key to choose them carefully and be fully aware of their level and area of expertise. Based on the type of experts present the facilitator of the Delphi method can choose and structure the questions accordingly. The initial step of the Delphi method is a postal survey about what the experts identify as the future key issues and their future developments. The results are then analyzed and a more tailored questionnaire is send out to them again. This procedure is repeated until some kind of convergence in the answer of the experts is revealed. The process typically ends if a range of experts agrees upon the probability of certain events by a quoted time. If no consenus can be reached this method can still provide important information. Special attention should be payed to the cases which differ dramatically from the common opinion since these experts could have valuable information for their stand-point. Using this method direct contact between the experts can be avoided. This way mutual power or reputation influence on each other, reluctance to admit errors or the need to conform with a group can be avoided.

Although the Delphi-Method has shown to be very useful a project manager cannot rely alone on this tool. It should be used in an individual composition together with other tools to gain a holistic insight into the market and the current technological possibilities. Furthermore since it is a tool that relies strongly on human capabilities the outcome of the Delphi-Session depends a lot on the experts invited and the moderator being able to extract their knowledge from them. Furthermore special attention needs to be payed to the design of the questionnaires to NOT influence the outcome through a certain form of asking. In poor cases key customer needs can be missed because the experts invited do not have the necessary insights into the customer, the group collaboration suppresses opinions of members or the moderator is not able to see the value in the contributed suggestions of the members and hence the idea is dismissed. With sufficient experience of the project manager, suitable design of the questionnaires and resources all the shortcomings of the Delphi method can be overcome however and represent a powerful tool.

Quality Function Deployment

After the market has been investigated, the needs identified and the technology for the development generally defined it is the task of the project team, guided by the project manager, to assure that they are translated into a tangible product. First the gathered information needs to be translated into functions and then integrated into the product concept. Literature finds multiple ways to realize this step however in practice organizations which apply the concept of Quality Function Deployment (QFD) reach high success rates with their products.

Figure 3: The House of Quality

The QFD translates required customer characteristics by means of a matrix into technical specifications. Hence it is applied in the "Selection-Phase" within the Fuzzy Front End to concretize the innovation concept. The development of the relationship matrix - the House of Quality - requires a high amount of technical and market research. It is important to understand potential trade-offs which the customer might have to accept and how he would decide in that case. In this method it has shown to be highly successful to include as many knowledge fields related to the product during the QFD-sessions as possible. Especially the collaboration between the technical staff and the marketing employees succeeds in translating the customer needs into technical specifications best. The application of the QFD matrix involves the following steps:

1. Identification of the customer requirements, dislikes and how he would react in case if trade-offs (left column)
2. Ranking of the requirements according to their importance (left column)
3. Translating of customer requirements into technical requirements (upper row)
4. Establishment of a relation between customer requirements and technical requirements, and estimation of the strength of their relation (Center of the House of Quality)
5. Selection of KPIs and determination of target values (technical, financial, qualitative based on customer perceptions) based on customer requirements and competitor benchmarks (bottom row and right column)

Key of applying QFD after the Delphi-method is that the gained insights regarding market and technology uncertainties can be used in this step. It is obvious however that a real market survey is indispensable. Since the whole process is very interdisciplinary it also stimulates communication within the project team. It has been proven highly effective to use QFD in combination with rapid prototyping. Thus a "close-to-final" version of the product can be created and tested as fast as possible. Furthermore tangible products often appear more convincing and can enhance the internal support of the organization of the project.

Limitations of the QFD are that it is very time consuming, requires a lot of preparation and the collaboration between e.g. the technical and marketing staff is not always easy. With a project manager of high emotional intelligence to manage potential conflicts the QFD process can turn out highly successful. If the project manager is aware of the time of the QFD it is additionally a good tool to focus all gathered information about the innovation concept and synthesize it to a product.

Risk Assessment

Figure 4: The Risk Matrix

The method of Risk assessment evaluates risks based on their severity of impact and their probability of occurrence. Many studies have shown that project managers are generally poor in estimating the risks in a quantitative way - therefore the proposed risk assessment to be used in the Fuzzy Front End represents a quantitative evaluation. The quantitative risk assessment also avoids the effect of fictitious precision as can be created in alternative risk assessments like e.g. FMEA or the Monte Carlo Simulation.

To identify risks and evaluate them the experts from the Delphi method can be invited for a workshop, since they have not only knowledge about potential future opportunities but also the risks connected to them. Additionally internal staff should join the risk assessment to estimate internal risks as well as general risks. The assessment of the risks includes the following steps:

1. Identify the risks
2. Evaluate the risks in terms of there severity of impact and their probability in occurrence
3. Decide on strategies to handle the different risks

Typical categories to consider are the market and technology, time, costs, quality, health and safety as well as legal risks. The first assessment could be conducted in a hidden way (e.g. every participant writes his evaluation down). Then the results can be anonymously ordered in a visual way and discussed openly with the group. Then the participants can be asked to evaluate the risks again in a hidden way - now after they have discussed all the relevant perspectives. As in the Delphi-method it i hoped to reach a consensus. Since it represents a qualitative assessment it can be expected that the results will be similar in the second round.

Typical strategies to handle risks and recommendations when to apply them:

• Mitigation: Usage when the probability is high but the impact low e.g. through a management control system or the integration of sufficient buffer
• Avoidance: Application with risks of high probability and high impact e.g. through adjustments in the technology, distribution or collaboration partners
• Transfer: For risks of low probability but high impact e.g. through an insurance company
• Acceptance: If the costs to implement a mitigation/avoidance/transfer strategy is higher than its impact or the risk can not be avoided

The risk assessment is the last step in the proposed project management in the Fuzzy Front End. The risk assessment creates a foundation and can represent a milestone for another go/stop decision of the project - but this time the decision should be made from a member of the organization of higher seniority. The presentation of a professional risk assessment and the actions drawn upon it could finally trigger the internal acceptance of the project. If the organization is presented with the identified risks and an action plan on how to treat them, a product which is tailored to the marked needs and maybe a prototype, it should be feasible to get internal approval.

Limitations of the Project Management in the Fuzzy Front End

The project management of the Fuzzy Front End requires an individual approach for every innovation. This is due to the characteristic of innovations - the creation of something new. Even though parallels could be found in the technological and market aspect e.g. in the development of cell-phones for Apple or Samsung, individual features of the product will differ in the end but may lead resemble the key unique selling proposition. It therefore resembles a great challenge to identify the "right" way to manage projects in the Fuzzy Front End. Even though a process has just been proposed individual cases may differ - either by not needing certain tools (like the Delphi Method if the technological and market uncertainties are very low) or by requiring methods which investigate more detailed (like e.g. the Monte Carlo Simulation for the Risk Assessment). The project manager in the Fuzzy Front End has to decide which tools to include based on an idea for an innovation.

Furthermore the project manager has to deal with the human factor in his team and the organization. All tools mentioned can only be as good as the humans applying them or engaged by them. Especially the methods proposed - Delphi, QFD and Risk Assessment - require experienced project managers. They have to be able to engage the "right" set of people, manage the group behavior and the results of the methods, since they can easily be poorly executed or over-executed, where not needed.

Additionally it is important that the tools should not be seen to deliver static results. The linear Stage-Gate-Process prevents that later insights of e.g. customer, market, technology, resources... can affect the initial stages. The therefore developed process with feedback systems is recommendable. Hence if e.g. the risk assessment shows that certain technological features create a risk to high for the company maybe the product concept has to be adapted. Nevertheless it is key for the project manager to be flexible. Because even though the process may take feedback into account challenges arise not only in the market or the technology but also at the individual human level or the organizational commitment. Stakeholder management tools can help to support the project management here.

Conclusion and Outlook of the Project Management in the Fuzzy Front End

Figure 5: Project Management Model in the Fuzzy Front End

Project Management in the Fuzzy Front End is characterized with a lot of uncertainties. As mentioned above the market and technology represent the key risks, but also the internal acceptance within the organization can suppress great innovations. Literature shows multiple tools to cope with different situations but all "one-fits-all"-approaches to the project management in the Fuzzy Front End result in practice in a "one-fits-none" solution. Fuzzy Front Ends are as diverse as the projects they concern.

The proposed process for managing the Fuzzy Front End can hence only represent an orientation and has to be tailored to every individual project. Not only because every innovation brings an individual set of uncertainties, but also because the humans engaged may require different management skills. This means that during the Fuzzy Front End a variety of tools needs to be applied. In some cases these may be the same as in the process proposed, in others non of the methods may be used. The three methods do not represent the whole set of tasks. Thus every company has to conduct a market analysis even though it is not mentioned here. These methods should be seen as key tasks during the Fuzzy Front End. Generally spoken the composition of the Delphi-Method, to deal with market and technology uncertainties, QFD, to convert the customer needs and technical requirements into a final product appealing to the organization, and Risk Assessment, to pin down all remaining risks and develop strategies to handle them, can represent a process suitable for most innovations. The final process proposed for Project Management in the Fuzzy Front End can be seen in Figure 5.

Recent research to enable the company to more flexibility is connected with the product development method SCRUM. This method bases on short iterations and the achievement of fast, still imperfect products, which can then be tested with users right away. Further research and investigation could be connected to the project management with the SCRUM method and how it could take the fuzziness out of the Fuzzy Front End.

Annotated Bibliography

• 1,4,8 / Tidd, J. & Bessant, J. (2013). Managing Innovation - Integrating Technological, Market and Organizational Change, John Wiley & Sons Ltd, 5th Edition, UK, ISBN 978118360637

Annotation: The authors have created a holistic overview over the topic of innovation management. From the basic explanation why the management of innovation matters they carry the reader through the book by explaining how to manage each phase of the innovation process by describing suitable methods to apply. For each Method or theory they explain suitable and recent cases are elaborated.

• 2 / Herstatt, C., Verworn, B. (2001). The "Fuzzy Front End" of Innovations, Technical University of Hamburg, Retrieved 12.09.2016

Annotation: This paper is comparably old however it provides a thorough definition of the Fuzzy Front End and its characteristics. Further it leads the reader through a set of different methods and tools which can be applied. It ends with the development of a framework to navigate the Fuzzy Front End.

• 5 / Florén, H. & Frishammar, J. (2012). From Preliminary Ideas to Corroborated Product Definitions: Managing the front-end of new product development, California Management Review, 54 (4), p.20-43

Annotation: Florén and Frishammar's paper analyzes the Fuzzy Front End and divides it into three basic sections: idea/concept development, idea/concept alignment and idea/ concept legitimization. It provides methods and tools for project managers active in the Fuzzy Front End. Unlike other articles this paper distinguishes between the management of the Fuzzy Front End of radical and incremental innovations. It also takes into account the influence of open innovation in an organizational context.

• 6,11,12,17 / Dogson, M., Gann, D., Salter, A. (2008). Management of Technological Innovation, Oxford University Press, UK, ISBN: 9780199208524

Annotation: Similar to Tidd & Bessants Book the present volume provides a holistic insight into the management of innovations. It also opens with the relevance of innovation management but continues then with key topics around innovations - not with a detailed explanation of the process. The relevant aspects of the book for the present article concern the definition of innovations and different types of innovation processes incl. the Stage-Gate-Process and individual stages of its further development.

• 7 / Koen, P.A. (2004). The Fuzzy Front End for Incremental, Platform and Breakthrough Products and Services, PDMA Handbook, 2nd Edition, Retrieved 11.09.2016

Annotation: Koen explains in the introduction of the PDMA Handbook the differences between three types of innovation: incremental, platform and radical. He describes the characteristics of each Fuzzy Front End and how to manage it. Different tools for the management and also process concepts (like the Stage Gate Process) are explained and their practicability matched with the types of innovations.

• 15 / Herstatt, C., Verworn, B., Nagahira, A. (2008). The fuzzy front end of Japanese new product development projects: impact on success and differences between incremental and radical projects, R&D Management, Vol. 38, Issue 1, Blackwell Publishing Ltd.

Annotation: This paper provides a study of new product development in the Fuzzy Front End in the Japanese and German culture. It concludes that detailed initial planning leads to high effectiveness in the product development. This can be even more enhanced through the combination with rapid prototyping, close customer contact throughout the process and the application of the QFD-method.

• 18 / Maylor, H. (2010). Project Management, Pearson Education ltd, p.218-231, GB, ISBN: 9780273704324

Annotation: Maylors Book can be used as a instructive book for students or as a scientific source. It is a collection of important topics around project management. It introduces the theory project management easily accessbile, provides examples and case studies, exercises and summaries at the end. The chapter of reference regards the risk management during project management. The importance if risk management and different approaches are explained reaching from the simple risk matrix, the FMEA until the complex Monte Carlo Simulation.

• 20 / Sheehan, N.T. (2010). A risk‐based approach to strategy execution, Journal of Business Strategy, Vol. 31, Issue 5, Retrieved 15.09.2016

Annotation: This paper provides a integrated explanation of management under uncertainties. It focuses on strategy definition and risk assessment. Relevant for the present article is the part about the different strategies on how to respond properly to the assessed risk. It closes with the development of a framework for strategy execution under uncertainty.

• 21 / Cooper, R.G., Sommer, A.F. (2016). The Agile-Stage Gate Hybrid Model: a Promising New Approach and a new Research Opportunity, Journal of Product Innovation Management, Vol. 33, Issue 5., Retrieved 14.09.2016

Annotation: This paper questions the typical approach to innovation management, i.e. the Stage-Gate-process. It focuses on how to create agility within the ridgit structures of companies and the benefits of flexibility regarding innovations. Here the SCRUM-Method is introduced which bases, as explained in the article, on several small interactions and fast imperfect prototypes to be testes immediately with the customer to get feedback.