Overcoming the Current Crunch in NPD Resources - Stage

Transcription

Product Innovation Best Practices Series
Overcoming the Current Crunch
in NPD Resources
Reference Paper # 17
By Dr. Robert G. Cooper
Dr. Scott J. Edgett
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Product Development Institute Inc.
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Overcoming the Current Crunch in NPD Resources
and Dr. Scott J. Edgett
The resource crunch is a crippling disease sweeping the new product development (NPD) landscape.
The significant gap between resources required and NPD resources available has resulted in many
negative consequences: projects taking too long to market, under-performing new product projects, and
development portfolios that contain too many low value projects. This article explores the resource
crunch problem and its causes, and also offers solutions.
Keywords:
Portfolio management, resource allocation, resource deficiencies, pipeline gridlock and new product
strategy
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© 2000-2012 Product Development Institute Inc.
Product Development Institute Inc. and Stage-Gate International are registered trademarks.
www.stage-gate.com
and Dr. Scott J. Edgett
The Problem
The resource crunch is a crippling disease sweeping the new product development (NPD) landscape. The significant gap between resources
required and NPD resources available has resulted in many negative consequences: projects
taking too long to market, under-performing new
product projects, and development portfolios that
contain too many low value projects.
Look at the facts: New product development performance is substandard in most firms. An estimated 75% of development programs fail commercially [1], while approximately 55% of businesses confess that their product development
effort has failed to meet its sales and profit objectives [2]. Equally disturbing is the opportunity
costs of product innovation – the missed opportunities. Simply put, far too high a proportion of
resources are spent on mediocre and small projects – tweaks, enhancements, fixes, modifications – that yield low returns to the company [3].
Why the high failure rates? And why the missed
opportunities? While these performance questions have been posed for decades, most of the
reasons offered are symptoms only – reasons
whose roots can be traced to a much more fundamental problem that plagues most firms’ product development efforts – a significant shortage
of resources devoted to NPD. This article explores the resource crunch problem and its
causes, and also offers solutions.
Why New Products Fail To Perform
Many reasons for new product failures have been
uncovered over the years. These include wellknown and recurring themes such as a lack
of market information, a failure to listen to
the voice of the customer, poor up-front
pre-development homework, unstable product
definition, poor quality of execution of key NPD
tasks, and even poorly structured, ineffectual
project teams [4]. And numerous remedies have
been proposed to deal with these deficiencies
[5]. In spite of the remedies, however, new
products continue to under-perform.
A closer examination of the many reasons for
failure, coupled with results from recent benchmarking studies, shows that many of these problems and failure modes are themselves interlinked, and are traceable to a much more fundamental cause, namely major resource deficiencies in key areas [6] For example, poor quality of
execution and leaving out important tasks, such
as voice-of-customer work, is often not so much
due to ignorance or a lack of willingness: it’s
more often because of a lack of time and people.
As one senior project leader declared: “We don’t
deliberately set out to do a bad job on projects.
But with seven major projects underway, on top
of an already busy ‘day job’, I’m being set up for
failure … there just isn't enough time to do what
needs to be done to ensure that these projects
are executed the way they should be … and so I
cut corners.”
This project leader is not alone in her concern.
Surveys and benchmarking studies reveal that
the NPD resource deficiency is perverse and
widespread. Consider the evidence:
A lack of focus and inadequate resources surfaced as the number one weakness in businesses’ new product development efforts in a
major APQC benchmarking study (American Productivity and Quality Center): project teams
working on too many projects or not sufficiently
focused on NPD work.
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And a lack of resources devoted to NPD across all
functions was the number three most serious
deficiency: only a minority of businesses indicated that sufficient resources were available to
project teams to do a quality job in NPD [7]. The
weakest areas were Marketing resources (47% of
businesses were very weak here) followed by
Manufacturing/Operations resources for NPD
(29% of businesses very weak).
Best performing businessesses, however, were
much more resource rich for NPD than were the
Worst Performers; and Best Performers had project teams that were much more focused and
dedicated to NPD.
These results confirm an earlier study, where
resource deficiencies in all areas – R&D, Marketing, Sales and Operations — were identified as
significantly and seriously deficient when it came
to NPD [8].
Further, adequate resources devoted to new
product development was one of the three
strongest drivers of new product performance. Indeed, the strongest single driver of
the most commonly-used performance metric, namely percentage of sales from new
products, was how much the business spent
on R&D (as a percentage of sales).
Resource Deficiencies Lead to Many
Ailments
A lack of new product resources leads to
many common ailments in product innovation
efforts (Exhibit 1). See how many your business suffers from:
1. Quality of execution suffers:
Corners are cut, as project teams try to meet
timelines with minimal resources. Thus,
essential market studies are truncated,
upfront homework is short-circuited, the field
E x h ib it 1 : A la c k o f N P D re s o u rc es h as m an y n e g ative c o n s e q u e n ce s, u ltim ate ly
re su ltin g in lo w N P D p ro fitab ility.
= in te rm ed iate
im p ac t
A la c k o f g a m e ch a n g e rs :
sm a ll, lo w
im p a c t p ro je c ts
= re su lt
D escoped,
d e -fe a tu re d
p ro d u c ts:
du m bed
do w n
= u ltim ate
p erfo rm a n ce
m e tric
L o w Im pa c t
o n S a le s &
P ro fits
T o o m an y
p ro jec ts fo r
th e lim ite d
re s o u rc e s
a v a ila b le
A la c k o f
NPD
R eso u rce s
L o n g C yc le
T im e s
P o o r p ro je c t
p rio ritiz atio n ;
failu re to k ill
p ro jec ts
P o o r d a ta o n
p ro je c ts :
m a rk e t s iz e ,
re v e n u e
e s tim a tes ,
c o s ts
Q u a lity o f
e x ec u tio n :
P o o r jo b o r n o
jo b d o n e o n
p ro je c ts :
po or V oC &
m a rk e t in p u ts ;
w e a k u p -fro n t
h o m ew o rk
Poor New
P ro d u c t
P erfo rm an ce:
P ro fita b ility
H ig h F a ilu re
R ates
S o u rc e: [7 ]
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trials are overly accelerated, and launch plans
are thrown together and under-resourced. The
results are predictable: the new product underperforms financially.
failures invariably point to missed activities or
poorly executed actions as the culprits! [9, ch.
2,3]. Then there’s the hidden cost of rework or
“fix and repair” work: most often, activities done
in haste or poorly executed come back to haunt
the project team, and end up taking twice as
long via rework, as the project team gets caught
in an almost endless “build-test-fix” spiral.
Research into NPD practices reveals poor quality
of execution of project tasks from idea right
through to launch. Consider the data in Exhibit 2,
which shows mean quality of execution (0-10
ratings) for a large sample of successful versus
unsuccessful new products. The average score is
a dismal 5.8 out of 10 – hardly stellar quality of
execution [4,9 ].
2. Some vital activities simply don’t get
done at all:
Lacking the time or people, key activities simply
are left out as project teams scramble to meet
launch dates. For example:
Market studies, so often cited as fundamental
to success, are noticeable for their absence in
too many projects. One study reveled that market research was simply not done at all in
about 75 percent of NPD projects [9, p. 33].
Poor quality of execution ultimately results in
serious new product costs. First, success rates
suffer: There is a strong connection between
quality of execution of key tasks and new
product success, while studies of new product
Exhibit 2: Quality-of-Execution across many NPD activities from Initial Screening
thru to Market Launch is sub-standard. Note that execution quality is significantly
higher for successful vs. failure projects.
Initial Screening
Preliminary Mkt Assessment
Preliminary Tech Assessment
Market Studies
Business Analysis
Product Development
In-House Tests
Customer Tests
Test Market/Trial Sell
Trial Production
Pre-Comm Bus Analysis
Production Start-up
Market Launch
0
Very Poor
1
2
3
4
5
6
7
Mean Quality-of-Execution Rating
Failure products
8
9
10
Excellent
Successful products
Source: [8]
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Vital up-front homework doesn’t get done.
Rather projects are moved from early concept right into the Development phase with
little attempt to obtain the facts and get the
product definition right. The front-end
homework has been dismally rated in various benchmarking studies.
Our estimate is that in many businesses, the
combined Waiting Time and Rework Time is 3050% of the project cycle time. Put another way,
cycle times could be reduced substantially if the
waiting time and rework time were eliminated.
As one frustrated executive put it:
“We’re so busy just getting the projects done
– marching to a timeline – that we don’t
have the time for any of this important upfront work. We have a ‘heads down’ rather
than a ‘heads up’ mentality” [6].
New product failures and being late or slow to
market are the measurable costs of poor or untimely execution, often brought on by insufficient
resources. A far greater cost is unmeasurable,
because it’s an opportunity cost. How many projects are simply not done due to a lack of resources? Given a limited resource base, human
nature dictates that it be spent on lower risk initiatives that don’t cost very much. As one executive put it:
3. Cycle time or time-to-market lengthens:
With not enough resources to handle the many
projects in the pipeline, queues begin to build.
The “time to get things done” is not so much
execution time, it’s waiting or queuing time –
waiting for people to get around to doing the
work. And thus time-to-market suffers.
Time-to-market (or project cycle
comprised of three components:
time)
is
•
Execution time – the actual time it takes
the project team to undertake the task
(assuming a dedicated effort, and quality of
execution)
•
Waiting time – this is analogous to WIP or
“work in process” in production – the time
a project spends waiting for people to work
on it (usually because they’re busy doing
something else) or waiting for an approval
from someone outside the core team (e.g.,
resource owners)
•
Rework time – the time required to do
things over again because they were poorly
or hastily done the first time.
4. A lack of game-changers:
“My business has a limited R&D budget. I
can’t afford to risk a major percentage of
that budget on a handful of big projects. I’ve
got to hedge my bets here, and pick the
smaller and lower risk ones. Besides, many
of these smaller projects have to be done –
they're needed to respond to a customer
request or to keep the product line up-todate. If I had a larger R&D budget, then
I might tackle some more venturesome
projects ...” [6].
Lacking the resources to do an effective job,
technical and marketing executives start to favor
smaller, easier-to-do and faster projects. We call
these the “low hanging fruit” projects. The trouble is they’re also low value to the company.
While it’s desirable to have some of these easy/
fast projects in one’s portfolio of projects, when
the entire portfolio is dominated by such lowvalue projects to the detriment of significant developments and breakthrough new products,
then the long term viability of the business’s new
product program, and indeed the business itself,
is in jeopardy.
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Additionally, most businesses have immediate
development needs: projects that must be done
in order to keep the product line up-to-date, respond to a major customer’s request, or simply
fix a problem. These “must do” or urgent projects always exist. But lacking adequate development resources, often these must do projects
end up taking the lion’s share of the limited resources. The end result is a very unbalanced
portfolio – too many tweaks, modifications and
fixes – and a lack of projects that promise significant growth and profitability [3,].
The immediate result is the lack of blockbuster or
game-changer projects in the pipeline. Indeed,
businesses rated their portfolio of active projects
to be of “modest value” in a recent portfolio
study, with 45 percent of respondents confessing
to low value projects in their development portfolios, and 69 percent indicating a poorly balanced
portfolio of projects [3].
5. The active projects are “dumbed down”:
Another occasional result of resource deficiencies
is that projects are “dumbed down” or descoped. One frustrated head of a technical group
summarized it this way:
“Design engineers are savvy people. They’ve
figured out that if the goal is to do more new
product projects with the same or fewer resources, then something’s got to give. Heroic
efforts can only compensate for the gap for
so long. So they make the projects simpler:
they de-scope the project, and de-feature
the product… they simply don’t build in all
the [product] features and functionality that
they know they should. The end result is that
they deliver a product that’s somewhat less
than superior” [6].
6. The project team’s morale suffers:
Inadequate resources also impacts on the project
team. Faster time-to-market and cycle time reduction are paramount themes in many businesses. But lacking the necessary personnel and
their time commitments from functional bosses,
the project team is stretched. Deadlines are
missed, pressure mounts, people are blamed,
and team morale starts to deteriorate. Crawford
identified team morale problems as one result of
an over-emphasis on cycle time reduction; we
continue to see much evidence of morale problems, brought on by a combination of too few
resources and time pressures [11]:
In one business we investigated, so bad was
the morale of project teams that no one
wanted to be on future teams. Being put on
a product development team was viewed as
a punishment. The reason: there was so
much time pressure on these teams to accomplish the impossible, and so few resources to do the work, that teams were
destined to fail. And they were being chastised by management [6].
If these ailments beset your new product programs – poor quality of execution and missing
key activities, such a voice of customer studies;
too long to get to market; too many trivial, low
value projects and a lack of game-changer projects in your portfolio; de-scoped and defeatured products; and morale problems – perhaps the culprit is not so much unwilling or unable project teams or a lack of a sense of urgency or effort. The underlying cause is far more
likely to be too many projects for the limited resources available: the current resource crunch!
And the problem appears to be getting worse, as
firms try to develop even more new products
with the same or fewer resources.
And so de-scoping and de-featuring takes its toll
on potentially great new products.
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The Underlying Cause: Make the Numbers!
The resource crunch has many sources, but a
fundamental one over the last decade is a preoccupation with short term profitability, driven
largely by the financial community. To meet
short term financial goals, business unit management was caught in a dilemma: They could do
what was good for the business for the longer
term, or resort to short term maneuvers – cost
cuts and resource freezes – in order to achieve
the immediate goals set by corporate headquarters. As one exasperated business unit general
manager declared, and this is typical:
“I grew the business – both top line and bottom line – by 20% last year. But I’m being
‘punished’ by Corporate [head office] for doing this. To achieve this growth, I had to increase operating costs – we hired more technical people – and so my operating ratios
suffered. I’m being measured and incented
all wrong! [6].
Another business unit executive put it more
bluntly: “Unless it contributes to this quarter’s bottom line results, don’t do it!”, as he
urged his people to focus strictly on near
term results and commit nothing to the
longer term [6].
And so the seeds of the current resource crunch
in product development were sown. For a few
years the formula worked: some slack was removed and the remaining people worked a bit
harder and faster. But after a decade of this
“make the numbers” thinking, the true costs became evident.
The resource cuts or deficiencies are apparent in
every department. In technical groups – R&D or
Design Engineering – people are spread across
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too many projects. It’s not uncommon for a technical person to be working on three or four significant development projects simultaneously,
and at the same time, handling a variety of small
technical tasks, such as customer requests and
trouble shooting in the plant. Marketing appears
even worse hit:
In one smaller business unit of a major corporation, the Marketing person declared that
he was on eight major development projects;
but that his day-to-day marketing job took
60% of his time. Do the math: 20 days in a
month and 40% of his time on projects –
that’s eight days, or one day per project. It
came as no surprise to hear that in none of
the projects was there anything resembling a
full scale market study or voice of customer
research – how could there be with only one
day per project per month of Marketing time!
[6].
Other support functions are not immune to these
resource deficiencies when it comes to new product projects. Too often we hear that securing
support from process, operations or manufacturing engineers for product development projects
is next to impossible. And so the “transfer-to-theplant” phase resembles more “throwing it over
the wall” rather than a smooth transition, while
manufacturability issues, so important early in
the life of a new product project, are not dealt
with. Finally the sales force is so focused on today’s results in financially-driven businesses that
their time is not available for new product projects, even when it is realized that these projects
promise to yield tomorrow’s bread-winners for
the sales force! The results are predicable: Without early sales force involvement, getting commitments to sales forecasts is difficult, and support for the launch by the Field is lacking - the
launch is plagued by lack of people and time.
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A Second Reason for the Resource Crunch:
Too Many Projects
The other side of the resource crunch is trying to
do too many projects for the limited resources
available: a lack of focus. One benchmarking
study reveals that 44 percent of firms studied
confess to trying to ram too many projects into
development; indeed the term “pipeline gridlock”
was used by some managers to describe the
situation in their businesses [3].
Nine Lame Excuses
Development Projects
for
Not
Killing
Why are there so many projects – too many for
the resources available? Our research reveals
numerous reasons, most of them poor excuses,
for an inability to prune the new product portfolio
[6]:
1. Pressure to get anything to market:
Some senior management admit to a
reluctance to kill projects because they
desperately need to get something –
anything – to market (often due to the way
the senior person is measured).
2. Sunk cost reasoning: Here the argument is:
“We’ve spent so much on this project … we
can’t kill it now”. Many people have trouble
cutting their losses, especially after major
expenditures.
3. “We’re almost there!”: When projects are
mired in the development and test phases,
and face tough technical obstacles, often the
technical solution seems just months away:
“just a little more time will solve the
problem” begs the project team. The trouble
is: the same refrain has been heard before,
and still the technical solution remains
elusive.
4. Executive “pet” projects: Senior people
have their pet projects – projects they
believe in and have committed to. If the
project is killed, the executive loses face.
The problem is that executive pet projects
have a poor track record: their failure rate is
higher than the average project, in spite of
all the support and attention [8, p. 97].
5. Nothing better to work on: The business
is bankrupt of great new product ideas, so
that there are no other projects waiting for
the team to work on. One should always
have a list of solid “projects on hold” waiting
in the wings, and there are many methods to
do this [12].
6.
No killing mechanism: Many businesses
confess to a lack of formal or effective Go/Kill
decision points in their new products processes.
7. No portfolio management:
In a gating process, decisions are made on
individual projects jects one-at-a-time at
gate reviews; but a more holistic view –
looking at the entire portfolio of all projects –
is missing [3,].8.
8. Can’t say no to a key customer account:
Still other businesses have become so customer driven and reactive that they cannot
say no to any customer request, even frivolous or poorly thought-out ones.
9. Just difficult to say ‘no’: Finally, some senior people confess to an innate inability to
“drown some puppies”. As one executive
declared: “We never kill projects … we just
wound them!”
A Final Reason for the Resource Crunch:
Overemphasis on Speed to Market
Many senior management have become “speed
demons”, placing far too much emphasis on cycle
time reduction and acceleration to market. The
reasons for this over-emphasis on cycle time reduction can often be traced back to reason #1
above – the desire for fast profits and the way
senior people are measured.
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While reducing time to market is an admirable
goal, there is also a dark side to project acceleration. Further, this over-emphasis on speed only
exacerbates the resource crunch: As times-tomarket are compressed, the rate of projects entering the pipeline increases, and so departments
and project teams must handle even more projects per year. And the results are similar to
those already cited: corners are cut, key activities are undertaken in haste, quality of execution
suffers, projects are trivialized, and team morale
suffers.
More words of warning about cycle time reduction: There is inconclusive evidence that excessive cycle time reduction is even a desirable goal
across the board. For example, Griffith found no
correlation between a project’s time-to-market
and various success metrics [14]; while another
study found far less than a one-to-one correlation (0.415) between profitability timeliness
(measured by on-time performance and time
efficiency) [15].
Some Solutions to the Resource Crunch
Problem
The current resource crunch in NPD has many
negative effects: poor quality of execution,
long cycle times, under-performing projects,
and poor team morale. Given the diverse set
of reasons for this resource deficiency – ranging from trying to do too many projects
through to a preoccupation with short term
profitability – we offer three sets of solutions
to the current resource crunch in NPD:
1. Strategic Solutions
2. Portfolio Management Solutions
3. Tactical Solutions.
1. Strategic Solutions:
A. When it comes to resources, recognize that not all businesses are the
same
The emphasis on short term operating results
has caused corporate headquarters to treat
all business units much the same. Planners
have lost sight of strategy and have become
score-keepers instead: the short term
E x h ib it 3 : D e v e lo p a S tra te g ic P la n n in g M a p fo r y o u r b u s in e s s u n its . N o t a ll
b u s in e s s e s a re th e s a m e , n o r s h o u ld th e ir N P D re s o u rc e a llo c a tio n s & m e tric s
b e th e s a m e .
W ild c a ts o r Q u e s tio n -m a rk s :
P ro b e & D e c id e
S ta rs : H ig h N P D S p e n d
E le c tro n ic s
C h e m ic a ls
Market/Technology
Attractiveness
H ig h
S p e c ia lty
C h e m ic a ls
In d u s tria l
C o a tin g s
R e s id e n tia l
C o a tin g s
Low
C ash C ow s:
M odest NPD Spend
P o te n tia l D o g s :
Low N PD Spend
Poor
O u r B u s in e s s P o s itio n
E x c e lle n t
C irc le s iz e in d ic a te s B U s iz e
(a n n u a l re v e n u e $ 0 0 0 )
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Numbers are all important. This is wrong. Some
business units face limited prospects in product
development, and thus few development resources should be allocated here. But others
have many opportunities, yet are measured with
the same yardstick, and have resources allocated
the same way.
It’s time to re-introduce a good dose of strategic
thinking into your corporate planning exercise.
Let’s get back to the fundamentals of strategic
planning, where differences among businesses
and their opportunities were recognized. Recall
the BCG (Boston Consulting Group) business unit
portfolio model (Exhibit 3). This strategic model
was a good model in its day: it classified business units as stars, cash cows, dogs and wildcats
– and defined different NPD roles and goals for
each business. This model made a lot of sense,
so perhaps it’s just time to dust it off and update
it.
Here are some suggested updates:
The business units or businesses are still
denoted by the various bubbles in Exhibit 3.
However, instead of using Market Size as the
vertical axis (this metric was too uni-dimensional
in the original model [16]), use Market/
Technology Attractiveness. This is an external
metric that captures how attractive the market
and technological possibilities are for each business, and includes specific measures such as
market size, market growth and potential, competitive intensity, and slope of the technology Scurve [17].
And replace the conventional Market Share
horizontal axis metric with the more robust
Business Position measure. This is an internal
metric that captures the strength of the
business unit – what the business brings that
suggest that it could be an effective competitor
in this business area. This dimension includes
market share but also strengths and core
competencies relative to competitors (e.g.,
technological strength, manufacturing
strengths, marketing strengths).
Star businesses merit more spending on R&D
than the average business, and an aggressive
NPD effort. A “harvest and/or divest” strategy
is usually elected for Dog businesses; while
Cash Cows see average or modest R&D spending, with NPD designed to keep the product
line up-to-date. And Wildcats or Questionmarks see selective R&D spending, depending
on the magnitude of the opportunity and trackrecord to date.
B.
For Star businesses, change the
metrics!
Measuring all businesses with the same yardstick or metrics assumes that all businesses are
the same: again, wrong! The metrics that are
imposed cause senior management in each
business to behave a certain way, and different
senior management behavior is appropriate for
different businesses. For example, the Star
businesses should be treated as Stars and most
important, be measured as Stars. Thus, instead
of relying on traditional short term operating
profits, apply more growth oriented metrics to
gauge their performance, metrics such as:
Percentage of sales from new products [18]
Growth in revenue
Growth in profits.
Note that these growth metrics may not be
appropriate for every business unit – just for
the designated ones. Here’s an example:
At Air Products, each global business unit is
assigned its own growth and profitability
targets, depending upon the type of industry/markets that each is in, and the level of
importance of the business to the corporation. This approach recognizes that each
business unit is different, and as such,
should have different targets set for it:
each business unit thus sets its NPD strategy that matches its own unique business
needs (instead of having one common goal
across the whole corporation) [7].
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C. Develop a product innovation and technology strategy (PITS) for the business
Most businesses have a business strategy, but
what is missing is their product innovation
and technology strategy [19]. Components
of deal with goals as well as the resources
to achieve these goals, and include:
• New product goals – for example, what
proportion of your business’s sales will
come from new products; or what percentage of your growth?
• Strategic arenas – the markets, product
categories or technologies – where you’ll
focus your new product efforts; your battlefields must be decided.
• Attack plans – how you plan to win at new
products in each strategic arena.
• Deployment – how many NPD resources
you plan to allocate to each arena or battlefield.
The issue of deployment is critical: strategy becomes real when you start spending money. Deployment is about resources and resource allocation for product development. And it must be
part of your business’s strategy and PITS.
D. Ensure that new product resources are
consistent with the business’s strategy
and goals
Take a hard look at the business’s goals, strategy
and product innovation strategy. If there are
stretch growth goals, and the strategy is to expand dramatically via new products (as is typical
in a Star business), then the resources must be
in place. For example, since the metric “percent
of revenue from new products” is driven by R&D
spending [8], then NPD goals expressed in terms
of sales from new products must be reflected in
appropriate levels of R&D spending.
Next, translate these growth or sales goals into
new product launches – how many, how big, and
how often? Then translate these launches over
time into resource requirements – this is the demand side (usually measured in FTEs or dollars).
Now look at the supply side. Undertake a resource capacity analysis – how many people
are available to work on projects [5, Apr.
1999]. Be sure to subtract the time they must
spend on day-to-day work just to keep the
business going. This is the supply side.
Each time we undertake such a resource capacity analysis, a gap between demand (based
on goals and strategy) and supply is identified.
And the result is predicable: the goals won’t be
achieved and the strategy will not be realized.
Senior management then has three choices:
set more realistic goals; or put the resources in
place; or reallocate the existing resources!
E. Ring-fence the resources
If considerable resources are required for product development, consider ring-fencing these
resources. That is, make them dedicated resources – dedicated full time to product development – rather than dividing them among
many duties. These ring-fenced resources or
“innovation group” includes technical people,
but also marketing and production people, and
their full time job is product development! Too
often, when people are supposedly designated
to product development efforts, their jobs are
split and their “other duties” soon dominate.
The result is that a relatively small percentage
of the designated resources are in reality spent
on product development!
2. Portfolio Management Solutions
A. Implement a formal Portfolio Management Process
One solution to the resource crunch is effective
portfolio management. The argument is that
the problem is not so much a lack of resources,
but rather how the resources are allocated.
Many firms have a solid new product gating
process. They then piggyback a portfolio management decision method atop of their excellent gating process.
Important additions include:
•
periodic portfolio review sessions to rank
and prioritize projects, and to seek the
right balance and mix of projects;
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•
IT support to display the entire portfolio of
projects; introducing resource allocation
into project gate meetings; and
• linking project decisions to the business’s
strategy via strategic buckets [20].
Example: EXFO Engineering (winner of the
PDMA’s Outstanding Corporate Innovator
Award in 2000; Product Development and
Management Association) has implemented
both a Stage-GateTM and Portfolio Management process. The gates make Go/Kill decisions on individual projects. But four times
per year, the business leadership team,
chaired by the CEO, evaluates, ranks and
prioritizes the complete slate of development
projects during the Portfolio Review meeting.
Any project at or beyond Gate 2 is included
in this prioritization exercise [7].
B. Use Strategic Buckets and prioritize your
projects within buckets
Consider setting up strategic buckets – envelopes
of resources (dollars or person-days) but split by
project type and market sector or business area.
This strategic buckets exercise is a logical extension of defining your business’s product innovation and technology strategy (Strategy item C
above; see also Exhibit 4). Each “bucket” is allocated a finite set of resources – a “macroallocation” of resources.
Next, and within each bucket, prioritize your
projects, using an A,B,C categorization
scheme:
Category A: High priority projects – these
receive maximum resources and are fully
loaded; timelines and resources are sacred.
Category B: Medium priority – resources are
allocated to these, but may be reassigned, as A-priority projects demand
more. To compensate for real-time resource adjustments, the timelines of Bprojects may slip Thus, the process is a
self-regulating one.
Category C: Lower priority – these go on
hold; no resources are expended on
these.
This is a “micro-allocation” of resources to specific projects.
Project prioritization can be achieved via a
scorecard scoring system; or by force-ranking
on multiple criteria (as does EXFO Engineering, below); or by ranking projects using the
Productivity Index for each project (ratio of
NPV/Cost Remaining) [10]. Whatever method
you use, rank the projects within each bucket
until out of resources for that bucket; those
projects beyond the resource limit are designated C-projects.
E x h ib it 4 : T h e b u s in e s s ’s P ro d u c t In n o va tio n S tra te g y d e te rm in e s w h a t th e
re s o u rc e s p lits s h o u ld b e (S tra te g ic B u c k e ts ). G o /K ill d e c is io n s a re m a d e o n
in d ivid u a l p ro je c ts a t G a te s , b u t p ro je c t ra n k in g is d o n e a t P o rtfo lio R e view s .
B u s in e s s S tr a te g y &
P ro d u c t In n o v a ti o n
S tr a te g y
M a c ro a llo c a tio n
1 . S tra teg ic B u c k e ts
2 . P ro je c t
D e c is io n s :
G o /K ill
P rio ritiza tio n
P o rtfo lio R eview :
¾ H o lis tic
¾ A ll p ro jec ts
9 R ig h t
p rio r itie s ?
9 R ig h t m ix ?
9 A lig n m e n t?
S ta ge -G a te T M
P ro c e s s – th e G a te s :
¾ In d ivid u a l p ro je c ts
¾ In d e p th
¾ G o /K ill d e c is io n s
M ic ro a llo c a tio n
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www.stage-gate.com
This portfolio procedure achieves three results:
Top priority A projects receive the resources they
need and are sped to market; a reasonable balance between numbers of projects and resources
available is attained; and the spending breakdown mirrors the strategic priorities of the business via the strategic buckets:
EXFO example, continued: At the quarterly
Portfolio Review, projects are force-ranked
against each other on each of the following
five criteria:
1. Confidence in the project team
2. Revenues (risk-adjusted) versus expenses
(development and commercialization
costs, including a technical risk factor)
over a two-year period
3. Fit with the strategic plan (specific growth
directions, with a weighting factor on
each)
4. Profitability index (a return-on-investment
ratio)
5. Availability of technical resources and
commercial strengths.
The dogs or No Go projects are culled out
and killed, and the end result is a prioritized
list of worthy projects, ranked 1 to N. Resource requirements are summed down the
project list until the resource limits are
reached: those projects above the resource
limit line are deemed Go and are resourced;
and those below the line are placed on hold
– no resources. In this way, management
eliminates the dogs, forces the best projects
to the top of the list, and ensures that the
correct project-to-resource balance (pipeline
gridlock is avoided).
C. Focus – do fewer but better NPD projects
Effective portfolio management also means doing
the right number of projects – focusing resources
on fewer projects but the right ones [10, ]. The
goal of maximizing the value of the portfolio
(above) must be achieved in light of resource
constraints – ensuring that the right number of
projects are undertaken for the limited development resources available.
It is better to undertake four projects and do
them properly, rather than trying to do eight
badly. This ability to properly focus has been
shown to improve new product performance.
For example, companies that achieve the right
project-to-resource balance realize the best
new product performance results, according to
one study [3]. Here’s an example:
One major chemical company was suffering from too many projects. A thorough
review of the list of 1000 active development projects revealed that many were
mediocre – limited value to the company or
lacking strategic impact. A brutal pruning
exercise reduced the list to 250 projects.
The result: time to market was cut in half
within one year; and project execution improved dramatically [22].
Pruning the portfolio means making tough
choices. A 75% pruning rate in the example
above is extreme; our experience suggests that
in the typical portfolio, roughly half the projects
should be cut. Regardless of the percentage,
however, management must learn to drown
some puppies. However, drowning puppies is
unpleasant for most managements: all projects
look good; all are worthy or needed; and no
one likes to kill any of them. The other tough
issue, even if there is the will to kill, is which
ones – which projects should be killed or put
on hold?
Some of the ingredients of a successful pruning
exercise include:
• The will to kill – management that is
committed to making the tough choices.
• A killing mechanism – either in the form
of tough, rigorous gates as part of a systematic new product process; or periodic
portfolio reviews and project ranking sessions; or both.
• Robust and visible Go/Kill criteria – criteria that are used to rate and rank projects against each other (hint: financial
criteria alone are probably not enough
[10]; rather, consider approaches mentioned above in item B).
14
www.stage-gate.com
•
Data integrity – all the portfolio project
selection tools are worthless if the data are
wrong.
The last point – data integrity – brings us full
circle (bottom half of Exhibit 1). With too many
projects in the portfolio, project teams are thinly
stretched. Thus, discretionary activities – the upfront homework, voice of customer work, market
assessment – are cut out or undertaken in haste.
This leads to poor data on projects – market size,
expected sales, product costs, and NPVs are pure
guesses – and so the Go/Kill decision process is
flawed. Management is stymied, has great
difficulty rating, ranking and prioritizing projects,
so they don’t. And the company ends up with too
many projects. It’s a vicious downward spiral.
3. Tactical Solutions
A.
Understand
current
resource
deployment – the “what is”
Often the current deployment of resources –
people and their time – is not well understood by
senior management. People appear busy, but it’s
not clear what they’re working on, or what
they’re busy doing. This is especially true in
technical groups:
In one major materials company, the business unit president declared in frustration:
“I spend over $50 million on R&D, but
don’t have a clue where the money is going. Can someone please enlighten me!”
Within months, a resource deployment information system had been installed – one
that tracked where people spend their
time, and displayed the results in a convenient pie chart format [6].
How resources are currently deployed must be
tracked by person and by specific project (a
second facet of resource capacity analysis, introduced above [5, Apr. 1999]). This means
people and person days by project. But the
data must be truthful, and not disguised by
politically-motivated management. Ideally this
resource tracking should go beyond just the
Engineering or R&D group: marketing people’s
time is not free!
Once the data are collected, it is relatively easy
to show the appropriate displays and breakdowns in a convenient format for senior management. Breakdowns are typically by project
types, by markets, by industry sectors, and by
technology areas (Exhibit 5).
E xh ib it 5: D eterm in e th e “W h at Is” – th e C u rren t B re a kd ow n o f N P D R e so u rc e
S p e n d ing O n R ele van t D im en sio n s: M arkets o r S eg m en ts, P ro d u ct L in es o r
C ateg o ries, a n d P ro ject T yp es
M a rket A
50.0%
P ro d u ct L in e X
75 .0%
P ro d u ct L ine Y
25 .0 %
M arke t C
10.0%
N ew P ro d u cts
30 .0 %
M arket B
40 .0%
P ro d u ct
Im p ro ve m e n ts
30 .0 %
F u n d am en ta l R es earc h
10 .0 %
M a in ten an ce & F ixe s
20 .0 %
C o st R e du c tio n s
10 .0 %
C urrent S p lits in P ortfo lio S pend ing: S am p le sp lit from a B usiness
15
www.stage-gate.com
Usually this resource breakdown exercise – the
“what is” – provides some new insights. For example, management discovers that far too high a
proportion is going to smaller, lower value projects. Then management can take steps to redress the imbalance, devoting a higher portion to
genuine new product development.
B. Require project teams to specify not
only timelines but also resource requirements
Effective new product processes require that the
project team develop a Project Plan for the next
stage of their project as a deliverable to each
gate. Timelines with milestones are usually the
format. As part of this Project Plan, ensure that
the project team specifics clearly their resource
requirements. Some tips:
When specifying resource needs, make sure
that the project team spells this out not only
in terms of people or FTEs, but also indicate
person-months of work per person or department: this places a finite limit on resources for that project.
Next, insist that functional managers – the
gatekeepers – approve not only the people,
but also their person-months to be spent on
the project.
In this way the project leader not only gains project approval at the gate reviews, but secures
the people resources – people and personmonths of work – to progress their project and to
do a quality and timely job. And there is also a
check on resource over-commitment: once individuals are committed to one project, their time
cannot be double-counted and parceled out to
other projects.
C. Adopt a true team approach to handle
resource gaps
Team members ought to be able to “play each
other’s positions” in order to fill in for missing
or busy players. For example, the entire project
team should do the voice of customer interviews and the competitive analysis, not just the
Sales and Marketing people on the team: Obtaining market information is far too important
a task to be left solely to the Marketing people.
Adopting a true team approach requires that
the entire team be held accountable for all facets of the project (and not each team member
only responsible for his functional piece of the
project – a silo mentality). It also requires
some team training. HP, for example, has provided training to engineers to enable them to
do customer site visits to better understand
customer needs [23].
Deal with the Resource Crunch
The resource crunch – either resource deficiencies or misallocated resources – is a pervasive
problem in new product development. And it is
the root cause for much of what ails product
innovation: long times to market, underperforming projects and weak launches, missed
opportunities, and too many small projects.
While your company may seek to enhance your
new product performance through a variety of
techniques and solutions, unless you deal with
the resource issue head on – perhaps via some
of the strategic, tactical or portfolio management suggestions offered above – then much
of your improvement efforts will be in vain: you
cannot win the game without players on the
field!
- End -
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www.stage-gate.com
References & Notes:
1
Griffin, A. & Page, A.L. “PDMA success measurement project: recommended measures for product development
success and failure.” Journal of Product Innovation Management, 13, 6, Nov. 1996, 478-496; see also: Griffin, A. &
Page, A.L. “An interim report on measuring product development success and failure.” Journal of Product Innovation Management, 9, 1, 1993, pp. 291-308.
2
Cooper, R.G. & Kleinschmidt, E.J. “Benchmarking firms’ new product performance and practices.” Engineering
Management Review, 23,3, Fall 1995, pp. 112-120.
3
Cooper, R.G., Edgett, S.J. & Kleinschmidt E.J. “Best practices for managing R&D portfolios.” Research-Technology
Management, 41, 4, July-Aug. 1998, pp. 20-33.
4
See drivers of NPD success in: Montoya-Weiss, M.M. & Calantone, R.J. “Determinants of new product performance: a review and meta analysis.” Journal of Product Innovation Management 11, 5, Nov. 1994, pp. 397-417; Song
X. M. & Parry M.E. “What separates Japanese new product winners from losers.” J. Product Innovation Management
13, 5, Sept. 1996, pp. 422-439; Mishra S., Kim D. & Lee D.H. “Factors affecting new product success: cross country
comparisons.” J. Product Innovation Management 13, 6, Nov. 1996, pp. 530-550; and: Cooper, R.G. “New products: what separates the winners from the losers.” in PDMA Handbook for New Product Development, ed. Milton D
Rosenau Jr., New York, NY: John Wiley & Sons Inc, 1996.
5
For best practices and remedies, see: The PDMA Toolbox for New Product Development, ed. P. Beliveau, A.
Griffin and S. Somermeyer. New York, NY: John Wiley & Sons, Inc., 2002; Lynn G.S., Skov R. B. & Abel K. D.
“Practices that support team learning and their impact on speed to market and new product success.” J. Product
Innovation Management 16, 5, Sept. 1999, pp. 439-454; Menke, M.M. “Essentials of R&D strategic excellence.”
Research-Technology Management, 40, 5, Sept-Oct 1997, pp. 42-47; PDMA Handbook for New Product Development, ed. Milton D Rosenau Jr., New York, NY: John Wiley & Sons Inc., 1996; See also: Griffin, A.H., “Integrating
R&D and marketing: A review and analysis of the literature”, Journal of Product Innovation Management, 13,
1996, 191-215; and: Cooper, R.G. “The invisible success factors in product innovation.” Journal of Product Innovation Management, 16, 2, April 1999, pp. 115-133.
6
Most of the conclusions regarding NPD problems and causes are based on several benchmarking studies cited
(endnotes 2,3,7,8); but an additional and rich source of information, particularly the anecdotal information which
lead to more insight into the problem and possible solutions, is the results of “problem detection sessions” held in
over 100 businesses over the last two years (methodology is based on ProBE – see endnote 9, Appendix A).
7
Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. New Product Development Best Practices Study: What Distinguishes the Top Performers. Houston: American Productivity and Quality Center APQC, forthcoming, 2003. See
also: www.prod-dev.com
8
Cooper, R.G. “Benchmarking new product performance: results of the best practices study.” European Management Journal, 16, 1, 1998, pp. 1-7; also: Cooper, R.G. & Kleinschmidt, E.J. “Winning businesses in product development: critical success factors.” Research-Technology Management, 39, 4, July-Aug 1996, pp. 18-29.
9
Source: Cooper, R.G. Winning at New Products: Accelerating the Process from Idea to Launch, 3rd edition.
Reading, Mass: Perseus Books, 2001. Chapter 3 provides a good summary of the critical success factor in product
development.
10
For a review of portfolio management literature, see: Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. Portfolio
Management for New Products, 2nd edition. Reading, Mass: Perseus Book, 2002.
11
Crawford, C.M. “The hidden costs of accelerated product development.” Journal of Product Innovation Manage-
ment, 9, 3, Sept. 1992, pp. 188-199.
17
www.stage-gate.com
12
Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. “Optimizing the Stage-Gate process: what best practice companies
13
Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. “New product portfolio management: practices and performance.”
Journal of Product Innovation Management, 16,4, July 1999, pp. 333-351.
14.
Griffin, A., Drivers of NPD Success: The 1997 PDMA Report. Product Development & Management Association,
1997.
15
Cooper, R.G. “Developing new products on time, in time.” Research & Technology Management, 38, 5, Sept.-Oct.
1995, pp. 49-57.
16
The original BCG model is described and discussed in: Day, G. Analysis for Strategic Marketing Decisions. St.
Paul, MN: West Publishing, 1986.
17
The technology S-curve shows the improvement in performance a technology yields for a given amount of development effort or spending; outlined in: Foster, R.N. Innovation: The Attacker’s Advantage. Summit Books,
1988.
18
Griffin, A. & Page, A.L. “PDMA success measurement project: recommended measures for product development
success and failure.” Journal of Product Innovation Management, 13, 6, Nov. 1996, pp. 478-496.
19
Cooper, R.G. “Product Innovation and Technology Strategy.” in the “Succeeding in Technological Innovation”
series, Research-Technology Management, 43,1, Jan-Feb. 2000, pp. 28-44.
20
Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. “New problems, new solutions: making portfolio management
more effective.” Research-Technology Management, 2000, 43, 2, pp. 18-33.
21
Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. “Portfolio management: fundamental to new product success.”
The PDMA Toolbook for New Product Development, ed. by P. Beliveau, A. Griffin & S. Somermeyer. New York:
John Wiley & Sons, 2002, pp. 331-364.
22
Source of example: IRI roundtable discussion as part of portfolio management study, reported in endnote 3.
McQuarrie, E. Customer Visits: Building a Better Market Focus, 2nd edition. Newbury Park: Sage Publications
1998.
23
18
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Overcoming the Current Crunch in NPD Resources - Stage

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