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Product development processes: three vectors of improvement: an end-to-end process with closed-loop feedback around quantifiable business improvement initiatives can lead to much better business performance.

During the late 1980s and the decade of the 90s, major efforts were undertaken across American industry to develop and implement product development processes (PDPs), variously called phase gate or stage gate processes (1,2). For purposes of this paper, a process is a structured set of activities organized to deliver value to the end customer of the process. We estimate that three-quarters or more of Industrial Research Institute member companies have implemented new PDPs.

The two driving forces behind these process improvements are to improve business effectiveness--i.e., to achieve higher revenue growth and profitability per unit investment, and to develop higher-quality products with fewer resources in less time.

PDPs differ in detail, but their two salient features are the organization of a process into a number of phases, typically four to six, with check points or gates between the phases. The check points serve to synchronize all on-going activities and function as go/no-go decision points. At checkpoints, the work accomplished during the last phase is reviewed and assessed. Problem areas are addressed and plans for resolution are established. To ensure success in the remaining phases, the requisite enablers, resources, competences, and plans must be in place.

The perspective of this paper is that the only sustainable source of product advantage is a superior product development process (3). Accordingly, in highly competitive industries, a company's differential rate of improvement to its current state is a key competitive factor. If three-quarters of your competitors have a capable PDP, having one in your company likely implies competitive parity. In itself it is unlikely to provide sustained competitive advantage.

In an October 2002 survey at the MIT Center for Innovation in Product Development conference, 83 people from a variety of industries rated their organizational capability in 140 elements of product development. The level of capability typically ranged only between 3 and 4.5 on a 7-point scale, with 1 as "not capable" 3, "somewhat capable" and 7, "extremely capable" (4). This indicates a great need for better implementation and execution existing processes.

This paper addresses not better implementation, but fundamental enhancements to the development process. Our area of focus was high technology companies with a major manufacturing component. We sought processes and methodologies applicable to large and small companies, since development groups within large companies are set up frequently to model small-scale operations. We asked what major changes were required in an environment of intense worldwide competition, of rapid technological and market change, and of serious challenges to RD&E investment levels. We identified three areas for fundamental improvement: process scope, process functionalization and process optimization.

Relative to scope, the PDP typically runs parallel to and separate from the strategic front end and field operational processes. These activities frequently proceed with little connection or influence upon each other. Disconnection into three relatively autonomous activities inevitably leads to major decision delays, scope changes, and rework at the transitions from definition into full-scale development (initiation) and from development to field operations (launch). An underlying problem is that this disconnection tends to cause sub-optimization of the full offering.

Relative to functionalization, the classic PDP deals primarily with technical matters and is functionally separated from business performance by layers of requirements and specifications. The working assumption is that if the specs are met, business success will ensue. By contrast, we advocate that business success must be the highest-level objective of the entire process. Specifically, business gaps should be used to drive functional optimization as well as functional participation in the process.

Relative to process optimization, the key point is that process improvement must be organic to the process itself. Processes need to be continually improved and refreshed as technology advances and competence improves. The improvement must be driven by business performance through the use of a closed-loop mechanism (5).

Product Development Business Process

The product development business process, or PDBP, is designed to overcome the limitations of current PDPs. It has three differentiating characteristics:

1. End-to-end scope.--It integrates a strategic front end and a field support back end with the product development core.

2. Integral business process.--It is driven and governed by a corporate or business unit decision team that integrates business priorities throughout the end-to-end process.

3. Closed loop performance improvement.--It is energized by a performance improvement closed loop that transforms business improvement requirements into business improvement initiatives. These initiatives or corrective actions close performance gaps and improve the performance of the entire system.

Figure 1 is a (simplified) block diagram of the current state. Figure 2a depicts the transition to an end-to-end process, Figure 2b the transition to a business process, and Figure 2c the transition to a closed-loop optimizing process. In practice, improvements along these three vectors should be carried out concurrently because of their reinforcing nature, resulting in the final state of an optimizing PDBP.

[FIGURES 1 & 2 OMITTED]

The PDBP is designed to enable corporations to maximize their return on their investment in the commercialization of new products and services while at the same time continuing to optimize the business performance of existing product lines. Figure 3 is a more detailed depiction of the PDBP for purposes of the following discussion. The essential requirements for a PDBP are:

* Respond directly to the corporate vision and strategic planning activities.

* Create high-demand portfolios by addressing the way products and services attack the market segments in which a business entity is chartered.

* Guide the development of these products through methods that assure full participation of the entire value chain.

* Support the marketing, distribution, manufacturing, and service activities required to successfully launch into worldwide field operating units.

* Support the demand creation, cost containment, and customer satisfaction activities needed to realize the full business potential of the product or service after launch.

* Incorporate a method for systematically resolving business performance issues and for guiding the continuous improvement of the process itself.

* Be managed end-to-end by a single decision authority.

[FIGURE 3 OMITTED]

The loop is closed around the process by comparing the desired results to the actual outputs and using the gaps to drive improvement initiatives. This forms a metrics-driven feedback system. It is important to note that the metrics are used primarily as the team's feedback signals, not as reports to higher management.

The end-to-end focus of the process and the ability to close the loop on business results are distinctive and powerful process attributes. In themselves, they enable an improved business focus because from the earliest stages of development, attention is paid to the desired end result performance in the field. Furthermore, through the assignment of responsibility for execution of the PDBP to a single Management Decision Authority, a corporation or business unit can assure that a responsible entity exists for the transformation of corporate strategies and resources into business performance.

We now describe in more detail the four major operational pieces of the PDBP: strategic front end, product delivery pipeline, field operations, and closed-loop performance improvement. From a business unit perspective, all four pieces are occurring and are being managed simultaneously on different programs. To avoid discontinuity, we emphasize that authority, responsibility and motivational structures must exist across these four pieces. (See Figure 3.)

Strategic Front End

In the strategic front end, the business entity or unit establishes its business, product, technology, and value chain strategies and their link with the corporate vision and strategic planning processes. Typically, these are based on the business unit charter, which defines the market segments to be attacked. The business unit develops the market attack plan by realizing these strategies as a prioritized portfolio of products and services, supported by the architecture and technology sets required for successful implementation.

The inclusion of the entire value chain at this stage is a critical element of the process. New and exciting product strategies often require new and exciting approaches in marketing, manufacturing, distribution, and sales or service for successful implementation. The strategic front end is the place where these approaches are defined and managed as a set of business enablers. The following set of questions constitutes a systematic way to address the challenge of the front end. (Recall that one of the best management tools is a good set of questions!)

* What business are we in?

* What markets do we/can we serve?

* In what segments can we effectively participate?

* How large is the business opportunity?

* What are our expectations for the competitive environment?

* What are our key value propositions?

* What will we establish as major vectors of differentiation?

* What are the platforms to address the targeted customer and markets?

* What architectures and technology sets will enable these platforms?

* What will we offer as product families and services?

* How will we organize the value chain strategies and enablers?

* What are the resources required to deliver against the product and strategic plans?

* What is our expected integrated business outcome?

The above questions must be addressed in an integrated way to achieve a robust strategic plan. An example of an appropriate integration methodology is McGrath's Market Platform Plan, which ties together the market segmentation and the platform architecture (3). The strategic plan should constitute a complete map for achieving success in the targeted market; accordingly, it can be referred to as a Market Attack Plan (MAP). The plan is resourced for all elements, e.g., technology sets, products, services, and value chain enablers, that are strategically aligned with market segments, key business goals and corporate priorities. The business goals, expected outcomes and funding plans are documented in a corporate Plan of Record.

With the end-to-end business perspective pervading the strategic front end, companies achieve a more effective balance among new products and services, products currently under development, and products and services already in the field. By funding the product team and the total value chain as a whole, companies assure better alignment of resources and priorities of the entire company with the portfolio decisions made in the strategic front end. Cross-functional contracting, where the decision authority funds support and value chain groups directly via a "contract," instead of negotiating for support from the group's budget, is a very effective methodology for ensuring end-to-end alignment.

The Product Delivery Pipeline

The product delivery pipeline refers to the more typical Product Delivery Process employed by many companies today. It is the place where the strategies and products approved by the strategic front end and captured by the Plan of Record are implemented. It has a set of phases with associated criteria where decisions are taken relative to product viability and judgments made relative to product maturity. As well, there must be a portfolio management function to manage the flow of multiple products and services across all functions in the organization and throughout the entire value chain. This function is greatly facilitated by the end-to-end perspective.

Much has been written about how to install and manage product delivery processes. Companies that have done so have reported major improvements in time to market and in the quality of their products. From our experience, we have found that the most successful PDPs contain the following elements:

* Quantitative checkpoint criteria for each phase that were defined and approved before the start of the program.

* A well-defined management decision process capable of making decisions in hours and not months.

* The practice of inclusion of all required functions throughout the entire process.

* A method for measuring, improving and tracking the maturation of the new technology utilized by the product.

* Means for continuously monitoring and upgrading the skill base of the people doing the work on the program.

* A method for continuously linking the needs of the market and the customer with design and process optimization decisions.

We find it helpful to manage development flow by a set of readiness criteria. Readiness is achieved when a program team and the functional managers assert that the functional organization responsible for a specific readiness condition has met the predetermined criteria associated with that condition. Readiness is a measure of the functional organization's ability to effectively support the next phases. Readiness conditions are managed at checkpoints along with other predetermined checkpoint criteria. A minimum set of readiness criteria consists of:

* Requirements readiness

* Technology readiness

* Design readiness

* Manufacturing readiness

* Field readiness

* Value chain readiness

Measuring products against a predetermined set of quantitative maturation criteria and measuring functional support organizations against a predetermined set of readiness criteria are best practices for managing product development through the pipeline. Readiness criteria in essence look ahead. The key question is not, "Did you meet the requirements as specified by this phase gate," but, "Are you ready to proceed with confidence in the next phase(s)?"

Having an end-to-end capability and common management decision processes across all parts of the Product Development Business Process facilitates better alignment between the front end and the delivery pipeline. Having a closed-loop process improves the ability to take corrective action across the entire value chain to support the resolution of issues that arise in the pipeline.

Field Operations

Field operations refers to the marketing, sales, service, and manufacturing operations and to the customer support activities that occur during and after the introduction of the product. Here, companies have the opportunity to realize the full business potential of their products and services. It is often desirable to assemble cross-functional resources to address customer satisfaction issues and to focus on demand expansion enablers.

It is also important to ensure that the value chain innovations identified in the earlier segments of the process are delivered with high quality and appropriate timing. Typical enablers are new systems, process changes, marketing programs, service tools and methods, sales and customer training, etc. These are defined in the strategic front end as crucial to business achievement, but are often forgotten or neglected during the press of product development and consequently are not available in the field when needed.

Proactive approaches to continuous quality improvement and cost-cutting activities can improve business performance substantially while simultaneously improving the customer experience with the product. The end-to-end nature of the PDBP provides a basis for defining and initiating field improvement activities as well as for funding and prioritizing these programs relative to the other activities being implemented throughout the entire PDBP. Continuity of management and process from end to end provides consistent forums for such prioritization and aids in assuring that field knowledge is injected into strategic front-end planning and decision making.

Closing The Loop

Process for process sake can form a deadly trap for a company's improvement activities. Companies that have installed conventional product development processes have sometimes reached productivity plateaus after successfully plucking "the low hanging fruit." Over time, the process can stagnate to an inspection and tracking mechanism, with process managers perceived as traffic cops.

The closed-loop nature of the PDBP overcomes this stagnation by providing an integral mechanism for business performance improvement. The primary objective of a business process must be to continuously improve the top and bottom lines of the business. Accordingly, a process must be dynamically proactive in its ability to respond to business strategies and goals that are themselves dynamic.

Closing the loop on the PDBP gives companies the process velocity required to address rapid change. By having the same management decision team that presides over the closed loop, the decision team can address issues or attack opportunities from end to end. Business performance is defined by a set of quantifiable metrics that relate directly to the financial condition of the company. Because the vast majority of the company's future business potential arises from competent execution of the PDBP, the company should expect a highly productive PDBP to produce major improvements in business performance.

To close the loop, the decision team defines business goals required to meet company business expectations. These goals are quantified and become shared objectives of all organizations represented on the team. Typical metrics at this level are new product revenue ratio, customer satisfaction, time to profit (or revenue), and achievement of product or platform business cases. The metrics at this level can be combined with more specific and detailed metrics to form a tiered balanced scorecard. The difference between the goals and the outputs are the gaps, which drive the closed loop.

The decision team appoints a working group to analyze and to define corrective gap-closing actions through traditional root cause analysis and quality improvement activities. Once planned and funded, these actions are formalized into business improvement initiatives that are implemented in one or more areas of the PDBP. Gap closure can often require the development of a new tool or methodology to support effective implementation of initiatives. These new enablers become an integral part of the process itself. Initiatives are tracked throughout the end-to-end process and can be financially traded-off against the other programs in the process. Tracking and support continues until the gap is closed.

In summary, the closed loop gives the company an effective mechanism for attacking business issues throughout the process and by doing so establishing the pressure for continuously improving the process itself.

Governance

The PDBP is guided by a senior management decision team. This team presides over the process from end to end. It manages the flow of strategic directives, products, value chain enablers, and business improvement initiatives throughout the process. Through cross-functional representation, priorities and tradeoffs can be applied against sets of activity to allow critical projects to acquire the resources across the company that optimize the probability for business success. The decision team, through its responsibility for business goals, strategic planning, resource optimization, initiative tracking, and administrative support, proactively energizes the process while assuring its focus on continuous business performance improvement. Working together, the four parts of the PDBP, with decision team oversight, form a powerful process for effective commercialization of products and services. An efficient and effective platform for business performance improvement is thus established.

Case Histories

Three case histories are summarized now. Although they emphasize different aspects of improvement, in each case substantial progress was made along all three vectors of improvement.

1. Large company implementation

A multi-billion-dollar company in the digital storage industry was positioned strategically to participate in markets that were growing substantially, but was unable to capture that growth with existing product lines. Benchmarking demonstrated that RD&E spending was already higher than typical competitors. Further investment might therefore exacerbate an already unacceptable financial position. Competitive and internal business analysis indicated that large improvements in RD&E productivity were possible. Product development and associated cost-base reductions approaching 3 percent of yearly revenue, or almost one-third the RD&E budget, were projected.

The company operated a conventional phased product development process, but the limited scope of the process made it difficult to capture opportunity both up and downstream of the core process. This limitation blocked alignment between market strategy and product strategy. It also created an artificial barrier toward capturing the cost and quality opportunities in existing product lines.

The company management installed, in its largest business unit, a pilot initiative based on an end-to-end Product Development Business Process. After appointing a senior management decision team from operational management at the business unit level, management added a strategic front end and a field operations piece to the process and provided for a closed-loop function supported by a quarterly inspection process.

The decision team established business goals that were quantified on the basis of a large set of potential productivity initiatives. A productivity team was appointed to measure the gap represented by these goals when contrasted to the company's current process capability. This team completed the root-cause analysis and defined options for correction. The decision team had decided that the savings from these options could be managed as a reinvestment pool by the decision team. The pool would, in turn, fund future productivity options or be allocated for other business purposes.

From the options, four major productivity initiatives were chosen, planned and funded: market attack planning (front end), RD&E prioritization, cost of sales and service reduction, and cross-functional contracting.

The integrated market attack planning (MAP) method, used in the strategic front end, redefined and prioritized the critical market segments and the strategic plan for participation in these markets. By adopting a clear strategy in the RD&E prioritization process, and ranking products against it, products in the pipeline and in the field were more effectively aligned with the market and business strategies.

The new product pipeline was found to be clogged with products that were important but not crucial to business success. Unclogging of this pipeline yielded significant RD&E savings. Strike teams were formed to address unit manufacturing costs, product complexity and cost-of-quality issues. An integrated focus on reducing cost of sales, product cost plus all related costs such as warranty, inventory and reliability, drove all teams. The fourth initiative was the implementation of a cross-functional contracting mechanism. This rapidly revealed functional misalignments, with consequent excess spending, in support activities.

In summary, the PDBP offered a common forum for integrating a broader approach to productivity than was previously possible. The four initiatives were managed by the decision team as an integrated set of activities. Table 1 shows major improvements at the business level.

2. Sustained improvement

At another multi-billion-dollar industrial company, studies of time-to-market performance concluded that a one-third gap in schedule performance existed relative to their competition. A number of improvement activities had been carried out over the years, but the gap remained constant because the rate of internal improvement just equaled the rate of external improvement.

Based on thorough benchmarking, a major improvement program was defined and implemented. To close performance gaps, the rate of performance improvement had to exceed the rate of competitive benchmark improvement. A set of four-year improvement trajectories, based on a three-tiered metrics scorecard, was established. While aggressive in total, annual objectives were set so that determined improvement actions would allow managers and teams to succeed and achieve the trajectories.

An end-to-end PDBP was defined, deployed and steadily refined in the light of experience. This process was supported by a set of six major initiatives. For instance, a new front end was designed, with the dual objective of greatly improved strategic execution and rapid transition into development. The metric "RD&E Effectiveness Index" was introduced as the basic framework relating time, effort and business results. An example of a "barrier-busting" metric was time-to-(product) volume, a metric owned by the launch team with the joint support of the development team and the field teams.

The set of technical initiatives was complemented by a set of activities addressing involvement, commitment, communication, and incentives. Everyone from the CEO to new hires was covered. By far the most important driver of motivation was the CEO's directive to re-invest the benefits from all improvement activities. This was done simply by holding the R&D investment constant as a percentage of revenue. Now the feedback loop became a "virtuous" loop. The technical community was not working to make one of out every three engineers unemployed; it was working to speed their new technology to market.

The key results are summarized in Table 2. The reduction in slip rate led to a much more controllable overall process. This was accompanied by a major improvement in cycle time. The combination of these together with other productivity improvements led to a dramatic 3x improvement in product launches for the same RD&E investment.

3. Small company deployment

A small start-up company with fewer than 100 employees had been frustrated by its inability to commercialize a breakthrough new technology in the healthcare industry. The technology provided a major advantage in both cost and quality, it was well protected as intellectual property, and the company was well capitalized. The company had introduced several products that were not only late to market but did not effectively engage the customers or the market.

The CEO and several board members, noting a lack of structure and discipline, supported the installation of a Product Development Business Process. This process was customized to the company with three phases: front end, core process and field operations. The front end of the process was highly integrated with the company's strategic process and yearly plan while the last phase was highly integrated with field operational activities. A small corporate decision team consisting of the CEO and direct reports presided over the entire process end-to-end.

As is often the case with small start-ups, the primary issue was growth. The closed-loop nature of the PDBP provided a forum for focusing the company on growth. The revenue growth gap was quantified and recovery targets were set. A team was assembled from all functions of the company to address the gap. The team used the market attack planning method (MAP) to better align business, market, technology, and product strategies. Drawing heavily on outside resources, the team concluded that the current product set did not address the "sweet spot" of the market and was designed against an inappropriate set of customer needs.

A new market segmentation was defined that better addressed the growth needs of the business. The RD&E organization completed a platform plan that demonstrated that the technology could scale to effectively attack the new segment with products and services that would sustain a clear competitive advantage over time.

The sales and service group identified new channel approaches that would effectively reach the customers in this new higher-end market. The development team created an integrated program plan that required a substantial redirection of resources and an innovative integration of internal and external resources. By managing the execution of the plan throughout the entire process, end to end, the decision team was able to maintain priority focus on growth.

The net impact of these changes was dramatic. Although the financial details of this privately owned company are proprietary, the company, with the launch of a new and highly successful product line, is now a preferred supplier to the largest retailers in the industry. Its growth after the new product release was five times the old growth rate and more in line with company expectations. The learning from this project is now being used to scale the process as the company grows.

Although the details of the process for this company are quite different from that of the multibillion dollar companies in the earlier cases, the basic principles of the improvement--end-to-end, business process integration, and closed loop--are the same. In fact, the scalability of the PDBP was a pleasant surprise.

These examples show the PDBP to be an effective method for commercializing technology and for managing business performance improvements. Placing such a system under the guidance of a single decision authority enabled cross-functional approaches to sustained improvement.

Three Vectors of Improvement

The productivity (effectiveness and efficiency) of product development processes relative to competition is a sustainable source of advantage. We advocate progressing concurrently along three vectors of improvement:

1. Implementing an end-to-end development process, from front end through field operations.

2. More effectively integrating business objectives and priorities into the end-to-end process.

3. Establishing an integral closed loop for sustaining business performance improvement.

Effective implementation along these vectors will move your product development capability to new levels of productivity; rapid implementation will provide competitive advantage.
Table 1.--First-Year Accomplishments from new PDBP

 Element Accomplishment

Process New PDBP operationally capable.
Focus Higher degree of market focus
 achieved in development.
Alignment Better aligned and more productive
 support functions.
Prioritization Improved prioritization process
 implemented.
RD&E Efficiency 20% improvement in RD&E
 efficiency (product output
 per unit R&D dollar).
Cost Base 15% cost base improvement.

Table 2.--Four-Year Accomplishments from new PBDB

 Metric Four-year Improvements

Slip rate Reduced by a factor of 2/3.
Cycle time Improved by a factor of 1/3.
Launch rate (normalized) Improved by a factor of
 3 per unit RD&E expense.


References

(1.) McGrath, Michael E. Setting the PACE in Product Development. Butterworth-Heinemann, 1996.

(2.) Cooper, R. G. and S. J. Edgett. Winning at New Products: Accelerating the Process from Idea to Launch, Perseus Books, 2001.

(3.) McGrath, Michael E. Product Strategy for High Technology Companies. Butterworth-Heinemann, 2001.

(4.) Seering, Warren P. "Product Development Capability Assessment." Lean Aerospace Initiative, MIT, Cambridge, MA.

(5.) Patterson, Marvin L. Accelerating Innovation. Van Nostrand Reinhold, 1993, Chapter 2.

Ronald (Sandy) Campbell is senior lecturer in the Center for Innovation in Product Development at Massachusetts Institute of Technology, Cambridge. At MIT he teaches and researches in the area of product development. He also consults with technology companies interested in making systematic and sustained improvements in product development, in his 39-year industrial career he was vice president and chief technical officer at Xerox Corporation, and earlier vice president of research and development at Raytheon Company. He holds M.S. and Ph.D. degrees from Harvard University. Sandy_c@mit.edu

Maurice Holmes is the president and managing director of Business Process Solutions Group, a private consulting company in Pittsford, New York. Through BPSG, he helps companies, leverage their product development process investments, to improve bottom-line business performance. Prior to this, he held appointments with both the Engineering School and Sloan School of Management at Massachusetts Institute of Technology where, as professor of the practice of management and engineering systems, he was also a co-director of the Center for Innovation in Product Development. His industrial experience consists 0f 26 years at Xerox Corporation, including the positions of corporate vice president and chief engineer, as well as president of the Office Document Systems Division. He holds a B.S. in physics from the University of Pittsburgh, and an M.S. in engineering from the University of Rochester. Mdholmes@frontiernet.net
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Title Annotation:implementation, and fundamental enhancements to the development process
Comment:Product development processes: three vectors of improvement: an end-to-end process with closed-loop feedback around quantifiable business improvement initiatives can lead to much better business performance.(implementation, and fundamental enhancements to the development process)
Author:Holmes, Maurice F.; Campbell, Ronald B. Jr.
Publication:Research-Technology Management
Geographic Code:1USA
Date:Jul 1, 2004
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