Overcoming the Current Crunch in NPD Resources
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Overcoming the Current Crunch in NPD Resources

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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 ...

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. While 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 practical solutions you can start implementing today.

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    Overcoming the Current Crunch in NPD Resources Overcoming the Current Crunch in NPD Resources Document Transcript

    • Product Innovation Best Practices SeriesOvercoming the Current Crunch in NPD Resources Reference Paper # 17 By Dr. Robert G. Cooper Dr. Scott J. EdgettCompliments of:Stage-Gate International andProduct Development Institute Inc.For information call +1-905-304-8797 www.stage-gate.com © Product Development Institute Inc. 2000-2013 Product Development Institute Inc. and Stage-Gate are registered trademarks. Logo for Product Development Institute Inc. used under license by Stage-Gate International. Logo for Stage-Gate used under license where appropriate.
    • Overcoming the Current Crunch in NPD Resources By Dr. Robert G. Cooper and Dr. Scott J. EdgettThe 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 manynegative consequences: projects taking too long to market, under-performing new product projects, anddevelopment portfolios that contain too many low value projects. This article explores the resourcecrunch problem and its causes, and also offers solutions.Keywords:Portfolio management, resource allocation, resource deficiencies, pipeline gridlock and new productstrategyThese pages contain copyright information of Product Development Institute and member company Stage-Gate International,including logos, tag lines, trademarks and the content of this article. Reproducing in whole or any part of this document isstrictly forbidden without written permission from Product Development Institute Inc. or Stage-Gate International. 2© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resources By Dr. Robert G. Cooper and Dr. Scott J. EdgettThe ProblemThe resource crunch is a crippling disease sweep- definition, poor quality of execution of key NPDing the new product development (NPD) land- tasks, and even poorly structured, ineffectualscape. The significant gap between resources project teams [4]. And numerous remedies haverequired and NPD resources available has re- been proposed to deal with these deficienciessulted in many negative consequences: projects [5]. In spite of the remedies, however, newtaking too long to market, under-performing new products continue to under-perform.product projects, and development portfolios thatcontain too many low value projects. A closer examination of the many reasons for failure, coupled with results from recent bench-Look at the facts: New product development per- marking studies, shows that many of these prob-formance is substandard in most firms. An esti- lems and failure modes are themselves inter-mated 75% of development programs fail com- linked, and are traceable to a much more funda-mercially [1], while approximately 55% of busi- mental cause, namely major resource deficien-nesses confess that their product development cies in key areas [6] For example, poor quality ofeffort has failed to meet its sales and profit ob- execution and leaving out important tasks, suchjectives [2]. Equally disturbing is the opportunity as voice-of-customer work, is often not so muchcosts of product innovation – the missed oppor- due to ignorance or a lack of willingness: it’stunities. Simply put, far too high a proportion of more often because of a lack of time and people.resources are spent on mediocre and small pro- As one senior project leader declared: “We don’tjects – tweaks, enhancements, fixes, modifica- deliberately set out to do a bad job on projects.tions – that yield low returns to the company [3]. But with seven major projects underway, on topWhy the high failure rates? And why the missed of an already busy ‘day job’, I’m being set up foropportunities? While these performance ques- failure … there just isnt enough time to do whattions have been posed for decades, most of the needs to be done to ensure that these projectsreasons offered are symptoms only – reasons are executed the way they should be … and so Iwhose roots can be traced to a much more fun- cut corners.”damental problem that plagues most firms’ prod-uct development efforts – a significant shortage This project leader is not alone in her concern.of resources devoted to NPD. This article ex- Surveys and benchmarking studies reveal thatplores the resource crunch problem and its the NPD resource deficiency is perverse andcauses, and also offers solutions. widespread. Consider the evidence:Why New Products Fail To Perform A lack of focus and inadequate resources sur- faced as the number one weakness in busi-Many reasons for new product failures have been nesses’ new product development efforts in auncovered over the years. These include well- major APQC benchmarking study (American Pro-known and recurring themes such as a lack ductivity and Quality Center): project teamsof market information, a failure to listen to working on too many projects or not sufficientlythe voice of the customer, poor up-front focused on NPD work.pre-development homework, unstable product 3© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesAnd a lack of resources devoted to NPD across all Further, adequate resources devoted to newfunctions was the number three most serious product development was one of the threedeficiency: only a minority of businesses indi- strongest drivers of new product perform-cated that sufficient resources were available to ance. Indeed, the strongest single driver ofproject teams to do a quality job in NPD [7]. The the most commonly-used performance met-weakest areas were Marketing resources (47% of ric, namely percentage of sales from newbusinesses were very weak here) followed by products, was how much the business spentManufacturing/Operations resources for NPD on R&D (as a percentage of sales).(29% of businesses very weak). Resource Deficiencies Lead to ManyBest performing businessesses, however, were Ailmentsmuch more resource rich for NPD than were theWorst Performers; and Best Performers had pro- A lack of new product resources leads toject teams that were much more focused and many common ailments in product innovationdedicated to NPD. efforts (Exhibit 1). See how many your busi- ness suffers from:These results confirm an earlier study, whereresource deficiencies in all areas – R&D, Market- 1. Quality of execution suffers:ing, Sales and Operations — were identified as Corners are cut, as project teams try to meetsignificantly and seriously deficient when it came timelines with minimal resources. Thus,to NPD [8]. 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 D escoped, = re su lt A la c k o f g a m e - d e -fe a tu re d ch a n g e rs : p ro d u c ts: sm a ll, lo w du m bed = u ltim ate im p a c t p ro je c ts do w n 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 A la c k o f p ro jec ts fo r NPD th e lim ite d re s o u rc e s R eso u rce s a v a ila b le Poor New L o n g C yc le P ro d u c t T im e s P erfo rm an ce: P o o r p ro je c t P ro fita b ility p rio ritiz atio n ; failu re to k ill p ro jec ts Q u a lity o f e x ec u tio n : P o o r jo b o r n o H ig h F a ilu re P o o r d a ta o n jo b d o n e o n R ates p ro je c ts : p ro je c ts : m a rk e t s iz e , po or V oC & re v e n u e m a rk e t in p u ts ; e s tim a tes , w e a k u p -fro n t c o s ts h o m ew o rk S o u rc e: [7 ] 4© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resourcestrials are overly accelerated, and launch plans failures invariably point to missed activities orare thrown together and under-resourced. The poorly executed actions as the culprits! [9, ch.results are predictable: the new product under- 2,3]. Then there’s the hidden cost of rework orperforms financially. “fix and repair” work: most often, activities done in haste or poorly executed come back to hauntResearch into NPD practices reveals poor quality the project team, and end up taking twice asof execution of project tasks from idea right long via rework, as the project team gets caughtthrough to launch. Consider the data in Exhibit 2, in an almost endless “build-test-fix” spiral.which shows mean quality of execution (0-10ratings) for a large sample of successful versus 2. Some vital activities simply don’t getunsuccessful new products. The average score is done at all:a dismal 5.8 out of 10 – hardly stellar quality of Lacking the time or people, key activities simplyexecution [4,9 ]. are left out as project teams scramble to meet launch dates. For example:Poor quality of execution ultimately results in Market studies, so often cited as fundamentalserious new product costs. First, success rates to success, are noticeable for their absence insuffer: There is a strong connection between too many projects. One study reveled that mar-quality of execution of key tasks and new ket research was simply not done at all inproduct success, while studies of new product about 75 percent of NPD projects [9, p. 33]. 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 1 2 3 4 5 6 7 8 9 10 Very Poor Excellent Mean Quality-of-Execution Rating Failure products Successful products Source: [8] 5© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resources Vital up-front homework doesn’t get done. Our estimate is that in many businesses, the Rather projects are moved from early con- combined Waiting Time and Rework Time is 30- cept right into the Development phase with 50% of the project cycle time. Put another way, little attempt to obtain the facts and get the cycle times could be reduced substantially if the product definition right. The front-end waiting time and rework time were eliminated. homework has been dismally rated in vari- ous benchmarking studies. 4. A lack of game-changers:As one frustrated executive put it: New product failures and being late or slow to “We’re so busy just getting the projects done market are the measurable costs of poor or un- – marching to a timeline – that we don’t timely execution, often brought on by insufficient have the time for any of this important up- resources. A far greater cost is unmeasurable, front work. We have a ‘heads down’ rather because it’s an opportunity cost. How many pro- than a ‘heads up’ mentality” [6]. jects are simply not done due to a lack of re- sources? Given a limited resource base, human3. Cycle time or time-to-market lengthens: nature dictates that it be spent on lower risk ini-With not enough resources to handle the many tiatives that don’t cost very much. As one execu-projects in the pipeline, queues begin to build. tive put it:The “time to get things done” is not so muchexecution time, it’s waiting or queuing time – “My business has a limited R&D budget. Iwaiting for people to get around to doing the can’t afford to risk a major percentage ofwork. And thus time-to-market suffers. that budget on a handful of big projects. I’ve got to hedge my bets here, and pick theTime-to-market (or project cycle time) is smaller and lower risk ones. Besides, manycomprised of three components: of these smaller projects have to be done – theyre needed to respond to a customer • Execution time – the actual time it takes request or to keep the product line up-to- the project team to undertake the task date. If I had a larger R&D budget, then (assuming a dedicated effort, and quality of I might tackle some more venturesome execution) projects ...” [6]. • Waiting time – this is analogous to WIP or Lacking the resources to do an effective job, “work in process” in production – the time technical and marketing executives start to favor a project spends waiting for people to work smaller, easier-to-do and faster projects. We call on it (usually because they’re busy doing these the “low hanging fruit” projects. The trou- something else) or waiting for an approval ble is they’re also low value to the company. from someone outside the core team (e.g., While it’s desirable to have some of these easy/ resource owners) fast projects in one’s portfolio of projects, when the entire portfolio is dominated by such low- • Rework time – the time required to do value projects to the detriment of significant de- things over again because they were poorly velopments and breakthrough new products, or hastily done the first time. then the long term viability of the business’s new product program, and indeed the business itself, is in jeopardy. 6© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesAdditionally, most businesses have immediate 6. The project team’s morale suffers:development needs: projects that must be done Inadequate resources also impacts on the projectin order to keep the product line up-to-date, re- team. Faster time-to-market and cycle time re-spond to a major customer’s request, or simply duction are paramount themes in many busi-fix a problem. These “must do” or urgent pro- nesses. But lacking the necessary personnel andjects always exist. But lacking adequate develop- their time commitments from functional bosses,ment resources, often these must do projects the project team is stretched. Deadlines areend up taking the lion’s share of the limited re- missed, pressure mounts, people are blamed,sources. The end result is a very unbalanced and team morale starts to deteriorate. Crawfordportfolio – too many tweaks, modifications and identified team morale problems as one result offixes – and a lack of projects that promise signifi- an over-emphasis on cycle time reduction; wecant growth and profitability [3,]. continue to see much evidence of morale prob- lems, brought on by a combination of too fewThe immediate result is the lack of blockbuster or resources and time pressures [11]:game-changer projects in the pipeline. Indeed, In one business we investigated, so bad wasbusinesses rated their portfolio of active projects the morale of project teams that no oneto be of “modest value” in a recent portfolio wanted to be on future teams. Being put onstudy, with 45 percent of respondents confessing a product development team was viewed asto low value projects in their development portfo- a punishment. The reason: there was solios, and 69 percent indicating a poorly balanced much time pressure on these teams to ac-portfolio of projects [3]. complish the impossible, and so few re- sources to do the work, that teams were5. The active projects are “dumbed down”: destined to fail. And they were being chas-Another occasional result of resource deficiencies tised by management [6].is that projects are “dumbed down” or de-scoped. One frustrated head of a technical group If these ailments beset your new product pro-summarized it this way: grams – poor quality of execution and missing “Design engineers are savvy people. They’ve key activities, such a voice of customer studies; figured out that if the goal is to do more new too long to get to market; too many trivial, low product projects with the same or fewer re- value projects and a lack of game-changer pro- sources, then something’s got to give. Heroic jects in your portfolio; de-scoped and de- efforts can only compensate for the gap for featured products; and morale problems – per- so long. So they make the projects simpler: haps the culprit is not so much unwilling or un- they de-scope the project, and de-feature able project teams or a lack of a sense of ur- the product… they simply don’t build in all gency or effort. The underlying cause is far more the [product] features and functionality that likely to be too many projects for the limited re- they know they should. The end result is that sources available: the current resource crunch! they deliver a product that’s somewhat less And the problem appears to be getting worse, as than superior” [6]. firms try to develop even more new products with the same or fewer resources.And so de-scoping and de-featuring takes its tollon potentially great new products. 7© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resources 2010The Underlying Cause: Make the Numbers! too many projects. It’s not uncommon for a tech- nical person to be working on three or four sig-The resource crunch has many sources, but a nificant development projects simultaneously,fundamental one over the last decade is a preoc- and at the same time, handling a variety of smallcupation with short term profitability, driven technical tasks, such as customer requests andlargely by the financial community. To meet trouble shooting in the plant. Marketing appearsshort term financial goals, business unit manage- even worse hit:ment was caught in a dilemma: They could dowhat was good for the business for the longer In one smaller business unit of a major cor-term, or resort to short term maneuvers – cost poration, the Marketing person declared thatcuts and resource freezes – in order to achieve he was on eight major development projects;the immediate goals set by corporate headquar- but that his day-to-day marketing job tookters. As one exasperated business unit general 60% of his time. Do the math: 20 days in amanager declared, and this is typical: month and 40% of his time on projects – that’s eight days, or one day per project. It “I grew the business – both top line and bot- came as no surprise to hear that in none of tom line – by 20% last year. But I’m being the projects was there anything resembling a ‘punished’ by Corporate [head office] for do- full scale market study or voice of customer ing this. To achieve this growth, I had to in- research – how could there be with only one crease operating costs – we hired more tech- day per project per month of Marketing time! nical people – and so my operating ratios [6]. suffered. I’m being measured and incented all wrong! [6]. Other support functions are not immune to these resource deficiencies when it comes to new prod- Another business unit executive put it more uct projects. Too often we hear that securing bluntly: “Unless it contributes to this quar- support from process, operations or manufactur- ter’s bottom line results, don’t do it!”, as he ing engineers for product development projects urged his people to focus strictly on near is next to impossible. And so the “transfer-to-the- term results and commit nothing to the plant” phase resembles more “throwing it over longer term [6]. the wall” rather than a smooth transition, while manufacturability issues, so important early inAnd so the seeds of the current resource crunch the life of a new product project, are not dealtin product development were sown. For a few with. Finally the sales force is so focused on to-years the formula worked: some slack was re- day’s results in financially-driven businesses thatmoved and the remaining people worked a bit their time is not available for new product pro-harder and faster. But after a decade of this jects, even when it is realized that these projects“make the numbers” thinking, the true costs be- promise to yield tomorrow’s bread-winners forcame evident. the sales force! The results are predicable: With- out early sales force involvement, getting com-The resource cuts or deficiencies are apparent in mitments to sales forecasts is difficult, and sup-every department. In technical groups – R&D or port for the launch by the Field is lacking - theDesign Engineering – people are spread across launch is plagued by lack of people and time. 8© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesA Second Reason for the Resource Crunch: The problem is that executive pet projectsToo Many Projects have a poor track record: their failure rate is higher than the average project, in spite ofThe other side of the resource crunch is trying to all the support and attention [8, p. 97].do too many projects for the limited resourcesavailable: a lack of focus. One benchmarking 5. Nothing better to work on: The businessstudy reveals that 44 percent of firms studied is bankrupt of great new product ideas, soconfess to trying to ram too many projects into that there are no other projects waiting fordevelopment; indeed the term “pipeline gridlock” the team to work on. One should alwayswas used by some managers to describe the have a list of solid “projects on hold” waitingsituation in their businesses [3]. in the wings, and there are many methods to do this [12].Nine Lame Excuses for Not KillingDevelopment Projects 6. No killing mechanism: Many businesses confess to a lack of formal or effective Go/KillWhy are there so many projects – too many for decision points in their new products proc-the resources available? Our research reveals esses.numerous reasons, most of them poor excuses,for an inability to prune the new product portfolio 7. No portfolio management:[6]: In a gating process, decisions are made on individual projects jects one-at-a-time at 1. Pressure to get anything to market: gate reviews; but a more holistic view – Some senior management admit to a looking at the entire portfolio of all projects – reluctance to kill projects because they is missing [3,].8. desperately need to get something – anything – to market (often due to the way 8. Can’t say no to a key customer account: the senior person is measured). Still other businesses have become so cus- tomer driven and reactive that they cannot2. Sunk cost reasoning: Here the argument is: say no to any customer request, even frivo- “We’ve spent so much on this project … we lous or poorly thought-out ones. can’t kill it now”. Many people have trouble cutting their losses, especially after major 9. Just difficult to say ‘no’: Finally, some sen- expenditures. ior people confess to an innate inability to “drown some puppies”. As one executive3. “We’re almost there!”: When projects are declared: “We never kill projects … we just mired in the development and test phases, wound them!” and face tough technical obstacles, often the technical solution seems just months away: A Final Reason for the Resource Crunch: “just a little more time will solve the Overemphasis on Speed to Market problem” begs the project team. The trouble is: the same refrain has been heard before, Many senior management have become “speed and still the technical solution remains demons”, placing far too much emphasis on cycle elusive. time reduction and acceleration to market. The reasons for this over-emphasis on cycle time re-4. Executive “pet” projects: Senior people duction can often be traced back to reason #1 have their pet projects – projects they above – the desire for fast profits and the way believe in and have committed to. If the senior people are measured. project is killed, the executive loses face. 9© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesWhile reducing time to market is an admirable Some Solutions to the Resource Crunchgoal, there is also a dark side to project accelera- Problemtion. Further, this over-emphasis on speed onlyexacerbates the resource crunch: As times-to- The current resource crunch in NPD has manymarket are compressed, the rate of projects en- negative effects: poor quality of execution,tering the pipeline increases, and so departments long cycle times, under-performing projects,and project teams must handle even more pro- and poor team morale. Given the diverse setjects per year. And the results are similar to of reasons for this resource deficiency – rang-those already cited: corners are cut, key activi- ing from trying to do too many projectsties are undertaken in haste, quality of execution through to a preoccupation with short termsuffers, projects are trivialized, and team morale profitability – we offer three sets of solutionssuffers. to the current resource crunch in NPD: 1. Strategic SolutionsMore words of warning about cycle time reduc- 2. Portfolio Management Solutionstion: There is inconclusive evidence that exces- 3. Tactical Solutions.sive cycle time reduction is even a desirable goalacross the board. For example, Griffith found no 1. Strategic Solutions:correlation between a project’s time-to-marketand various success metrics [14]; while another A. When it comes to resources, recog-study found far less than a one-to-one correla- nize that not all businesses are thetion (0.415) between profitability timeliness same(measured by on-time performance and time The emphasis on short term operating resultsefficiency) [15]. 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 . H ig h 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 Market/Technology C h e m ic a ls Attractiveness 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 C ash C ow s: P o te n tia l D o g s : M odest NPD Spend Low N PD Spend Low 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 ) 10© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesNumbers are all important. This is wrong. Some Star businesses merit more spending on R&Dbusiness units face limited prospects in product than the average business, and an aggressivedevelopment, and thus few development re- NPD effort. A “harvest and/or divest” strategysources should be allocated here. But others is usually elected for Dog businesses; whilehave many opportunities, yet are measured with Cash Cows see average or modest R&D spend-the same yardstick, and have resources allocated ing, with NPD designed to keep the productthe same way. line up-to-date. And Wildcats or Question- marks see selective R&D spending, dependingIt’s time to re-introduce a good dose of strategic on the magnitude of the opportunity and track-thinking into your corporate planning exercise. record to date.Let’s get back to the fundamentals of strategicplanning, where differences among businesses B. For Star businesses, change theand their opportunities were recognized. Recall metrics!the BCG (Boston Consulting Group) business unit Measuring all businesses with the same yard-portfolio model (Exhibit 3). This strategic model stick or metrics assumes that all businesses arewas a good model in its day: it classified busi- the same: again, wrong! The metrics that areness units as stars, cash cows, dogs and wildcats imposed cause senior management in each– and defined different NPD roles and goals for business to behave a certain way, and differenteach business. This model made a lot of sense, senior management behavior is appropriate forso perhaps it’s just time to dust it off and update different businesses. For example, the Starit. businesses should be treated as Stars and most important, be measured as Stars. Thus, insteadHere are some suggested updates: of relying on traditional short term operatingThe business units or businesses are still profits, apply more growth oriented metrics todenoted by the various bubbles in Exhibit 3. gauge their performance, metrics such as:However, instead of using Market Size as the Percentage of sales from new products [18]vertical axis (this metric was too uni-dimensional Growth in revenuein the original model [16]), use Market/ Growth in profits.Technology Attractiveness. This is an externalmetric that captures how attractive the market Note that these growth metrics may not beand technological possibilities are for each busi- appropriate for every business unit – just forness, and includes specific measures such as the designated ones. Here’s an example:market size, market growth and potential, com-petitive intensity, and slope of the technology S- At Air Products, each global business unit iscurve [17]. assigned its own growth and profitability targets, depending upon the type of indus- And replace the conventional Market Share try/markets that each is in, and the level of horizontal axis metric with the more robust importance of the business to the corpora- Business Position measure. This is an internal tion. This approach recognizes that each metric that captures the strength of the business unit is different, and as such, business unit – what the business brings that should have different targets set for it: suggest that it could be an effective competitor each business unit thus sets its NPD strat- in this business area. This dimension includes egy that matches its own unique business market share but also strengths and core needs (instead of having one common goal competencies relative to competitors (e.g., across the whole corporation) [7]. technological strength, manufacturing strengths, marketing strengths). 11© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesC. Develop a product innovation and tech- Now look at the supply side. Undertake a re- nology strategy (PITS) for the business source capacity analysis – how many people Most businesses have a business strategy, but are available to work on projects [5, Apr. what is missing is their product innovation 1999]. Be sure to subtract the time they must and technology strategy [19]. Components spend on day-to-day work just to keep the of deal with goals as well as the resources business going. This is the supply side. to achieve these goals, and include: • New product goals – for example, what Each time we undertake such a resource ca- proportion of your business’s sales will pacity analysis, a gap between demand (based come from new products; or what percent- on goals and strategy) and supply is identified. age of your growth? And the result is predicable: the goals won’t be • Strategic arenas – the markets, product achieved and the strategy will not be realized. categories or technologies – where you’ll Senior management then has three choices: focus your new product efforts; your battle- set more realistic goals; or put the resources in fields must be decided. place; or reallocate the existing resources! • Attack plans – how you plan to win at new products in each strategic arena. E. Ring-fence the resources • Deployment – how many NPD resources If considerable resources are required for prod- you plan to allocate to each arena or bat- uct development, consider ring-fencing these tlefield. resources. That is, make them dedicated re-The issue of deployment is critical: strategy be- sources – dedicated full time to product devel-comes real when you start spending money. De- opment – rather than dividing them amongployment is about resources and resource alloca- many duties. These ring-fenced resources ortion for product development. And it must be “innovation group” includes technical people,part of your business’s strategy and PITS. but also marketing and production people, and their full time job is product development! TooD. Ensure that new product resources are often, when people are supposedly designated consistent with the business’s strategy to product development efforts, their jobs are and goals split and their “other duties” soon dominate. The result is that a relatively small percentageTake a hard look at the business’s goals, strategy of the designated resources are in reality spentand product innovation strategy. If there are on product development!stretch growth goals, and the strategy is to ex-pand dramatically via new products (as is typical 2. Portfolio Management Solutionsin a Star business), then the resources must bein place. For example, since the metric “percent A. Implement a formal Portfolio Manage-of revenue from new products” is driven by R&D ment Processspending [8], then NPD goals expressed in terms One solution to the resource crunch is effectiveof sales from new products must be reflected in portfolio management. The argument is thatappropriate levels of R&D spending. the problem is not so much a lack of resources, but rather how the resources are allocated.Next, translate these growth or sales goals into Many firms have a solid new product gatingnew product launches – how many, how big, and process. They then piggyback a portfolio man-how often? Then translate these launches over agement decision method atop of their excel-time into resource requirements – this is the de- lent gating process.mand side (usually measured in FTEs or dollars). Important additions include: • periodic portfolio review sessions to rank and prioritize projects, and to seek the right balance and mix of projects; 12© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resources • IT support to display the entire portfolio of Next, and within each bucket, prioritize your projects; introducing resource allocation projects, using an A,B,C categorization into project gate meetings; and scheme: • linking project decisions to the business’s Category A: High priority projects – these strategy via strategic buckets [20]. receive maximum resources and are fully loaded; timelines and resources are sa- Example: EXFO Engineering (winner of the cred. PDMA’s Outstanding Corporate Innovator Category B: Medium priority – resources are Award in 2000; Product Development and allocated to these, but may be re- Management Association) has implemented assigned, as A-priority projects demand both a Stage-GateTM and Portfolio Manage- more. To compensate for real-time re- ment process. The gates make Go/Kill deci- source adjustments, the timelines of B- sions on individual projects. But four times projects may slip Thus, the process is a per year, the business leadership team, self-regulating one. chaired by the CEO, evaluates, ranks and Category C: Lower priority – these go on prioritizes the complete slate of development hold; no resources are expended on projects during the Portfolio Review meeting. these. Any project at or beyond Gate 2 is included This is a “micro-allocation” of resources to spe- in this prioritization exercise [7]. cific projects.B. Use Strategic Buckets and prioritize your Project prioritization can be achieved via a projects within buckets scorecard scoring system; or by force-rankingConsider setting up strategic buckets – envelopes on multiple criteria (as does EXFO Engineer-of resources (dollars or person-days) but split by ing, below); or by ranking projects using theproject type and market sector or business area. Productivity Index for each project (ratio ofThis strategic buckets exercise is a logical exten- NPV/Cost Remaining) [10]. Whatever methodsion of defining your business’s product innova- you use, rank the projects within each buckettion and technology strategy (Strategy item C until out of resources for that bucket; thoseabove; see also Exhibit 4). Each “bucket” is allo- projects beyond the resource limit are desig-cated a finite set of resources – a “macro- nated C-projects.allocation” of resources. 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 1 . S tra teg ic B u c k e ts M a c ro - a llo c a tio n P o rtfo lio R eview : S ta ge -G a te T M 2 . P ro je c t P ro c e s s – th e G a te s : H o lis tic D e c is io n s : In d ivid u a l p ro je c ts M ic ro - A ll p ro jec ts G o /K ill R ig h t In d e p th a llo c a tio n p rio r itie s ? G o /K ill d e c is io n s P rio ritiza tio n R ig h t m ix ? A lig n m e n t? 13© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesThis portfolio procedure achieves three results: It is better to undertake four projects and doTop priority A projects receive the resources they them properly, rather than trying to do eightneed and are sped to market; a reasonable bal- badly. This ability to properly focus has beenance between numbers of projects and resources shown to improve new product performance.available is attained; and the spending break- For example, companies that achieve the rightdown mirrors the strategic priorities of the busi- project-to-resource balance realize the bestness via the strategic buckets: new product performance results, according to EXFO example, continued: At the quarterly one study [3]. Here’s an example: Portfolio Review, projects are force-ranked One major chemical company was suffer- against each other on each of the following ing from too many projects. A thorough five criteria: review of the list of 1000 active develop- 1. Confidence in the project team ment projects revealed that many were 2. Revenues (risk-adjusted) versus expenses mediocre – limited value to the company or (development and commercialization lacking strategic impact. A brutal pruning costs, including a technical risk factor) exercise reduced the list to 250 projects. over a two-year period The result: time to market was cut in half 3. Fit with the strategic plan (specific growth within one year; and project execution im- directions, with a weighting factor on proved dramatically [22]. each) Pruning the portfolio means making tough 4. Profitability index (a return-on-investment choices. A 75% pruning rate in the example ratio) above is extreme; our experience suggests that 5. Availability of technical resources and in the typical portfolio, roughly half the projects commercial strengths. should be cut. Regardless of the percentage, The dogs or No Go projects are culled out however, management must learn to drown and killed, and the end result is a prioritized some puppies. However, drowning puppies is list of worthy projects, ranked 1 to N. Re- unpleasant for most managements: all projects source requirements are summed down the look good; all are worthy or needed; and no project list until the resource limits are one likes to kill any of them. The other tough reached: those projects above the resource issue, even if there is the will to kill, is which limit line are deemed Go and are resourced; ones – which projects should be killed or put and those below the line are placed on hold on hold? – no resources. In this way, management eliminates the dogs, forces the best projects Some of the ingredients of a successful pruning to the top of the list, and ensures that the exercise include: correct project-to-resource balance (pipeline • The will to kill – management that is gridlock is avoided). committed to making the tough choices. • A killing mechanism – either in the formC. Focus – do fewer but better NPD pro- of tough, rigorous gates as part of a sys- jects tematic new product process; or periodicEffective portfolio management also means doing portfolio reviews and project ranking ses-the right number of projects – focusing resources sions; or both.on fewer projects but the right ones [10, ]. The • Robust and visible Go/Kill criteria – crite-goal of maximizing the value of the portfolio ria that are used to rate and rank pro-(above) must be achieved in light of resource jects against each other (hint: financialconstraints – ensuring that the right number of criteria alone are probably not enoughprojects are undertaken for the limited develop- [10]; rather, consider approaches men-ment resources available. tioned above in item B). 14© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resources • Data integrity – all the portfolio project selection tools are worthless if the data are In one major materials company, the busi- wrong. ness unit president declared in frustration:The last point – data integrity – brings us full “I spend over $50 million on R&D, butcircle (bottom half of Exhibit 1). With too many don’t have a clue where the money is go-projects in the portfolio, project teams are thinly ing. Can someone please enlighten me!”stretched. Thus, discretionary activities – the up- Within months, a resource deployment in-front homework, voice of customer work, market formation system had been installed – oneassessment – are cut out or undertaken in haste. that tracked where people spend theirThis leads to poor data on projects – market size, time, and displayed the results in a con-expected sales, product costs, and NPVs are pure venient pie chart format [6].guesses – and so the Go/Kill decision process is How resources are currently deployed must beflawed. Management is stymied, has great tracked by person and by specific project (adifficulty rating, ranking and prioritizing projects, second facet of resource capacity analysis, in-so they don’t. And the company ends up with too troduced above [5, Apr. 1999]). This meansmany projects. It’s a vicious downward spiral. people and person days by project. But the data must be truthful, and not disguised by3. Tactical Solutions politically-motivated management. Ideally this resource tracking should go beyond just theA. Understand current resource Engineering or R&D group: marketing people’s deployment – the “what is” time is not free!Often the current deployment of resources –people and their time – is not well understood by Once the data are collected, it is relatively easysenior management. People appear busy, but it’s to show the appropriate displays and break-not clear what they’re working on, or what downs in a convenient format for senior man-they’re busy doing. This is especially true in agement. Breakdowns are typically by projecttechnical groups: 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% M arke t C P ro d u ct L ine Y 10.0% 25 .0 % M arket B N ew P ro d u cts 40 .0% 30 .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 % C o st R e du c tio n s M a in ten an ce & F ixe s 10 .0 % 20 .0 % C urrent S p lits in P ortfo lio S pend ing: S am p le sp lit from a B usiness 15© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesUsually this resource breakdown exercise – the C. Adopt a true team approach to handle“what is” – provides some new insights. For ex- resource gapsample, management discovers that far too high a Team members ought to be able to “play eachproportion is going to smaller, lower value pro- other’s positions” in order to fill in for missingjects. Then management can take steps to re- or busy players. For example, the entire projectdress the imbalance, devoting a higher portion to team should do the voice of customer inter-genuine new product development. views and the competitive analysis, not just the Sales and Marketing people on the team: Ob-B. Require project teams to specify not taining market information is far too important only timelines but also resource require- a task to be left solely to the Marketing people. ments Adopting a true team approach requires thatEffective new product processes require that the the entire team be held accountable for all fac-project team develop a Project Plan for the next ets of the project (and not each team memberstage of their project as a deliverable to each only responsible for his functional piece of thegate. Timelines with milestones are usually the project – a silo mentality). It also requiresformat. As part of this Project Plan, ensure that some team training. HP, for example, has pro-the project team specifics clearly their resource vided training to engineers to enable them torequirements. Some tips: do customer site visits to better understand When specifying resource needs, make sure customer needs [23]. that the project team spells this out not only in terms of people or FTEs, but also indicate Deal with the Resource Crunch person-months of work per person or de- partment: this places a finite limit on re- The resource crunch – either resource deficien- sources for that project. cies or misallocated resources – is a pervasive Next, insist that functional managers – the problem in new product development. And it is gatekeepers – approve not only the people, the root cause for much of what ails product but also their person-months to be spent on innovation: long times to market, under- the project. performing projects and weak launches, missed opportunities, and too many small projects.In this way the project leader not only gains pro- While your company may seek to enhance yourject approval at the gate reviews, but secures new product performance through a variety ofthe people resources – people and person- techniques and solutions, unless you deal withmonths of work – to progress their project and to the resource issue head on – perhaps via somedo a quality and timely job. And there is also a of the strategic, tactical or portfolio manage-check on resource over-commitment: once indi- ment suggestions offered above – then muchviduals are committed to one project, their time of your improvement efforts will be in vain: youcannot be double-counted and parceled out to cannot win the game without players on theother projects. field! - End - 16© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD ResourcesReferences & Notes:1 Griffin, A. & Page, A.L. “PDMA success measurement project: recommended measures for product developmentsuccess 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 Innova-tion Management, 9, 1, 1993, pp. 291-308.2 Cooper, R.G. & Kleinschmidt, E.J. “Benchmarking firms’ new product performance and practices.” EngineeringManagement 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-TechnologyManagement, 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 perform-ance: a review and meta analysis.” Journal of Product Innovation Management 11, 5, Nov. 1994, pp. 397-417; SongX. M. & Parry M.E. “What separates Japanese new product winners from losers.” J. Product Innovation Management13, 5, Sept. 1996, pp. 422-439; Mishra S., Kim D. & Lee D.H. “Factors affecting new product success: cross countrycomparisons.” J. Product Innovation Management 13, 6, Nov. 1996, pp. 530-550; and: Cooper, R.G. “New prod-ucts: what separates the winners from the losers.” in PDMA Handbook for New Product Development, ed. Milton DRosenau 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 Develop- ment, 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 Inno- vation 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 Distin- guishes 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 Manage- ment Journal, 16, 1, 1998, pp. 1-7; also: Cooper, R.G. & Kleinschmidt, E.J. “Winning businesses in product devel- opment: 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© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
    • Overcoming the Current Crunch in NPD Resources12 Cooper, R.G., Edgett, S.J. & Kleinschmidt, E.J. “Optimizing the Stage-Gate process: what best practice companies13 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 de- velopment 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. 23 McQuarrie, E. Customer Visits: Building a Better Market Focus, 2nd edition. Newbury Park: Sage Publications 1998. 18© 2000-2012 Product Development Institute Inc. 2000-2013 www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
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