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Similar to Measuring Performance of New Product Development
Similar to Measuring Performance of New Product Development (20)
Measuring Performance of New Product Development
- 2. Newproductdevelopment(NPD)–akey
aspectofinnovation–isoneofthemost
importantstrategicandoperational
leversanorganizationcanuseto
sustaingrowthandprofitability.Itisan
increasinglycomplexactivity,posing
multiplechallengesforcompaniestrying
tobuildcompetitiveadvantagethrough
newlydevelopedproducts.
Fromourexperience,thereappearstobea
disconnectbetweenwhatorganizations
arehopingforandwhattheyaregetting
fromtheirinvestmentsininnovation.In
manycases,asenseof“eternaloptimism”
seemstoprevailregardingNPD.
Accordingtoareportpublishedin2013by
theProductDevelopmentand
ManagementAssociation,only61%of
launchedproductssucceededinthe
market.Sohowcanacompanyimprovethis
measure?
Thisbusinessinsightaimstosharebest
practicesonhowtomanageNPDprojects.
Indoingso,wehopetodispelthefollowing
widelyheldbeliefs:NPD,duetoitsinherent
ambiguousandchaoticnature,cannotbe
controlled;and,sincethecoreinnovation
activitiesresideinengineering,thesuccess
ofNPDdependssolelyonthecapabilityof
anorganization’sR&Ddepartment.
PerformanceofNPDisoften
bothunder-measuredand
under-managed.
Havingcorrectandclearmetricsisareal
challenge,andthoseaimingtomanagethe
performanceofNPDtypicallyapply
conventionalkeyperformanceindicators
(KPIs)suchastimetomarket,%salesfrom
newprojectsorreturnoninvestment.
Whileimportant,theseKPIsmeasure
successonlyafteranewproductorservice
hasbeenlaunchedandcometoolateinthe
processtoinfluenceperformance.Inother
words,theyjustreflecttheoutcomeof
performance.
Webelievethatsuccessfulperformance
managementofNPDneedstoinvolve
threekeyaspects:
1. Organization:Aholisticvaluechain
approachtoaligntheperformanceofall
theinterdependentfunctionsinvolved
intheintegratedNPDprocess.
2. Process:Astreamlinedprocess
managedbyabalancedcombinationof
KPIsthatevaluatenotjustfinalproject
outcomesbutalsoinputandsupporting
factorsthatinfluencethesuccessofNPD.
3. Data:CapabilitytouseBusiness
Intelligence(BI)asanimportantenabler
tosupportthemanagementofNPDand
drivecorrectbehaviorsacrossthevalue
chain.
Newproduct
developmentis
anincreasingly
complexactivity
Figure1.IntegratedPerformanceManagementFramework
02
- 3. Therefore,whatisneededisarobust
performanceframeworkwithan
appropriatesetofKPIsthatwillmakethese
interdependencestransparentand
contributetotheeffectivemanagementof
eachfunction’sperformance.
Onlybyassigningclear,shared,cross-
functionalaccountabilities,measuredby
KPIs,willanorganizationmanagetobreak
downsilobehaviorandfostercollaborative
decisionmaking.Clearaccountabilitiesalso
helptoestablishperformance-oriented
behaviorsacrossanorganizationand,as
illustratedinFigure2,thenatureofthese
accountabilitieschangesthroughoutthe
lifecycleofaproject.
AstheexampleinFigure3illustrates,early
intheprojectlifecyclePurchasingrequires
inputsfromEngineeringtoleadthe
strategicsupplierevaluationandselection.
Figure2.KPIsacrosstheNPDvaluechain
Organization:Managing
performancealongthevaluechain
Thedevelopmentofnewproductsisa
highlycross-functionalactivity
characterizedbyaninterdependence
acrossanorganization’svaluechain.In
realitytherequiredcollaborationrarely
happensaseffectivelyasitshould.
Asaresult,newproductdevelopment
projectsfailtoachievetheirtarget
objectives.Someexamplesofthisinclude
voiceofthecustomer(VOC)issues,where
productspecificationsdonotmatch
customerneeds,anddesignfor
manufacture(DFM)issues,where
manufacturingimplicationshavebeen
insufficientlyconsideredinproductdesign.
Thisisoftenduetocontradictory
objectives,ineffectivecollaborationand
unclearrolesandresponsibilitiesamong
Sales&Marketing,Finance,Purchasing,
Quality,EngineeringorManufacturing.
03
Figure3.Increasedclarityofcross-functionalinterdependencies
Engineeringcan,therefore,bemeasured
againsttheon-timein-fulldeliveryof
technologyspecifications.IfPurchasing
receivesthesetechnicalspecificationsinthe
correcttimewindow,itisabletoundertake
aproperreviewofpotentialsuppliersto
maketheproduct.
Duringthedevelopmentphase,Purchasing
requiresdetaileddrawingsfrom
Engineeringtosourcecomponents,and
thosecomponentsmustmeetcosttargets.
Again,newcomponentswillonlybe
availableon-timeandat-costifboth
functionsperformagainsttheirKPIs.
Finally,Purchasingmayhaveidentified
suppliersreachingtheircostreduction
targetsintheshort-term,butinthe
long-termthetotalcostofqualitymayrise
duetolowqualitycomponents.
Thereareoftenrelatedcosts,suchas
warrantyclaimsduetoacomponentfailure,
whichhighlighttheneedforPurchasingKPI
thatmeasuresthetotalcostofqualitylinked
topurchasecomponentstoensurecorrect
sourcingdecisionsarebeingmade.
- 4. Process:Gettingthebalanceright
DespitetheuncertaintyinNPDprojects,
successcan,toalargeextent,bepredicted
andperformanceproactivelymanaged
throughoutaproject’slife.Continuously
assessingtheperformancestatusofa
project,combinedwithtimely
implementationoftherightmitigating
actions,cangreatlyinfluencethesuccessof
aproject.Therefore,NPDneedstobe
managedinastructuredwaybyapplying
systematicperformancemanagement,
focusedonboththeeffectivenessand
efficiencyofdevelopmentactivities.
Effectivenessisrelatedtotheoutcomeof
projects,suchascustomersatisfactionor
financialsuccess.Althoughusefulinmany
ways,managing“outcomes”haslimiteduse
throughoutaprojecttodefinemitigating
actionstoinfluencesuccessorfailure.
Efficiencyislinkedtothemultiplicityof
inputsthatinfluencethoseoutputsona
day-to-daybasis.Efficiencyindicatorsare
“leading”or“input-oriented”andhelp
predictthefutureoutcomeofNPD.
AsshownonFigure4,organizationsare
ultimatelyinterestedinmaximizingthe
revenuesfromnewproductintroduction.
However,onlybyproactivelymanagingthe
factorsthatinfluencemarketsuccesscan
theyensurethenewproductwillmeetits
revenuetargets.
04
Figure4.Strikingtherightbalancebetweeneffectivenessandefficiency
Figure5.Multipledimensionsofperformancemanagement
InordertodeliverNPDbotheffectivelyand
efficiently,werecommendmanagingnew
productdevelopmentprojectsalongfour
dimensions:Lagging,leading,controlling
andenablingindicators.
AsillustratedinFigure5,theultimate
objectiveofreachinghighcustomer
satisfaction,thelaggingKPIinthisexample,
willonlybeachievediftherelatedleading,
controllingandenablingaspectsare
managedappropriately.
Bothlaggingandleadingindicatorsfocus
ontheNPD’sperformance.
Laggingindicatorsmeasurethe
effectivenessofNPDbyevaluatingsuccess
orfailureonceaproducthasbeenlaunched
(e.g.customersatisfaction),whereas
leadingindicatorsmeasuretheefficiency
ofNPD.Theyarepredictiveindicators,used
toplanandmanagecriticalinputsto
activitiesintheinnovationprocess.Leading
indicatorsprovideearlywarningsandallow
mitigationagainstanydeveloping
weaknessesbeforeproblemsperpetuate
throughoutaproject’slife.
Revenueandprofitabilityofnewproduct
introductionarewidelyusedlagging
indicatorsacrossindustries.
However,theapproachtakentoachieve
thoseobjectiveswilldifferfromindustryto
industrydependingontheprevailing
competitivesituationandanorganization’s
NPDobjective(Figure6).
Controllingandenablingindicatorsfocus
ontheperformanceofthedifferent
processesthatdrivethesuccessorfailureof
projects. Controllingindicatorsare
operationalindicatorsusedtomonitorthe
performanceofaprocess.Forexample,the
numberofrequirementschangerequests
canbeusedasacontrollingKPItomeasure
theperformanceoftherequirements
managementprocess.Ahighnumberof
latechangescanbeanindicationthatthe
requirementsdefinitionprocessisnot
robustenough.
- 5. Enablingindicatorsareaboutdriving
cross-functionalcooperationandareused
tomonitorenablerstotheprocess.Theyare
oftenlinkedtothepeopleortechnology
aspectsinNPD.Forexample,onlyifproject
teammembersareadequatelytrainedto
usetherequirementsmanagement
softwareavailable,willtheybeableto
ensurerequirementstraceability.
ItisimportanttorememberthatasingleKPI
willnevertellyouthefulltruth;youmust
useacombinationofdifferentKPIstoget
thefullpicture.Figure7.Laggingand
leadingindicatorsareliketherear-view
mirrorandheadlightsofacar.
Data:Closingthelooptodrive
collaborativebehaviors
Intoday’sdata-richenvironment,deploying
anIntegratedPerformanceManagement
frameworkinanNPDcontextneedstobe
supportedbytheabilitytoaccessand
managealargeamountofinformation
acrossthevaluechaininastreamlinedand
timelyfashion.
Tothisend,BusinessIntelligence(BI)can
beseenasanimportantenablerasit
providesthenecessarycollaborationtools
toshareinformationacrossfunctionsand
improvesdataintegrity,consistencyand
accuracy.
BIcanbeleveragedtofosterdeeper
understanding,connectingtheKPIs
together,providingtheabilitytoundertake
root-causeanalysis“onthefly”andformthe
libraryofrecordfordevelopmentprojects,
includingpastsuccessesandfailures,from
whichfuturedevelopmentteamscanlearn.
BusinessIntelligenceencompassesdata
analyticstotaketheguessworkoutof
innovation,whileatthesametimeenabling
collaborationacrossnewproduct
developmentteams.
OnespecificchallengeinNPDisthatthe
processissometimesdifficulttovisualize;
therefore,peopleareoftenunabletogaina
quickunderstandingoftheoverallstatus.A
possiblesolutionistosetupa“project
room”,wheretheshort-intervalcontroland
criticalissuesareondisplay.
05
Figure6.AlignmentofNPDobjectivesandleadingindicators
“KPIsarecriticaltoenabling
closed-loopmanagement
systemstodeliverquantifiable
businessresults.”
Projectstakeholderscanthenmeetthere
onaregularbasistoanalysecriticality,
makedecisionsanddefineactionplans.
Thiswilldrivecollaborativebehaviours
aroundkeyperformanceissues.Itservesto
alignandfocusstakeholdersonthemost
importantriskelementsandhavethemall
focusonthesamethingsatthesametime.
Couplingthiswithimprovedmeeting
effectiveness,wherestakeholdersarewell
preparedandaccountableforactions,will
ensurethatdatawillreallybeused,which
inturnwillleadtobetterdataaccuracyand
decisionmaking.
Figure7.Acaranalogyforlaggingandleadingindicators
- 6. 06
Challenge:
Theclientwasanewentityin
thelightingindustry,created
fromdifferentbusinesses
andacquisitions,eachwitha
differentDNAandapproach
toProductDevelopment.
Itwasoperatinginarapidly
changinglandscape,soit
neededtorethinktheway
itinnovatedtointroduce
newproductsandsolutions
quicklyintothemarket.
Afour-weekanalysisrevealed
anaverageslipoftheactive
productportfolioof45%and
predictedasignificantshortfall
initsstrategicgrowthambitions.
Challenge:
Thecompanywantedtoincrease
innovation,qualityanddelivery
speedinthefast-moving,
volatileandfiercelycompetitive
semiconductormarket.
Challenge:
Thecompanywas continually
lookingforopportunitiesto
launchnewproductstoaddress
newmarkets,meetever-evolving
securitythreats,managea
strongreplacementcycleand
tapintoopportunitiesthatthe
globalizationoftradeprovides.
Needtoenhanceorganizational
preparednessfordeliveringthe
newproductpipelineefficiently.
ClientSuccessStories
A leading manufacturer of semiconductors
Approach:
PThecompanydecidedtoinitiateamajor
changeprogram,beginningwiththeiractivities
inEuropeandthenrollingoutglobally.
Theaimwastoimprove4keyaspectsofperformance:
reduceaverageTimeToMarketby50%;reducenon-
value-addedtimeondevelopmentprojectsby50%;
installanewManagementSystemwithalignedKPIs;align
therolesandresponsibilitieswithinR&DandMarketing.
Tomakethisbreakthrough,HitachiConsulting
establishedthreeworkstreams:
Financial&Operationaltoaligntheprojectportfolio
tolong-termfinancialtargets,withreal-time
transparencyofexistingandfutureprojects.
BusinessCreationtocreateamoremanageable
processthatwouldreduceTimetoMarket
andmaximisebangforbuck.
Approach:
Focussedonthethreekeyelements
ofNewProductDevelopment:
understandingclientneeds;
assuringhighquality;and
reducingtimetomarket.
Improvetheproducttimetomarketinorder
tomeettheconstantlyevolvingcustomer
demandsandrisingexpectations
Approach:
Auditedtheexistingdevelopment
andtestingprocesses.
Definedagovernancemodelincludingportfolio
managementprocesses,productroadmap
definition,testingandqualityassurance.
HitachiConsulting’splatformteamsetup
andconfiguredasolutiontosupport
productlifecyclemanagement
ProjectExecutiontoreduce
processinefficiencytoacceptable
levelsandoptimizeresource
allocationconformstrategy.
Results:
Threeproductdevelopmenttypes
wereidentified,andthesehave
realizedsignificantreductions
inTimeToMarket(TTM).
TypeA:newproducts–TTM
reducedfrom16to12months.
TypeB:productsderivedfrom
existingplatforms–TTMreduced
from14to6months.
TypeC:improvedorcostdown
existingproducts–TTMreduced
from9to3months.
Results:
Thetimeittooktomanageachangerequestwas
reducedby75%,andthetimetosolve“bugs”by20%.
Theunderstandingofcustomerneedswas
improvedusingastructuredprocessand
managementtools,whichwerecascaded
throughouttheorganization.Theinstallation
ofnewmanagementsystemsanddashboards
formonitoringprogress,highlightingareas
ofconcernandacceleratingremedialaction
createdatotallynewcompanyenvironment.
Results:
Implementationofrobustprocessesto
streamlinethecreationoftheproduct
roadmapbyfocussingonimproved
collaborationbetweenbusiness,R&D
andProductDevelopmentTeams.
Betterresponsetochange.
Improvedvisibilityofprogress.
Improvedoutcomemeasurement.
Collectionofimprovedand
targeteddiagnosticdata.
Adaptiveproductarchitecture,whichis
muchmoreflexibletobusinessneeds
A global market leader in innovative lighting solutions
A world-leading designer and manufacturer of
detection sensors
Culturalandbehavioralchange
wasachievedrightacrossthe
company,movingitfromabstract
researchtocommercialsuccess.
Managersandstaffatalllevels
nowshareacleardevelopment
process,withtherightgateways.
d
d
d
- 7. 07
Challenge:
Facingacompetitive
marketinprofessional
printing,ourclient’s
strategywastoshorten
theproducts’time-to-
marketandincrease
productadaptations.
Tohandlechangerequests
fromthemarket,including
issuesreportedbythe
localsalesandservice
organizationsaswellas
frominternaldepartments,
therewasaneedto
manageengineering
changesmoreeffectively.
Approach:
TheanalysisconductedbyHitachiConsultingshowed
thatthatprocessforhandlingchangerequestswasnot
effective,resultinginlonglead-times,unnecessary
changesandlowcustomersatisfaction.
Toimproveengineeringchangemanagement,aproject
wassetuptyingdifferentdepartments–Service,R&Dand
Manufacturing–tocometooneeffectiveandefficient
changemanagementprocessaimedatreducinglead
times,increasingcustomersatisfactionandoptimizing
integralcosts.Theapproachwasbasedonimproved
cooperationandalignmentbetweendepartmentsand
visualisingandmanagingprocessperformance.
Togetherwiththedesignoftheimprovedprocess,a
performancemanagementsystem(MCRS®)wasdeveloped,
enablingourclienttomanagetheprocessinastructuredand
transparentway,securingtimelyhandledcustomerchange
requests.TheimplementedMCRS®includedKPIdashboards,
clearaccountabilitiesandeffective-meetingcoaching.Together
withthedesignoftheimprovedprocess,aperformance
managementsystem(MCRS®)wasdeveloped,enablingour
clienttomanagetheprocessinastructured
andtransparentway,securingtimely
handledcustomerchangerequests.
TheimplementedMCRS®includedKPI
dashboards,clearaccountabilitiesand
effective-meetingcoaching.TheMCRS®
notonlyenabledbettercontroloverthe
changemanagementprocess,italso
improvedthecooperationbetweenthe
differentfunctionsinvolvedintheprocess.
Results:
Openchangeentrieshavesubstantially
decreasedasaresultoftheimprovedend-
to-endchangemanagementprocessand
theMCRS®involvingallkeystakeholders.
Ourclienthasalsomadeamajorstep
indevelopingacultureofcontinuous
improvement–showcasingthat
transparencyinperformancedoeslead
tomoreeffectivedecisionmaking.
A company specializing in innovative high-tech printers
and software
Conclusion
ForNPDtobeasuccessinanybusiness
theremustbeawell-definedandrobust
processatitsheart.Builtaroundthis
processthereneedstobeasystemto
manageperformance. KPIsarean
importantpartofthissystem.
These indicatorshighlightperformance
issues,buttheyrarelytellyouwhatthe
rootcauseoftheproblemis.However,
usedinconjunctionwithaccuratedata,
KPIsarevaluableinputsfordecision
makingandproblemresolution.
Furthermore,theyneedtobe
complementedwithappropriate
behaviorsacrossthevaluechain,to
ensurethatthecorrectactionsand
decisionsaretaken.Thesebehaviors
shouldberesults-orientatedand
encourageeffectivecollaboration,
transparencyandbroad-basedproblem
solvingtoultimatelyinfluencethe
outcomeofNPD.
Theperformancesystemwillbringrigour
toexecution.Onceinplaceitwill:
Providetherightpeoplewiththe
informationtheyneed,whenthey
needit,tobasedecisionsonfacts
ratherthanemotionand“gutfeel”.
Ensureclearaccountabilityfor
follow-throughondecisions.
Sustainstrongfocus,atall
operatinglevels,onfulfilling
thebusinessstrategy.
Breakdownsilobehaviorandfoster
collaborativedecisionmaking.
Delivertheneededinsightand
analyticstomanagebusiness
performanceandbuild
competitiveadvantage.
Rolemodeltheoptimalsetof
behaviorsrequiredthroughout
theorganizationtodrivea
cultureofperformance.
Integratedperformancemanagement
basedonKPIsalignedacrossthevalue
chain,supportedbyarobustBI
frameworkandperformance-driven
behaviorswillenhanceacompany’s
performancemanagementculture
anddrivecompetitiveadvantage
throughsuccessfulNPD.
