CAN YOU HEAR ME NOW?
Common Disconnects in Product Development
At Apple, the now-iconic company that brought us the Macintosh, the iPod, the iPhone, and now the iPad, the final gating factor before a new product launch is always the CEO, Steve Jobs. Conversely, at Google, it often seems to be no one; Google Labs is an almost automated launch pad for products that may not be ready for prime time, but are brought out for trial runs and quickly iterated or removed.
Hardware product development is known for taking time and needing to get it right, since mistakes with physical components carry a high cost. Even though virtual prototyping and 3-D printing are starting to change the economics of scale, most companies still adhere to the risk-conscious "measure twice, cut once" philosophy of physical product development. Even Apple has to make sure its products are designed and produced correctly for the market. On the other hand, software product development is legendary for its speed and competitiveness - as portrayed in The Social Network, Facebook was launched quickly and followed with rapid tweaks that continue to this day. Unfinished products are often released to the market, whose feedback is used to "finish" the product development cycle. These companies operate on the principle "release early and often," with rapid product iteration and improvements.
That's how you disrupt markets. But not every company is Apple or Google, and not every new product aims to be disruptive. Some, like Diet Coke, are brand extensions, and others, like Toyota's Prius, are responses to market forces. Others, like a telecom company's voice + internet, can be a bundled offering, and they're all necessary to the shareholder value of an enterprise. New product development is the lifeline of any company; it's what sustains growth over decades, even centuries. But in tough times, companies are tempted to cut R&D dollars, and avoiding some common pitfalls can be a force multiplier.
There are three critical disconnects we see regularly in new product development. The first one occurs between customer needs and company priorities. While an overly zealous devotion to customer input can be limiting, most non-tech companies err in the opposite direction, and customer needs take a backseat to internal priorities. This overemphasis on company financials is especially prevalent in economic downturns, when R&D funding comes under pressure. The reality is that a balance is required, and new products should be developed that demonstrate a link between customer value and company value. This requires strategies similar to those used by software companies: multiple, small, agile releases that quickly gather feedback and iterate. The next disconnect is between individual new products and the portfolio of existing products already being produced. New product decisions tend to be made in isolation, disconnected from their impact on the overall product portfolio. Products are too often judged and funded on their individual merits, or worse, on political considerations rather than on their relationship to other products. The Apple iPod products (Classic, Nano, Shuffle, and iPod Touch) are examples of products proactively developed to be a 'family," rather than as isolated offerings. The third disconnect is between a new product’s estimated value at inception and its realized value after launch. Even if the original business case is approved with a portfolio perspective, most companies fail to update the estimate of product value contribution over the development process, or against an updated view of the product portfolio. They figure that value determined once is value forever. But this is never the case. Customer needs change, product portfolios change, and new product specs often need to change to keep up. Connecting these common gaps in product development can help companies convert the usual challenges into powerful enablers for long-term growth.
The most radical example...is Threadless, where customers have a direct say in every product the company offers.
CONNECT THE GAPS
1. CONNECT THE COMPANY TO THE CUSTOMER
The most radical example of connecting the company's priorities with those of the customer is perhaps Thread less, a Chicago company where customers have a direct say in every product the company offers. Here's how it works: Thread less customers submit designs, a community of online users votes on their favorites, and only those shirts get made. The result? Every t-shirt the company produces sells out. As Inc. Magazine put it, at Threadless, "the customer is the company." This seamless (if you will) integration between customer research and product development is something most businesses can only dream of. Product development is guided entirely by the customer. According to an APQC study, only about a third of businesses include customer research and metrics in their new product development process. The rest measure success solely on internal factors (will the product make money? Can we ship it according to our plan?).
At many companies, this internal/external divide is an ingrained part of the culture, and that's where the problem starts. On one side you have the creatives, off in a separate building with purple walls, bean-bag chairs and a "no cube" innovation-encouraging environment. They're dialed into customer needs and cooking up new ideas and products. Their whole reason for being is to optimize the customer experience, and they’d like to do so without cost constraints, thank you very much.
They brainstorm ideas all day long. On another floor, or in another building, the "suits" are hard at work in walled offices, thinking about productivity and efficiency, and preparing presentations to senior management that calculate net present value and return on investment. They look at cost to serve and how to optimize processes. Smart companies are finding ways to bring the two together, so customer and company value can be integrated in every new product, and not viewed in isolation. This is so critical because the starting point for any new product development process is generating effective ideas. And these ideas must be based on a thorough understanding of customer needs - the kind of understanding that comes from first-hand knowledge shared by a cross-functional team of marketing, product, engineering, and operations personnel. So that's the first step: bringing together a cross-functional team to sift through and evaluate new product ideas.
These ideas then need to be weighed against both internally focused criteria like technical and commercial feasibility, and customer-centric criteria like user experience and cost. In practice, you need only a limited set of well-selected criteria measuring company and customer value to help make effective decisions. Don't make it more complicated than it has to be.
Once you get going on a new product, don't lose the voice of the customer. As the product development process moves along, the customer voice tends to be gradually drowned out. Engineering takes over, and the product marketers who talk to customers no longer stay involved. Don't make this mistake. Product marketers must stay attached from idea to execution. Another way to maintain the customer voice is to observe "lean startup" principles. Some products perform better when an early, less functional version is released to customers. So in the case of Google Labs, users are invited to "play around" with prototypes of the company's latest ideas, and offer feedback directly to the engineers who developed them.
The process is highly iterative, unlike waterfall development, which assumes that once decisions are made, downstream stakeholders must live with them. A final way to maintain the voice of the customer is to actually observe them using your products. Procter & Gamble has been an avid promoter of this technique, actually going into customers' homes to observe how they use dish soap, or how they handle laundry detergent. Business to - business companies could learn a lot by adopting a similar approach.
2. CONNECT THE NEW PRODUCT TO THE COMPANY'S PORTFOLIO
The strength of a business lies in having a portfolio of products to meet different customers' needs. But companies too often view individual projects in a vacuum instead of balancing their portfolios. An effective portfolio management strategy channels resources toward the most promising products, and aligns new product development to the company's overall strategy: Are you a market leader or fast follower? An Apple or a Microsoft? Each has different product development needs, in terms of speed-to-market and level of innovation. Is this the right product lineup to provide a competitive edge or market leadership?
A portfolio approach can also save money. In the auto industry, designing similar chassis for multiple vehicles has enabled car companies like Toyota to leverage technologies across their products, significantly reducing R&D complexity and costs. And Apple has accomplished a similar benefit by leveraging common sources for glass and chips in its iPod, iPhone and iPad products. While all product managers in a company may benefit from improving underlying capabilities, no one person or function wants to bear this cost individually as part of her own project. To do so would likely drive any project below acceptable business case justification. So strong leadership is required from the CEO, chief product officer, and line business executives, not only to implement an effective portfolio management strategy, but to sustain it over time.
3. CONNECT THE PRODUCT TO ITS BUSINESS CASE
Although nearly all companies estimate a product's potential value at the beginning of the product lifecycle, most of them stop there. They create the business case, get it approved, and then it gathers dust on a shelf somewhere. Instead, companies should revisit the value equation at specific, defined intervals. A stage-gate management process provides a ready mechanism for this. Stage-gate management breaks the innovation process into multiple stages, with each one consisting of a set of tasks. There are typically four or five major gates from business case generation through product launch. The gate typically serves as a quality control checkpoint where yes/ no decisions are made on whether or not to move forward.
While this sounds obvious, and all companies do this in some manner, few actually take full advantage of what stage gate management can offer. Beyond quality assurance, it can be a powerful tool to "lean out" the product pipeline and maximize yield on investment. Think about it: how much of your design and testing resources are spent on features that customers do not value, or for which the financial assumptions are no longer valid?
CONNECTIONS = VALUE
Though product development is probably the most important enterprise process, many product launches fail to meet expectations. There is significant potential for improvement - in both top-line revenue growth and more effective allocation of resources. Success depends on closing the gaps in the process.
New product development efficiency and effectiveness can be built upon a few time-honored principles: connecting company and customer value; effective portfolio management; and updated value measurement. Taken together, these principles form a practical framework for exceeding customer expectations while delivering financial and operational success.
About Stage Gate Decision-Making:
- The stage-gate process optimizes resource allocation through each phase of the product development process, from idea generation to launch. It can ensure that ideas don't go any further than their merits allow at any given time.
- One of the greatest advantages of stage-gate management is that spending can be low at the beginning and increase in a non-linear manner as stages are completed. If problems are addressed or prevented in the early stages, more resources can be committed to new products and features with the greatest potential for customer and financial success.
- Implemented correctly, stage-gate management can improve teamwork, accelerate products to market, give structure to the innovation process, reduce rework and improve success rates on new product deployments Before moving on, ask these questions:
- Are the objectives the same as when we started?
- Are these the right activities to meet those objectives?
- Are the features still appropriate?
- Are we on track to achieve the intended value?
About the authors
Jeff is a Partner in the Manufacturing practice of Infosys.
Olu is a Senior Principal in the Communications, Media and Entertainment practice of Infosys.