Managing New Product and Process Development

Text Cases

About The Book

Argues that a company's capability to conceive and design quality prototypes and bring a variety of products to market more quickly than its competitors is increasingly the focal point of competition. The authors present principles for developing speed and efficiency.

Excerpt

Chapter 1
Competing Through Development Capability
Overview

This chapter introduces product development as a central focus of competition in the 1990s. While firms have developed new products since the Industrial Revolution, in industry after industry, the importance of doing product development well has increased dramatically in recent years. This chapter identifies the forces driving the importance of product development -- changes in competition, customer demands, and technology. An important theme in the chapter is that these forces have created a competitive imperative for speed, efficiency, and high quality in the development process.
In reading the chapter it is important to establish a basic idea of what product development involves -- both what makes it difficult to achieve, and the competitive power it creates when done well. To provide perspective on what we mean by product development, the chapter briefly summarizes the major sequence of activities involved in taking an idea from initial concept through prototype building and testing, and into commercial production. A key theme is that product development is a process involving all the major functions in a business. With the development process as background, we then use the example of the Northern Electronics Company and its problems with the A14 stereo project to illustrate the difficulties in development.
The problems on the A14 project -- missed schedules, cost overruns, and a poorly designed product -- reflect a mismatch between the way the project is organized and managed and the requirements of the development process created by the product's complexity and the rigorous and uncertain competitive environment in which Northern Electronics competed. Exhibit 1-5 summarizes the characteristics of problematic projects as well as their consequences. The exhibit also identifies key themes that characterize outstanding projects -- clarity of focus, integration across functions, a strong focus on time to market, doing things right the first time, and effective substantive leadership -- thus summarizing many of the important themes developed in the book.
Our intent in this first chapter is not only to highlight the challenge and characterize what an outstanding project might look like, but also to illustrate the competitive power created in the organizations that do development extraordinarily well. To underscore that power we close the chapter with a review of the competitive interaction between Northern and Southern Electronics in the compact stereo market. Historically these two companies mirrored one another in terms of their market approach. But in the 1980s, Southern built a new strategy around superior capability and product development. In effect, Southern embarked on a strategy to become a fast-cycle competitor. In reading through this history, it is useful to note the way in which Southern linked its product development capability with its strategies in marketing and manufacturing. In fact, the way Southern exploited its advantage in speed and efficiency over its slower Northern rival was precisely by integrating its development capabilities with its actions in marketing and manufacturing. The history also sheds light on the A14 stereo project referred to above. Here, we see what happens when a senior management team attempts to achieve substantial improvements in performance without making basic changes in processes or in capabilities. The chapter closes with a summary of the advantages that effective product development capability conferred upon Southern.
In a competitive environment that is global, intense, and dynamic, the development of new products and processes increasingly is a focal point of competition. Firms that get to market faster and more efficiently with products that are well matched to the needs and expectations of target customers create significant competitive leverage. Firms that are slow to market with products that match neither customer expectations nor the products of their rivals are destined to see their market position erode and financial performance falter. In a turbulent environment, doing product and process development well has become a requirement for being a player in the competitive game; doing development extraordinarily well has become a competitive advantage.
The New Industrial Competition: Driving Forces and Development Realities
The importance of product and process development is not limited to industries or businesses built around new scientific findings, with significant levels of R&D spending, or where new products have traditionally accounted for a major fraction of annual sales. The forces driving development are far more general. Three are particularly critical:
* Intense international competition. In business after business, the number of competitors capable of competing at a world-class level has grown at the same time that those competitors have become more aggressive. As world trade has expanded and international markets have become more accessible, the list of one's toughest competitors now includes firms that may have grown up in very different environments in North America, Europe, and Asia. The effect has been to make competition more intense, demanding, and rigorous, creating a less forgiving environment.
* Fragmented, demanding markets. Customers have grown more sophisticated and demanding. Previously unheard of levels of performance and reliability are today the expected standard. Increasing sophistication means that customers are more sensitive to nuances and differences in a product, and are attracted to products that provide solutions to their particular problems and needs. Yet they expect these solutions in easy-to-use forms.
* Diverse and rapidly changing technologies. The growing breadth and depth of technological and scientific knowledge has created new options for meeting the needs of an increasingly diverse and demanding market. The development of novel technologies and a new understanding of existing technologies increases the variety of possible solutions available to engineers and marketers in their search for new products. Furthermore, the new solutions are not only diverse, but also potentially transforming. New technologies in areas such as materials, electronics, and biology have the capacity to change fundamentally the character of a business and the nature of competition.
These forces are at work across a wide range of industries. They are central to competition in young, technically dynamic industries, but also affect mature industries where life cycles historically were relatively long, technologies mature, and demands stable. In the world auto industry, for example, the growing intensity of international competition, exploding product variety, and diversity in technology have created a turbulent environment. The number of world-scale competitors has grown from less than five in the early 1960s to more than twenty today. But perhaps more importantly, those twenty competitors come from very different environments and possess a level of capability far exceeding the standard prevailing twenty-five years ago. Much the same is true of customers. Levels of product quality once considered extraordinary are now a minimum requirement for doing business. As customers have grown more sophisticated and demanding, the variety of products has increased dramatically. In the mid 1960s, for example, the largest selling automobile in the United States was the Chevrolet Impala. The platform on which it was based sold approximately 1.5 million units per year. In 1991, the largest selling automobile in the United States was the Honda Accord, which sold about 400,000 units. Thus, in a market that is today larger than it was in 1965, the volume per model has dropped by a factor of four. Currently over 600 different automobile models are offered for sale on the U.S. market.
Similarly, technological change has had dramatic consequences. In 1970, one basic engine-drive train technology (a V8 engine, longitudinally mounted, water cooled, carbureted, hooked up to a three-speed automatic transmission with rear wheel drive) accounted for close to 80 percent of all automobile production in the United States. Indeed, there were only five engine-drive train technologies in production. By the early 1980s that number had grown to thirty-three. The growing importance of electronics, new materials, and new design concepts in engines, transmissions, suspensions, and body technologies has accelerated the pace and diversity of technological change in the 1980s. Simply keeping up with those technologies is a challenge, but an often straightforward one in comparison with having to integrate them in development efforts.
Similar forces have been at work in other traditional, mature industries. In textiles and apparel, for example, firms such as Benetton and The Limited have used information technology to create a production and distribution network which links retail outlets directly to distribution centers and back into factories and suppliers in the chain of production from fiber to finished product. The thrust of these networks is the ability to respond quickly to changing customer demands at relatively low cost. Fueled in part by availability and in part by growing demands for differentiated products, product variety has expanded significantly. In plant after plant, one finds vast increases in the number of styles produced and a sharp decline in the length of production runs. These are not changes of 10 or 20 percent; in the 1980s, it was common for apparel plants to experience a four- to fivefold increase in the number of styles produced. These increases in garment variety have pushed back into the textile plants as well. For example, the average lot size for dying at Greenwood Mills, a U.S. textile firm, declined in the 1980s from 120,000 to 11,000 yards.
Changes in markets and technologies for automobile and textile firms have accentuated the importance of speed and variety in product development. But changes in competition, customer demand, and technology have also had dramatic effects on newer, less mature industries in which product innovation has always been an important part of competition. In industries such as computer disk drives and medical equipment, already short life cycles have shrunk further and product variety has increased. In addition, competition has placed increased pressure on product reliability and product cost. In disk drives, for example, the market for Winchester-technology hard disks has expanded from a base in high-end systems for mainframe computers to include a spectrum of applications ranging from notebook personal computers to large-scale supercomputers. Even within an application segment, the number of sizes, capacities, access times, and features has increased sharply. In addition to this explosion of variety, firms in the hard disk drive industry have had to meet demands for dramatic increases in reliability (tenfold in five years) and decreases in cost (5 percent to 8 percent quarterly). These have been met in part by incremental improvements in established technologies and in part through the introduction of new design concepts, production technologies, materials, and software.
Much the same has been true in the market for new medical devices. Innovation has always been important in the creation of new medical devices, but by the 1980s success required the ability to follow an innovative product with sustained improvements in performance, application to new segments, improved reliability, and lower cost. In the case of devices for angioplasty (a procedure using a balloon on a small wire to expand clogged arteries), the initial innovation was followed by a variety of developments that offered the physician greater control of a smaller device, making access easier and creating additional applications. In concert with process changes that substantially improved or reduced variability of performance characteristics, changes in the product have opened up new applications and treatment of a more diverse set of clinical problems and patients, worldwide.
The Competitive Imperatives
Rigorous international competition, the explosion of market segments and niches, and accelerating technological change have created a set of competitive imperatives for the development of new products and processes in industries as diverse as medical instruments and automobiles, textiles, and high-end disk drives. Exhibit 1-1 identifies three of these imperatives -- speed, efficiency, and quality -- and suggests some of their implications. To succeed, firms must be responsive to changing customer demands and the moves of their competitors. This means that they must be fast. The ability to identify opportunities, mount the requisite development effort, and bring to market new products and processes quickly is critical to effective competition. But firms also must bring new products and processes to market efficiently. Because the number of new products and new process technologies has increased while model lives and life cycles have shrunk, firms must mount more development projects than has traditionally been the case utilizing substantially fewer resources per project. In the U.S. automobile market, for example, the growth of models and market segments over the last twenty-five years has meant that an auto firm must mount close to four times as many development projects simply to maintain its market share position. But smaller volumes per model and shorter design lives mean resource requirements must drop dramatically. Effective competition requires highly efficient engineering, design, and development activities.
Being fast and efficient is essential but not enough. The products and processes that a firm introduces must also meet demands in the market for value, reliability, and distinctive performance. Demanding customers and capable competitors mean that the ante keeps going up -- requirements of performance, reliability, ease of use, and total value increase with each product introduction. When competition is intense firms must attract and satisfy customers in a very crowded market. More and more this means offering a product that is distinctive; that not only satisfies, but also surprises and delights a customer. Moreover, attention to the total product experience and thus to total product quality is critical.
The Opportunity and the Challenge
Firms that step up to the challenge and meet these competitive imperatives enjoy a significant advantage in the market place. The development of outstanding products not only opens new markets and attracts new customers, but also leverages existing assets and builds new capability in the organization. Getting a succession of distinctive new disk drives or a string of new medical devices to market quickly and consistently requires the solution of technical problems that builds know-how. Moreover, it stimulates the creation of greater capability in problem solving, prototype construction, and testing that can be applied in future projects. All of these skills and capabilities enhance a firm's ability to compete. But there is more. Successful new products also unleash a virtuous cycle in reputation and enthusiasm within and outside the organization. Inside, successful new products energize the organization; confidence, pride, and morale grow. The best employees remain challenged and enthused. Outside, outstanding new products create broad interest in the firm and its products, enhance the firm's ability to recruit new employees, and facilitate the building of relationships with other organizations. The organization's momentum builds and reinforces itself.
While the potential opportunities to be realized in developing new products and processes are exciting, making them happen is a demanding challenge. New product or process development entails a complex set of activities that cuts across most functions in a business, as suggested by Exhibit 1-2, which lays out the phases of activity in a typical development project -- a new product. In the first two phases -- concept development and product planning -- information about market opportunities, competitive moves, technical possibilities, and production requirements must be combined to lay down the architecture of the new product. This includes its conceptual design, target market, desired level of performance, investment requirements, and financial impact. Before a new product development program is approved, firms also attempt to prove out the concept through small-scale testing, the construction of models, and, often, discussions with potential customers.
Once approved, a new product project moves into detailed engineering. The primary activity in this phase of development is the design and construction of working prototypes and the development of tools and equipment to be used in commerical production. At the heart of detailed product and process engineering is the "design-build-test" cycle. Both products and processes are laid out in concept, captured in a working model (which may exist on a computer or in physical form), and then subjected to tests that simulate product use. If the model fails to deliver the desired performance characteristics, engineers search for design changes that will close the gap and the design-build-test cycle is repeated. The conclusion of the detailed engineering phase of development is marked by an engineering "release" or "sign off" that signifies that the final design meets requirements.
At this time the firm typically moves development into a pilot manufacturing phase, during which the individual components, built and tested on production equipment, are assembled and tested as a system in the factory. During pilot production many units of the product are produced and the ability of the new or modified manufacturing process to execute at a commerical level is tested. At this stage all commercial tooling and equipment should be in place and all parts suppliers should be geared up and ready for volume production. This is the point in development at which the total system -- design, detailed engineering, tools and equipment, parts, assembly sequences, production supervisors, operators, and technicians -- comes together.
The final phase of development is ramp-up. The process has been refined and debugged, but has yet to operate at a sustained level of high-yield, volume production. In ramp-up the firm starts commerical production at a relatively low level of volume; as the organization develops confidence in its (and its suppliers') abilities to execute production consistently and marketing's abilities to sell the product, the volume increases. At the conclusion of the ramp-up phase, the production system has achieved its target levels of volume, cost, and quality. In this phase, the firm produces units for commercial sale and, hopefully, brings the volume of production up to its targeted level.
An obstacle to achieving rapid, efficient, high-quality development is the complexity and uncertainty that confronts engineers, marketers, and manufacturers. At a fundamental level the development process creates the future, and that future is often several years away. Consider, for example, the case of a new automobile. The very best companies in the world in 1990 could develop a new car in three to three and a half years. At the outset of a new car development program, therefore, designers, engineers, and marketers must conceive of a product that will attract customers three years into the future. But that product must also survive in the marketplace for at least another four to five years beyond that. Thus the challenge is to design and develop a product whose basic architecture will continue to be effective in the marketplace seven to eight years after it has been conceived.
The problems that uncertainty creates -- e.g., different views on the appropriate course of action, new circumstances that change the validity of basic assumptions, and unforeseen problems -- are compounded by the complexity of the product and the production process. A product such as a small copier, for example, may have hundreds of parts that must work together with a high degree of precision. Other products, such as the handle of Gillette's Sensor razor, appear to be fairly simple devices but, because of very demanding performance requirements, are complex in design and come out of a manufacturing process involving sophisticated equipment and a large number of operations. Moreover, products may be evaluated across a number of criteria by potential customers. Thus the market itself may be relatively complex with a variety of customers who value different product attributes in different ways. This means that the firm typically draws on a number of people with a variety of specialized skills to achieve desired, yet hard to specify, levels of cost and functionality. To work effectively, these skills and perspectives must be integrated to form an effective whole. It is not enough to have a great idea, superior conceptual design, an excellent prototype facility, or capable tooling engineers; the whole product its design system, production process, and interaction with customers -- must be created, integrated, and made operational in the development process.
But an individual development project is not an island unto itself. It interacts with other development projects and must fit with the operating organization to be effective. Projects may share critical components and use the same support groups (e.g., model shops, testing labs). Additionally, products may require compatability in design and function: models of computers use the same operating system, and different industrial control products conform to the same standards for safety. These interactions create another level of complexity in design and development. Critical links also exist with the operating organization. A new design requires the development of new tools and equipment and uses the skills and capability of operators and technicians in the manufacturing plant. Further, it must be sold by the sales group and serviced by the field organization. Of course, new products often require new skills and capabilities, but, whether relying on new or old, the success of the new product depends in part on how well it fits with the operating units and their chosen capabilities. Thus, effective development means designing and developing many elements that fit and work well as a total system.
Assessing the Promise and Reality: The A14 Stereo Project
The uncertainty and complexity that characterizes the development of new products and processes means that managing any development effort is difficult; managing major development activities effectively is very difficult. Thus, while the promise of a new development project is often bright and exciting, the reality is often quite different. The following story, based on a composite of several situations we have encountered, illustrates typical problems in product development.
In September 1989, Marta Sorensen, product manager for mid-range stereo systems at Northern Electronics Company, a large consumer electronics firm, laid out a plan for a new compact stereo system utilizing advanced technology and providing superior sound quality. Sorenson's marketing group at Northern felt that the company needed to respond quickly to the expected introduction of a new compact system by one of its toughest competitors. The plan Sorenson presented at the beginning of the concept investigation stage called for a development cycle time of one year, with volume production commencing in September 1990. (See Exhibit 1-3 for the initial schedule and subsequent changes.) This would give the factory time to fill distribution and retail channels for the all-important Christmas season in late 1990.
As the exhibit suggests, the schedule began to slip almost immediately. Because of problems in freeing up resources and scheduling meetings, and disagreements about desired product features, the concept investigation stage was not completed until November 1989, six weeks later than originally planned. At that point, no change was made to the schedule for commerical introduction or start of pilot production, but two months were added to the prototype build and test schedule. This additional time was needed as a result of the selection of a new speaker technology that the engineering group had lobbied for during the concept development stage. It was assumed that the time originally allowed for pilot production could somehow be overlapped and/or compressed.
By February 1990 new design problems had emerged. The compact size of the product created unexpected difficulties in fitting the components into a small space while maintaining sound quality. Furthermore, delays with a chip supplier and the speaker technology supplier set back the project schedule several weeks. A revised schedule, established in February 1990, called for completion of the design in April and completion of the prototype-build-test cycle by June. However, no changes were made to the schedule for pilot production or ramp-up. This meant a significant compression of the time between completion of prototype testing to commerical production; process engineering and manufacturing groups were asked to begin preparing the process for production even though the design was still incomplete.
Design engineers worked hard to solve problems with product size, and cost and completed the design in May 1990. By that time, however, new problems had emerged with the prototypes and with the production process. Part of the delay in prototyping reflected late deliveries of parts from suppliers, overambitious testing schedules, and problems in scheduling meetings for milestone reviews. But part of the delay also reflected technical problems with the introduction of surface mount technology in the printed circuit boards for the product. Moreover, process engineering had experienced difficulties with production tooling. There had been a significant number of engineering changes to accommodate changes in exterior appearance as well as performance problems with the product. As a result, the completion of prototype testing was rescheduled for August and pilot production and ramp-up were scheduled to occur in rapid fire succession thereafter.
Even the new schedule proved optimistic. As the fall months wore on and the project continued to slip, Sorenson and her marketing team realized that they would not meet the critical Christmas season deadline. Much of the latest delay had been caused by interaction between the product design and new automated assembly equipment that the manufacturing organization had installed. In order to meet product cost targets, manufacturing had chosen to move to an automated assembly system that would significantly reduce variable cost on the product. However, while design engineering was aware of the manufacturing plan, there were many subtle details of product design that conflicted with the capabilities of the automated equipment. These conflicts only surfaced late in 1990 as attempts were made to run full prototype units on the automated equipment. These problems required additional product redesign and slowed the completion of prototype testing.
Engineers eventually corrected the problems and prototype testing was completed in February 1991. While compression of the schedule had made product and process engineering operate in parallel, the completion of prototype testing did not mark the end of design changes nor the alleviation of production problems in pilot production.
Although Sorenson and the marketing group were happy to see the product make it through prototype testing, the fact that it was almost a year late had serious consequences for its potential attractiveness in the market. Sound quality and features were adequate and the cost and pricing were in line with expectations, but some of the product's aesthetics were out of synch with recent market developments. Thus, during the spring and summer of 1991 marketing pushed through a redesign of the product's exterior package to make it more attractive and contemporary. This caused some delays as engineering put through a crash program for new tooling and testing, but the redesigned exterior was put into production during the early fall. While the design of the new exterior was being developed, the manufacturing organization struggled to debug the new equipment and achieve consistent levels of quality. By September the plant had solved most of its major process problems and attention was shifted to increasing volume and filling channels for the 1991 Christmas season.
Market acceptance of the new product was satisfactory, but did not meet the projections originally laid out in 1989. Further, the engineering and manufacturing organizations soon found themselves confronted by a large number of field-identified quality problems. Exhibit 1-4 documents the engineering change history of the product from the beginning of pilot production to its post-Christmas sales period. As the exhibit suggests, there was a flurry of engineering change activity shortly after the product went into commerical production and the manufacturing organization struggled to achieve target levels of yield and volume.
Many of these engineering changes were intended to improve manufacturability. The significant peak in March 1992 reflected consumer experience with the product following the Christmas season. In February and March of 1992 design engineering launched a crash program to solve several field problems with product reliability.
The Characteristics of Effective Development
The experience of Northern Electronics with the A14 stereo system is not a pathological example. It reflects experience that is all too common in the world of product and process development. The failure of the A14 project to meet its original potential and expectations was not due to a lack of creative people, management desire, technical skills, or market understanding. The company had excellent marketing information, good relationships with its dealers and customers, recognized competence in engineering and design, and was known for its technical expertise. The A14's problems were rooted far more in the inability of the organization to bring together its insight and understanding and the expertise of its people in a coherent and effective way. In short, the A14 had problems because Northern lacked critical capabilities for integration.
Column 1 of Exhibit 1-5 summarizes typical characteristics of problematic projects like the A14, and column 2 identifies some of their implications. Problems on the A14 were rooted in the nature of the development process and its organization and the absence of a coherent and shared cross-functional plan for competing in the compact stereo market. Different functional groups (e.g., marketing and engineering) had different agendas and there was no organizational process to resolve issues before they surfaced throughout the phases of the A14 development effort. This led to delays and miscommunications throughout.
The development process itself contributed to delay and poor design. The many late engineering changes reflected in part a poorly organized and executed prototyping process. Some prototype parts came from suppliers unfamiliar with the commerical production environment at Northern and were late and poorly

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