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by

Joris Beerens [email protected]

Alexander van Boetzelaer [email protected]

Georg List [email protected]

Peter Mensing [email protected]

Steven Veldhoen [email protected]

“The Road Towards More Effective Product/Service Development” How Strict Adherence to Pragmatic Principles Increases the Effectiveness and Efficiency of Product/Service Development Activities

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“The Road Towards More Effective Product/Service Development” How strict adherence to pragmatic principles increases the effectiveness and efficiency of product/service development activities Product development has universally been identified as a key driver for growth and value creation. Ask any senior executive and he will agree. As a result, companies are focusing significant investments on the pursuit of the so-called “killer idea”. In our opinion however, successful product development for many companies is not so much about developing these “killer ideas” as about being able to control their product development activities and ensuring scarce resources are used in the most efficient and effective way. Most companies struggle to maintain full control over their product development activities, often perceived as a “black-box”. Typical symptoms include a lack of focus on business priorities; unclear roles and responsibilities; frequent reprioritisation of projects and the discovery of “phantom” projects/ pet projects; lack of robustness -in the overall product development process and organisation; and lack of consequence management. Ultimately, deficiencies in innovation management hamper a company’s success in the market place, for example because new product introductions are too late, too few in number or do not meet customer needs. For many companies, increased discipline and control yields a higher return on product development investments than an increased focus on pursuing the “killer idea”. We identified a pragmatic set of best practices that are largely applicable across industries – for “product” development activities as well as in

the development of “services” and the underlying service “delivery capabilities” (often IT-based, e.g. in CRM). At Booz Allen, we have carried out an extensive range of projects in innovation-intensive industries such as automotive, aerospace and pharmaceuticals, where innovation projects typically are hugely complex, multi-billion dollar undertakings. We found that the fundamental lessons learned from these industries are valuable in other industries where innovation requirements are maybe less enormous in relative , but nonetheless demanding and vital to success. Overall, the law of diminishing returns for innovation investments requires companies to raise the effectiveness curve, not to ride it (see Figure 1). In other words, enhancing the impact and effectiveness of product development is about spending wisely, not necessarily spending more, for most companies. In this Viewpoint, we discuss a pragmatic set of best practices that allow companies to reduce the complexity and increase the efficiency and effectiveness of their product development (and process improvement) activities through improved discipline, transparency and control. We focus on best practices in the five key areas of product development: strategy, roap, process, roles & responsibilities, and organisation. We talk about “product” development – but many of the principles proposed in this Viewpoint apply equally to the development of services and underlying capabilities (e.g. IT platforms).

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1) A clear product development strategy driving all product development activities A clear product development strategy is a prerequisite to provide clear focus and priorities to a company’s product development activities. The product development strategy should be driven by the company’s specific corporate strategy and be clearly linked to the available capabilities and resources. A good product development strategy will be pragmatic, realistic and focused on the bottom line: only a limited number of companies per industry will have the resources and/or capabilities to be “innovation leaders” and create breakthrough products (“technology forward” – see Figure 2).

Only a limited number of companies per industry will have the resources and/or capabilities to be “innovation leaders” For most companies a “fast follower” strategy is sufficient, which results in a completely different set of required capabilities and resources: for the “fast followers”, the key to success in product development lies more in focus and pragmatic trade-offs than in

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the search for “the next killer idea”. To make a “fast follower” strategy a success, the ability to flexibly manage a network of partners/subcontractors and suppliers is in many cases an essential prerequisite. 2) Adherence to an actionable product development roap Regardless of which of type of innovation strategy best s the overall company strategy, companies require a well thought-through roap to guide their product development activities. A product development roap translates a company’s business strategy and priorities into a market-driven agenda for product (and process) development. As such, a product development roap is an essential element in improving control over product development activities. A first rule for any product development roap is that if a product is not on the roap it will not be developed. This basic rule creates immediate transparency amongst all stakeholders about the scope of the company’s product development activities at any given time. It eliminates resource-draining pet projects and contributes to avoiding frustrating and costly reprioritisation of projects. The roap

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allows companies to make informed choices, and results in more efficient use of the available budget and resources. The complexity and structure of a company’s roap (e.g. how to prioritise product development activities, how to create a balanced selection of different types of ideas, how to continuously update the roap) will be driven by the chosen product development strategy. In general, it is advisable to make a clear distinction between new product/process development and more incremental enhancements, and between products and services and the underlying enabling technologies or “platforms”. The roap should be sufficiently flexible to allow a company to react to new market developments and ideas, and at the same time rigid enough to provide focus and avoid a continuous battle for resources.

A product development roap translates a company’s business strategy into a market-driven agenda for product development In our experience, most companies do have something that serves as a product development roap. In many cases this is an annual wish list of product development activities, which is outdated even before it is circulated. As such, these roaps do not offer a sound enough base for management and control. An effective roap should not be created once per year by a product development manager with the objective of maximising “his” product development resources. Instead, it should be the result of a company-wide effort, following a transparent process and applying

Figure 2 Overview of Different Product Development Strategies

“The Skunk Works” 

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R&D Driven (“Technology Forward”)

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“The Market Maker”

Description: “Create breakthrough products – then put them out there and see which stick” Product Development Strategy: Intensive R&D; lab-focused; discovering protectable new technologies Consumer Insights: Minimal; customer Marketing: Rely on early adopters, technoand fashion-geeks; word of mouth and niche marketing Examples: Bose, Philips

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Description: “Make a product – then make a market” Product Development Strategy: Invest in new technologies; continually refine existing products Consumer Insights: Focus on “wants” (aspirational) rather than “needs” (productspecific) Marketing: More aspirational; creating a strong brand umbrella; not focused on product specifics Examples: Nike, Coca-Cola, Vodafone, Apple

Innovation Approach “The Follower” 

Market Driven (“Market Back”)

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“The Listener”

Description: “Copy whatever the market leaders are doing” Product Development Strategy: Duplicate successful product innovations of market leaders Consumer Insights: If any, focused on quick surveys to identify vulnerabilities of market leader Marketing: If any, intended to build awareness; no emphasis on differentiation, features; “announcements” Examples: Pepsi, Kia cars

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Description: “Find a consumer need – then make a product” Product Development Strategy: Develop products to meet identified consumer needs Consumer Insights: Focus on “needs” (productspecific) rather than “wants” (aspirational) Marketing: Focused on features/functionality of the new product; head-to-head testing against competition Examples: Lexus, Dell, P&G

None / ive

Active / Aggressive Consumer Insight Approach

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Figure 3: Product Development Roap – Key Principles and Guidelines

Roap 

The roap defines a market-driven, 18 month agenda for Product & Process Development derived from the business strategy and priorities

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The roap guides product and process development, but is not an exhaustive project list. The roap is the basis for management and control of development activities (e.g. budgets, resources, progress measurements) Resources and budget are split over three project categories to ensure a balanced selection of different types of ideas: New Product & Process Development, Product Enhancements, and Process Enhancement

clear financial, commercial and technological criteria to prioritise the development efforts. For a roap to be truly effective it must be driven by the company’s strategy and “owned” by top management, it must be dynamic and continuously kept up to date, and it must be rigorously maintained as the sole source for product development activities within the company. A roap should also be realistic and hence must be strictly linked to the company’s total product development resources – both in of capacity and available skills. As stated above, a product that is not on the roap will not be developed. A properly maintained roap is a highly effective instrument for aligning product development activities with a company’s overall strategy. 3) Rigid and strict process discipline Whereas a roap ensures that all product development activities the company’s overall strategy, disciplined product development processes ensure these activities are realised efficiently and effectively. Although product development processes will inevitably differ across companies, some common process best practices exist that facilitate continuous control over product development activities and their output.

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The roap is approved and owned by the Managing Board Products/services and capabilities that are not on the roap will not be developed The roap is updated regularly (on a six-month basis) to reflect development progress and new market insights, and thus is dynamic Effective roap use will increase the transparency of the product development process, allowing betterinformed choices to be made (e.g. enabling quick track changes)

In general, innovative companies tend to have a welldefined and formalised product development process with frequent decision “gates” (see Figure 4 for an example). As such, the product development process helps to ensure that projects are executed to plan (time, budget, quality). Most companies recognise the importance of a disciplined product development process and spend significant amounts of time and money in (re)deg their processes.

Many companies fail to properly manage the product development process However, without rigid and strict process discipline these efforts will not deliver the expected results. “Phantom projects” are often a direct result of a lack of process discipline. Discipline in this sense does not mean bureaucratic process enforcement, but means that either all stakeholders stick by the rules to ensure process transparency, or else the project is “killed off”.

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Best practice elements of process discipline include: 

Individual stages and gates are defined in detail, with consistent and specific goals

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However, process steps within a given phase may be run in parallel to allow for a faster flow and therefore reduced time-to-launch

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Projects are not allowed into a next phase of the development process if the previous phase has not been fully completed

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4) Clear ability through an end-to-end project manager and a business owner The involvement of a broad range of (internal and external) stakeholders in the product development process often results in confusion, especially about

Projects that no longer meet the original requirements and/or budget are reviewed and “killed off” when necessary Post-launch assessment “closes the loop” and helps to explicitly identify key lessons

who is able for project specifications and for project execution. This typically results in repeated budget overruns and costly delays. Two roles are crucial for proper project execution: the end-to-end Project Manager and the Business Owner.

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Project resources are strictly allocated per phase – a project manager needs to the decision gate to obtain the budget and staff to execute the next phase of the project

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that are developed (often at great cost) but never launched, or in product specifications that increasingly deviate from the original project requirements. Appointing a “Business Owner” to provide business sponsorship throughout the project ensures the project has continuous and full from the end- organisation, and creates clear ability within the project organisation for the commercial success of product development. Ideally, the manager who will assume responsibility for the product P&L post-launch assumes the role of “Business Owner” during product development.

Most companies have project managers responsible for project execution and delivery – but they are often responsible for only part of the development process. In our experience, handovers within the development process are bound to result in inefficiencies, fundamentally due to diminished “ownership” and ability for the end-to-end project.

Successful companies create clear ability for project execution and commercial success End-to-end responsibility for project execution and delivery with a single project manager creates transparency over project ownership, reducing delays and budget overruns. The Project Manager with overall project responsibility remains the same throughout, while the make-up of “his” team may vary over the lifetime of the project depending on the varying needs for specific (technical) expertise.

Business Owner best practices include: 

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Project Manager best practices include: 

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The Project Manager has end-to-end responsibility for the entire project – from feasibility to commercial launch The Project Manager “owns” the project budget and resources committed to “his” project for a specific phase of the project development process. The Project Manager can make decisions within the project boundaries (i.e. requirements, resources, timing, budget) The Project Manager is able for all elements of delivery (quality, time, budget)

End-to-end Project Managers facilitate ability for project execution; they do not facilitate ability for the content of the project, and in particular the evolution of product/service requirements and specifications during project execution. This all too frequently results in products

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The Business Owner is responsible for the (continuously updated) product business case (both revenue and cost) during all phases of the development process The Business Owner signs off the project content at each decision gate, thus ensuring that project requirements remain in line with business priorities The Business Owner is responsible for the final product (incl. business case results)

5) Clearly-defined and enforced roles and responsibilities at different levels within the organisation Enforcing the best practices described here requires a transparent organisation with clearly defined roles and responsibilities. Diffuse roles and responsibilities often result in confusion, lack of collaboration and (in the most extreme form) inertia from which many companies suffer. Unguided product development can become an area of endless “trench warfare” between the technical, commercial, purchasing and financial departments involved. We typically distinguish four organisational elements that play a crucial role in driving product development:

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a) The Management Board The Management Board is directly responsible for setting the overall direction and boundaries for all product development activities. It does this through defining the company’s product development strategy, g off the product development roap and determining the overall company resources available for product development activities. In addition, senior management involvement in product development provides the formal authority required to negotiate and to obtain resources and information from different parts of the organisation. b) The Innovation Board A cross-company Innovation Board, consisting of relevant department heads, is responsible for realisation of the company roap. The Innovation Board effectively holds (delegated) decision-making authority for budget and resource allocation to projects (always in line with the roap). It is for example the Innovation Board that makes the Go/No Go decisions at each stage of the product development process. c) The Product Development Department The Product Development Department is responsible for overall project execution, guided by the Innovation Board. Bringing the end-to-end execution of the product development process (i.e. project management and product development “factories”) together in a single Product Development Department creates clear process ownership with ability for the quality of the entire product development process and its output. In addition, the Product Development Department ensures transparency of the product & process development process to the rest of the organisation, allowing rapid decision-making and reprioritisation. d) The end-to-end Project Manager The end-to-end Project Manager is located within the Product Development Department and is responsible for the day-to-day execution of a single project, as discussed under point 4.

Conclusion Booz Allen Hamilton has helped companies to improve product development performance across a range of industries – often by applying the five best practices discussed above to the client’s specific market and organisational context. Typically, the complexity of enhancing innovation effectiveness lays not so much in identifying improvement levers and creating tools, but rather in making the change happen in an inherently complex environment that spans multiple departments/business units. Companies who have successfully enforced discipline and control in their product development activities have reported significant reductions in time-to-market, and make more effective and efficient use of resources. Furthermore, these companies have realised a significant freeing-up of management time due to increased clarity and ability within the product development process. In our experience, the cost of “missed” growth due to late or absent product development is too high to ignore for many companies, while at the same time improving innovation effectiveness is less painful and more lucrative than most other improvement initiatives a company could undertake. Bottom line, improved effectiveness of a company’s product and process development activities results in both a revenue increase (due to more and timelier successful product launches) and in cost savings on the total product development budget.

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What Booz Allen Brings Booz Allen Hamilton has been at the forefront of management consulting for businesses and governments for 90 years. Booz Allen combines strategy with technology and insight with action, working with clients to deliver results today that endure tomorrow. With over 15,000 employees on six continents, the firm generates annual sales of $2.7 billion. Booz Allen provides services in strategy, organisation, operations, systems, and technology to the world’s leading corporations, government and other public agencies, emerging growth companies, and institutions.

Booz Allen has been recognised as a consultant and employer of choice. In a 2003 independent study by Kennedy Information, Booz Allen was rated the industry leader in performance and favourable client perceptions among general management consulting firms. Additionally, for the past two years, Working Mother has ranked the firm among the top 10 in its “100 Best Companies for Working Mothers” list. To learn more about the firm, visit the Booz Allen Web site at www.boozallen.com. To learn more about the best ideas in business, visit www.strategybusiness.com, the Web site for strategy+business, a quarterly journal sponsored by Booz Allen.

Joris Beerens is a Principal in Booz Allen Hamilton’s Amsterdam office. He consults primarily with clients in telecom, media and fast moving consumer goods. He specialises in demand-side effectiveness improvement with a focus on marketing and innovation.

Peter Mensing is a Senior Vice President and Managing Partner of Booz Allen Hamilton’s Amsterdam Office. He has served major corporations across a range of consumer and service companies on strategy and organisation related topics.

Alexander van Boetzelaer is a Project Leader in Booz Allen’s Amsterdam Office. Alex advises clients in the telecom, food and financial services industries on formulation and execution of innovation strategies.

Steven Veldhoen is a Vice President with Booz Allen Hamilton based in the Tokyo Office. Steven primarily serves clients in the automotive and aerospace industries on strategic transformation programmes, with a particular focus on innovation strategy and costdriven engineering.

Georg List is a Principal in Booz Allen Hamilton’s Amsterdam office. Georg is specialised in driving strategic transformation programmes for clients in the automotive, aerospace and other industries with high engineering content, with a focus on innovation strategy and effectiveness.

Also contributing to this report were Booz Allen’s Alex Kandybin ([email protected]).

able digital versions of this article and other Booz Allen Hamilton publications are available from www.boozallen.com.

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