by Philip H. Francis, Group Francis, llc
We mechanical engineers were taught in college that new products are brought about by a synthesis of component and system engineering and manufacturing — guided by knowledge of customer needs. But that recipe is rapidly changing. Industry leaders such as Harley Davidson, H-P, Quantum Corp., Schneider Electric (Square D) and Xerox are reinventing the rules. The "next big thing" that is emerging now with manufacturers of consumer products and industrial products are enterprise processes for new product development — NPD.
Are we just playing with words? Not at all. Fierce international competition is squeezing even our best companies to perform better and better. And there's a lot of room for improvement: 60 percent of all new products are late in launching. Even worse, an estimated 40 percent of all new products simply fail in the marketplace. Add to this the landmine legal issues of product liability and antitrust, and you have a recipe for suboptimal performance. Companies can — and must — do better.
Traditionally, we've regarded research and development, product design, and manufacturing as the heart of the enterprise. Over the years we've struggled to integrate these functions so they may work together as an integrated enterprise team. Although some companies have cultures that thrive on teamwork, most really don't; they are burdened by politics, conflict and indecision. These tensions undermine organizational performance. The drumbeat has long been the notion that the fundamental mission of the enterprise is to reward employees and investors. But now leading companies are seeing the core mission not always delivering rewards, but delivering great products and services which then enable employees and investors to reap benefits.
Conceiving and putting great products into the stream of commerce should be the very soul of the enterprise. So how should we approach it? Industry's collective experience so far has been, at best, haphazard. Often, little rigor is paid to new product selection criteria and product business planning other than sales estimates, market shares and ROI's (returns on investment). In addition, most companies lack meaningful metrics to measure the true efficiency of the entire new product development portfolio. However, in the last few years a movement has emerged that treats product development as an integrated process.
There are three main elements needed to migrate toward integrated new product development: a management structure that ensures integration among organizational functions; process architecture and knowledge, from the funnel of ideas to the customer and onto product services; and metrics for determining how well the process is behaving.
And there are numerous components within these elements, including manufacturing strategy; Total Quality Management tools and processes; legal issues such as patents, licensing, product liability and anti-trust law; information and knowledge systems; competitive intelligence tools; and, of course, emerging and disruptive technologies.
The process begins with a hopper of proposals. Those that are deemed worthy of further exploration are required to develop a full business plan for the product, including competitive products, timing, investments and target costs. Following this is a further screen that narrows the field, where commitments are secured from key senior executives. Then, the few chosen projects are given a qualified 'go-ahead.' The heart of the PDP process is the chain of functions that include honing the business proposition through R&D, production startup, and distribution. And across the entire process there are feedback loops for time and schedule attainment, marketing and customer feedback — and other corrections — all intended to provide self-corrective process control and improvement. This is the template, and overall architecture for the NPD process.
These are the key features of the process, and there is wide latitude among companies as to how each pursues their own process design. But whatever the process details, making the transition to an integrated NPD process is no quick undertaking. It evolves from the vision, and includes benchmarks from those who've done it successfully, as well as organizational teambuilding. It is strenuous and takes time to perfect a process design — but the results can be substantial. One powerful side benefit of the work is that it unites and integrates functions and sub-teams; it continually hones the enterprise's vision. Another is that it improves organizational performance by launching the right products at the right time and within plan.
A vital feature of a good NPD process is how, specifically, it is measured. There are literally hundreds of such process metrics — and most don't provide truly useful operational information. The best metrics are those that link directly with business strategy and objectives: what's our performance against plan? How are we doing in delighting our new and our faithful customers? What's the work through-put? Useful metrics must measure the NPD process, not the people managing the process. (Personnel performance is quite a separate issue.)
Furthermore, metrics should represent the full scope of business strategy: financial performance, of course — but also should include customer response, total quality management, internal business processes, and employee learning and development. Here, wisdom and insight is needed to marry the particular NPD process with the metrics that measure it. After all, managing a complex process with inadequate or misleading metrics can have troubling — even disastrous business consequences.
Some useful process metrics for NPD include current-year sales from products released in prior 3 years; average sales from new products released in past year; patent coverage, i.e., percentage of current-year sales from products currently protected; and progress toward the Six Sigma methodology for eliminating defects in the manufacturing process. These and other metrics provide summary process information that link to strategy, and measure the efficiency of the process's major components.
On the other hand, some commonly used metrics that fail to link with business strategy and objectives are percentage of budget to R&D; R&D budget as percentage of revenue; and the number of new products launched during the past year. These metrics provide no real insight into the process and don't trigger means of correction or improvement.
Leaders who have wrestled with this transformation toward an integrated PDP have been richly rewarded. Moreover, it's refreshing that academia is now beginning to bring some of these ideas into their curricula and research programs. Northwestern University and the University of Detroit Mercy have launched Masters programs in product development. Others, including Stanford, MIT and the Rochester Institute of Technology also have strong research and academic programs in this area.
In a recent research project in which we interviewed 10 leading undergraduate engineering programs we found that all were struggling with tougher and broader ABET design requirements, and with how to unite engineering and business programs so that students will be better prepared for leadership positions in this exciting new chapter of NPD. These are all favorable signs that the new generation of mechanical engineers has a broader view of product design and development.
It's time for many companies to rethink how new product ideas are conceived and selected. The rewards can be huge: faster to market, fewer product "bombs," better market shares and enhanced customer loyalty. All it takes is the determination, leadership and the will to put in place the processes to make it happen.
Philip H. Francis, an ASME Fellow, is a management consultant based in Georgetown, Texas.
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