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Closing the Chasm: Creating Successful Product Development Organizations

Crossing the Chasm, by Geoffrey A. Moore, established that successful companies can shrink the chasm between early adopters and the early majority by: choosing target markets, understanding the whole product concept, building marketing strategies, and choosing appropriate distribution channels and pricing. Today, those are basic elements in most companies.

     Crossing the Chasm, by Geoffrey A. Moore, established that successful companies can shrink the chasm between early adopters and the early majority by: choosing target markets, understanding the whole product concept, building marketing strategies, and choosing appropriate distribution channels and pricing. Today, those are basic elements in most companies.

      Implementation of those marketing tactics does not guarantee success in today’s competitive environment — a new chasm has emerged; product development performance. In any market sector, including manufacturing, companies must devise strategies and processes for making product development choices, and few businesses are doing it effectively and efficiently.

     The Product Development and Management Association (PDMA) Foundation conducted a Comparative Assessment Study (CPAS) in 2004, the result being a clear delineation between companies who strategically manage their product development process (Best) and those who struggle (Rest). Simply put, the chasm is real and growing wider every day.

     The materials needed to close the chasm exist today and below are guidelines for developing and managing products to close that chasm.

The NPD Performance Chasm
      The CPAS report queried companies in a variety of markets, from consumer goods, software and services, to chemicals and capital goods, to identify the “Best” versus the “Rest.” PDMA looked at the percent of products categorized as successes over the last five years, percent of products categorized as successful in terms of profitability, percent of sales from new products over the past five years, and percent of profits from new products over the past five years.

     The results were clear — the “Best” organizations were above average in new product development program and sales-profit success. In fact, 24 percent of organizations were identified as the “Best” and 76 percent as “Rest”.

     The most significant measure of the new product development performance gap is the percentage of profits from new products by the “Best”, at 49.1 percent — more than double that reported by the “Rest” at 21.2 percent. The “Best” reported twice the proportion of sales from new products at 47.6 percent, versus 21.4 percent for the “Rest”.

     According to the report, “Best” organizations recognized one product success for every four new product ideas, while the “Rest” see less than 10 percent of new product ideas reaching fruition. Just how do they do it?

     Companies that innovate rapidly and are not afraid to deliver new products can also be classified “Best”. Apple has recognized huge successes with its iPod products. Rather than resting on the success of the original iPod, Apple has aggressively developed and marketed new lines that might be considered competitive. Innovating ruthlessly and introducing new products aggressively, even while “old” products are still selling well, puts them at a competitive advantage.

     A successful organization has strong new product development practices and techniques, allowing them to recognize faster time to market, while also increasing profits from new products. These “Best” companies had to overcome some significant hurdles.

Develop Processes
     Most organizations experience changes to business, markets, product portfolios, customers, and competitors — often at an alarming pace. In the industrial electronic equipment market, the average time to market is 19 months, with many companies spending as many as 32 months to deliver a new solution to market. It’s critical that organizations develop processes enabling rapid alignment of product development with changing strategy for maximum agility.

     One of the challenges to better product team effectiveness is the use of ad-hoc processes and tools. The type of processes and tools makes a difference in success rates — low-cost, low-function personal productivity tools such as spreadsheets, project management, and word processing lack the control and scalability required for coordinating complex, cross-functional processes.

     Ideally, an organization implements an enterprise solution as the foundation for all new product development efforts. Several corporations, including one of the world’s largest telecommunications firms, have integrated investment planning and control solutions to take control of new product development initiatives.

     The company had efficient methodology and tools to evaluate each capital investment, but lacked a single system to govern the entire portfolio of investments, to support the processes of investment evaluation, selection, funding, monitoring, and capturing all related data. As new telecommunications technologies emerge, such as voice-over-IP (VOIP), companies must accurately determine how to invest in new technologies while also having a clear understanding of how to phase out older solutions.

     By choosing a capital investment governance system as its foundation, the company was able to manage entire product lines, not just individual products. The company’s key portfolio management requirements included a top-down approach, management, and control of different level of cost and benefit by investments, security access, multiple roll-ups, interface with legacy systems, and the ability to fully configure it to their terminology, processes, and language. In three months, the company had a portfolio with more than 400 projects worth 1.8 billion euros and is now poised to take advantage of new technologies without being caught behind the competition.

     Once a foundation is created, a product development organization must do two things to move from “Rest” to “Best”; establish clear product goals and objectives linked to overall strategy and take deliberate steps to improve cross-functional product team performance.

Link Goals and Objectives
      Information, tools, and processes to define and capture strategic intent are often disconnected from day-to-day operational data and processes. The “Best” organizations employ more product management and team processes, more of the time. The greatest variances relate to having clear goals and objectives while also linking goals and objectives to strategy.

     In the move to become more agile and more competitive, the creation of an enterprise-wide repository of product planning information is the first step. This repository must form the single source of truth for every product in the portfolio and include key information on strategic fit/alignment, product stakeholders, product goals, risk factors, lifecycle status, resource requirements, program schedule, budgeted costs, and status and actual costs.

     This information must be available to the entire cross-functional product team, allowing stakeholders and management to view information across all products. A uniform and objective analysis of product attractiveness and performance allows for informed, strategic decisions.

     At a leading pharmaceutical company, short drug lifecycles, strong competition, increasing health authority hurdles, rising development costs, and need for implementation of the latest technologies put tremendous pressure on the company and its competition.  To remain competitive in the global market, the company needed to continuously develop a portfolio of new drugs and indication extensions, while also managing the existing product portfolio to reduce time-to-market and maximize return on R&D investments.

     The integration of a product lifecycle management solution ensures medicines are developed for the global markets efficiently, while maintaining high quality. The company established dedicated, multi-functional lifecycle teams consisting of all areas involved in drug development