InsightHow are you measuring performance in new product development? If you can’t measure it, you can’t manage it.

New Product Development

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“If you always do what you always did, you will always get what you always got.” - Albert Einstein

Industrials Sector

New product development (NPD) – a key aspect of innovation – is one of the most important strategic and operational levers an organization can use to sustain growth and profitability. It is an increasingly complex activity, posing multiple challenges for companies trying to build competitive advantage through newly developed products. From our experience, there appears to be a disconnect between what organizations are hoping for and what they are getting from their investments in innovation. In many cases, a sense of “eternal optimism” seems to prevail regarding NPD.

According to a report published in 2013 by the Product Development and Management Association, only 61% of launched products succeeded in the market. So how can a company improve this measure?

This business insight aims to share best practices on how to manage NPD projects. In doing so, we hope to dispel the following widely held beliefs: NPD, due to its inherent ambiguous and chaotic nature, cannot be controlled; and, since the core innovation activities reside in engineering, the success of NPD depends solely on the capability of an organization’s R&D department.

Performance of NPD is often both under-measured and under-managed.

Having correct and clear metrics is a real challenge, and those aiming to manage the performance of NPD typically apply conventional key performance indicators (KPIs) such as time to market, % sales from new projects or return on investment.

While important, these KPIs measure success only after a new product or service has been launched and come too late in the process to influence performance. In other words, they just reflect the outcome of performance.

We believe that successful performance management of NPD needs to involve three key aspects:

1. Organization: A holistic value chain approach to align the performance of all the interdependent functions involved in the integrated NPD process.

2. Process: A streamlined process managed by a balanced combination of KPIs that evaluate not just final project outcomes but also input and supporting factors that influence the success of NPD.

3. Data: Capability to use Business Intelligence (BI) as an important enabler to support the management of NPD and drive correct behaviors across the value chain.

New product development is an increasingly complex activity

Figure 1. Integrated Performance Management Framework

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Therefore, what is needed is a robust performance framework with an appropriate set of KPIs that will make these interdependences transparent and contribute to the effective management of each function’s performance.

Only by assigning clear, shared, cross-functional accountabilities, measured by KPIs, will an organization manage to break down silo behavior and foster collaborative decision making. Clear accountabilities also help to establish performance-oriented behaviors across an organization and, as illustrated in Figure 2, the nature of these accountabilities changes throughout the lifecycle of a project.

As the example in Figure 3 illustrates, early in the project lifecycle Purchasing requires inputs from Engineering to lead the strategic supplier evaluation and selection.

Figure 2. KPIs across the NPD value chain

Organization: Managing performance along the value chain

The development of new products is a highly cross-functional activity characterized by an interdependence across an organization’s value chain. In reality the required collaboration rarely happens as effectively as it should.

As a result, new product development projects fail to achieve their target objectives. Some examples of this include voice of the customer (VOC) issues, where product specifications do not match customer needs, and design for manufacture (DFM) issues, where manufacturing implications have been insufficiently considered in product design. This is often due to contradictory objectives, ineffective collaboration and unclear roles and responsibilities among Sales & Marketing, Finance, Purchasing, Quality, Engineering or Manufacturing.

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Figure 3. Increased clarity of cross-functional interdependencies

Engineering can, therefore, be measured against the on-time in-full delivery of technology specifications. If Purchasing receives these technical specifications in the correct time window, it is able to undertake a proper review of potential suppliers to make the product.

During the development phase, Purchasing requires detailed drawings from Engineering to source components, and those components must meet cost targets. Again, new components will only be available on-time and at-cost if both functions perform against their KPIs.

Finally, Purchasing may have identified suppliers reaching their cost reduction targets in the short-term, but in the long-term the total cost of quality may rise due to low quality components.

There are often related costs, such as warranty claims due to a component failure, which highlight the need for Purchasing KPI that measures the total cost of quality linked to purchase components to ensure correct sourcing decisions are being made.

Process: Getting the balance right

Despite the uncertainty in NPD projects, success can, to a large extent, be predicted and performance proactively managed throughout a project’s life. Continuously assessing the performance status of a project, combined with timely implementation of the right mitigating actions, can greatly influence the success of a project. Therefore, NPD needs to be managed in a structured way by applying systematic performance management, focused on both the effectiveness and efficiency of development activities.

Effectiveness is related to the outcome of projects, such as customer satisfaction or financial success. Although useful in many ways, managing “outcomes” has limited use throughout a project to define mitigating actions to influence success or failure.

Efficiency is linked to the multiplicity of inputs that influence those outputs on a day-to-day basis. Efficiency indicators are “leading” or “input-oriented” and help predict the future outcome of NPD.

As shown on Figure 4, organizations are ultimately interested in maximizing the revenues from new product introduction. However, only by proactively managing the factors that influence market success can they ensure the new product will meet its revenue targets.

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Figure 4. Striking the right balance between effectiveness and efficiency

Figure 5. Multiple dimensions of performance management

In order to deliver NPD both effectively and efficiently, we recommend managing new product development projects along four dimensions: Lagging, leading, controlling and enabling indicators.

As illustrated in Figure 5, the ultimate objective of reaching high customer satisfaction, the lagging KPI in this example, will only be achieved if the related leading, controlling and enabling aspects are managed appropriately.

Both lagging and leading indicators focus on the NPD’s performance.

Lagging indicators measure the effectiveness of NPD by evaluating success or failure once a product has been launched (e.g. customer satisfaction), whereas leading indicators measure the efficiency of NPD. They are predictive indicators, used to plan and manage critical inputs to activities in the innovation process. Leading indicators provide early warnings and allow mitigation against any developing weaknesses before problems perpetuate throughout a project’s life.

Revenue and profitability of new product introduction are widely used lagging indicators across industries.

However, the approach taken to achieve those objectives will differ from industry to industry depending on the prevailing competitive situation and an organization’s NPD objective (Figure 6).

Controlling and enabling indicators focus on the performance of the different processes that drive the success or failure of projects. Controlling indicators are operational indicators used to monitor the performance of a process. For example, the number of requirements change requests can be used as a controlling KPI to measure the performance of the requirements management process. A high number of late changes can be an indication that the requirements definition process is not robust enough.

Enabling indicators are about driving cross-functional cooperation and are used to monitor enablers to the process. They are often linked to the people or technology aspects in NPD. For example, only if project team members are adequately trained to use the requirements management software available, will they be able to ensure requirements traceability.

It is important to remember that a single KPI will never tell you the full truth; you must use a combination of different KPIs to get the full picture. Figure 7. Lagging and leading indicators are like the rear-view mirror and headlights of a car.

Data: Closing the loop to drive collaborative behaviors

In today’s data-rich environment, deploying an Integrated Performance Management framework in an NPD context needs to be supported by the ability to access and manage a large amount of information across the value chain in a streamlined and timely fashion.

To this end, Business Intelligence (BI) can be seen as an important enabler as it provides the necessary collaboration tools to share information across functions and improves data integrity, consistency and accuracy.

BI can be leveraged to foster deeper understanding, connecting the KPIs together, providing the ability to undertake root-cause analysis “on the fly” and form the library of record for development projects, including past successes and failures, from which future development teams can learn. Business Intelligence encompasses data analytics to take the guesswork out of innovation, while at the same time enabling collaboration across new product development teams.

One specific challenge in NPD is that the process is sometimes difficult to visualize; therefore, people are often unable to gain a quick understanding of the overall status. A possible solution is to set up a “project room”, where the short-interval control and critical issues are on display.

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Figure 6. Alignment of NPD objectives and leading indicators

“KPIs are critical to enabling closed-loop management systems to deliver quantifiable business results.”

Project stakeholders can then meet there on a regular basis to analyse criticality, make decisions and define action plans. This will drive collaborative behaviours around key performance issues. It serves to align and focus stakeholders on the most important risk elements and have them all focus on the same things at the same time. Coupling this with improved meeting effectiveness, where stakeholders are well prepared and accountable for actions, will ensure that data will really be used, which in turn will lead to better data accuracy and decision making.

Figure 7. A car analogy for lagging and leading indicators

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Challenge: � The client was a new entity in

the lighting industry, created from different businesses and acquisitions, each with a different DNA and approach to Product Development.

� It was operating in a rapidly changing landscape, so it needed to rethink the way it innovated to introduce new products and solutions quickly into the market.

� A four-week analysis revealed an average slip of the active product portfolio of 45% and predicted a significant shortfall in its strategic growth ambitions.

Challenge: � The company wanted to increase

innovation, quality and delivery speed in the fast-moving, volatile and fiercely competitive semiconductor market.

Challenge: � The company was continually

looking for opportunities to launch new products to address new markets, meet ever-evolving security threats, manage a strong replacement cycle and tap into opportunities that the globalization of trade provides.

� Need to enhance organizational preparedness for delivering the new product pipeline efficiently.

Client Success Stories

A leading manufacturer of semiconductors

Approach: � PThe company decided to initiate a major

change program, beginning with their activities in Europe and then rolling out globally.

� The aim was to improve 4 key aspects of performance: reduce average Time To Market by 50%; reduce non-value-added time on development projects by 50%; install a new Management System with aligned KPIs; align the roles and responsibilities within R&D and Marketing.

� To make this breakthrough, Hitachi Consulting established three work streams:

� Financial & Operational to align the project portfolio to long-term financial targets, with real-time transparency of existing and future projects.

� Business Creation to create a more manageable process that would reduce Time to Market and maximise bang for buck.

Approach: � Focussed on the three key elements

of New Product Development: understanding client needs; assuring high quality; and reducing time to market.

� Improve the product time to market in order to meet the constantly evolving customer demands and rising expectations

Approach: � Audited the existing development

and testing processes.

� Defined a governance model including portfolio management processes, product roadmap definition, testing and quality assurance.

� Hitachi Consulting’s platform team setup and configured a solution to support product lifecycle management

� Project Execution to reduce process inefficiency to acceptable levels and optimize resource allocation conform strategy.

Results: � Three product development types

were identified, and these have realized significant reductions in Time To Market (TTM).

� Type A: new products – TTM reduced from 16 to 12 months.

� Type B: products derived from existing platforms – TTM reduced from 14 to 6 months.

� Type C: improved or cost down existing products – TTM reduced from 9 to 3 months.

Results: � The time it took to manage a change request was

reduced by 75%, and the time to solve “bugs” by 20%.

� The understanding of customer needs was improved using a structured process and management tools,which were cascaded throughout the organization. The installation of new management systems and dashboards for monitoring progress, highlighting areas of concern and accelerating remedial action created a totally new company environment.

Results: � Implementation of robust processes to

streamline the creation of the product roadmap by focussing on improved collaboration between business, R&D and Product Development Teams.

� Better response to change.

� Improved visibility of progress.

� Improved outcome measurement.

� Collection of improved and targeted diagnostic data.

� Adaptive product architecture, which is much more flexible to business needs

A global market leader in innovative lighting solutions

A world-leading designer and manufacturer of detection sensors

� Cultural and behavioral change was achieved right across the company, moving it from abstract research to commercial success. Managers and staff at all levels now share a clear development process, with the right gateways.

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Challenge: � Facing a competitive

market in professional printing, our client’s strategy was to shorten the products’ time-to-market and increase product adaptations.

� To handle change requests from the market, including issues reported by the local sales and service organizations as well as from internal departments, there was a need to manage engineering changes more effectively.

Approach: � The analysis conducted by Hitachi Consulting showed

that that process for handling change requests was not effective, resulting in long lead-times, unnecessary changes and low customer satisfaction.

� To improve engineering change management, a project was set up tying different departments – Service, R&D and Manufacturing – to come to one effective and efficient change management process aimed at reducing lead times, increasing customer satisfaction and optimizing integral costs. The approach was based on improved cooperation and alignment between departments and visualising and managing process performance.

� Together with the design of the improved process, a performance management system (MCRS®) was developed, enabling our client to manage the process in a structured and transparent way, securing timely handled customer change requests. The implemented MCRS® included KPI dashboards, clear accountabilities and effective-meeting coaching. Together with the design of the improved process, a performance management system (MCRS®) was developed, enabling our

client to manage the process in a structured and transparent way, securing timely handled customer change requests. The implemented MCRS® included KPI dashboards, clear accountabilities and effective-meeting coaching. The MCRS® not only enabled better control over the change management process, it also improved the cooperation between the different functions involved in the process .

Results: � Open change entries have substantially

decreased as a result of the improved end-to-end change management process and the MCRS® involving all key stakeholders.

� Our client has also made a major step in developing a culture of continuous improvement – showcasing that transparency in performance does lead to more effective decision making.

A company specializing in innovative high-tech printers and software

Conclusion

For NPD to be a success in any business there must be a well-defined and robust process at its heart. Built around this process there needs to be a system to manage performance. KPIs are an important part of this system. These indicators highlight performance issues, but they rarely tell you what the root cause of the problem is. However, used in conjunction with accurate data, KPIs are valuable inputs for decision making and problem resolution. Furthermore, they need to be complemented with appropriate behaviors across the value chain, to ensure that the correct actions and decisions are taken. These behaviors should be results-orientated and encourage effective collaboration, transparency and broad-based problem solving to ultimately influence the outcome of NPD. 

The performance system will bring rigour to execution. Once in place it will:

� Provide the right people with the information they need, when they need it, to base decisions on facts rather than emotion and “gut feel”.

� Ensure clear accountability for follow-through on decisions.

� Sustain strong focus, at all operating levels, on fulfilling the business strategy.

� Break down silo behavior and foster collaborative decision making.

� Deliver the needed insight and analytics to manage business performance and build competitive advantage.

� Role model the optimal set of behaviors required throughout the organization to drive a culture of performance.

Integrated performance management based on KPIs aligned across the value chain, supported by a robust BI framework and performance-driven behaviors will enhance a company’s performance management culture and drive competitive advantage through successful NPD.

About the Authors

Dr. Jörg Putzer is a Manager at Hitachi Consulting. As the EMEA MCRS® Capability Lead in Hitachi, Jörg has helped a large number of clients in different industries to analyse and improve their management systems and achieve sustainable results. Jörg is also a subject matter expert in product development and engineering. Jörg holds a doctorate in Innovation Management focussing on performance management in new product development projects.

For more information please visit: www.hitachiconsulting.comEmail: info@hitachiconsulting.com

Hitachi Consulting is the global management consulting and IT services business of Hitachi Ltd., a global technology leader and a catalyst of sustainable societal change. In that same spirit - and building on its technology heritage - Hitachi Consulting is a catalyst of positive business change, propelling companies ahead by enabling superior operational performance. Working within their existing processes and focusing on targeted functional challenges, we help our clients respond to dynamic global change with insight and agility. Our unique approach delivers measurable, sustainable business results and a better consulting experience.

www.hitachiconsulting.com

Darragh MacNeill is a Director at Hitachi Consulting and leads the Operational Excellence capability in EMEA. Darragh has extensive product development experience from the automotive industry and has been instrumental in major business transformations with leading industrial clients. Darragh is a subject matter expert in Engineering and Lean Transformation.