strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
(originally published by Booz & Company)


Next-Generation Product Development

Combining agile up-front processes with a lean approach to the back end can help companies outperform the competition.

At least half of all product launches fail to live up to companies’ expectations. For every four projects that enter development, only one makes it to market, according to a recent study at Georgetown University’s McDonough School of Business. Booz & Company found in an earlier study that about 70 percent of the resources spent on new launches are allocated to products that are not successful in the market. Most companies have only themselves to blame. The traditional, gated product design process — what we’ll call the first-generation approach — is rigid and linear, locking in customer preferences, potential risks, and other features at the beginning of the process. Lean product development techniques, a second-generation approach that many companies have adopted in recent years, minimize waste and boost efficiency, but they also lock in product attributes too early and limit innovation.

To get more out of new product design, companies need to adopt a third-generation approach: a more agile product development system capable of addressing frequent iterations of multiple design options early in the process, based on continuous testing and highly sophisticated customer-driven design changes. This method, which both encourages flexibility and recognizes the unpredictability of the early stages of product development, ensures that the latter part of the cycle is much less uncertain, enabling companies to bring more popular products to market at lower cost, and with fewer delays.

Consider, for example, the returns that Apple Inc. has enjoyed from its rapid-fire sequence of products that began with the iPod and its numerous variations, then the iPhone, and finally the iPad — products built using many of the best agile techniques. Apple launched the initial iPod after just six months of development by reusing technology and components that had already been perfected by partners. More recently, Apple was able to significantly upgrade the iPad in only a year, adding a camera, faster processors, and improved battery life, among other features. On a larger industrial scale, there’s Oshkosh Defense, a division of the Oshkosh Corporation. In late 2008, the Pentagon issued a request for proposals for a lightweight off-road vehicle that could protect its crew from improvised explosive devices — and that would be ready for production within seven months. Oshkosh used modular parts from existing equipment; tested the design as it was being produced, generating frequent new iterations; and enforced daily meetings among the core team members across numerous functions, aimed at assessing risk and fine-tuning the development plan. Oshkosh handily overtook its competitors, winning a contract that has generated more than US$2 billion to date.

Of course, Oshkosh’s success illustrates the very aspect of this model that stymies many other organizations: Although more flexible and potentially more profitable, this approach appears to be frighteningly chaotic up front. However, companies that have adopted the approach learn quickly that what they initially give up in orderliness they gain in the ability to create products more effectively, skillfully, and intelligently.

Why New Products Fail

Many companies undertake product development in a way that is simply too regimented. The gated model is a carefully choreographed approach that assumes almost perfect information and analysis at the beginning of the process. All too often, however, by the time the product is introduced, customer needs have evolved (or it becomes clear that they weren’t fully understood in the first place). Further, when design and technology decisions are made early, so much complexity and risk may be introduced that turning back and reworking aspects of development triggers substantial cost overruns and delays in the final stages. We recently examined 50 projects in the automotive, industrial, and aerospace sectors that used the gated model and found that 80 percent of the projects cost 20 percent more person-hours to launch than was initially forecast.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.