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(originally published by Booz & Company)


Next-Generation Product Development

Yet even when it becomes clear that the original plan is not valid, managers frequently decide to march on to product launch because of the huge costs already incurred. They might opt, for example, to exclude features or functionalities that, although high-risk, could offer significant returns. Recall the Apple Newton, an early 1990s tablet device that set out to remake personal computing and the way applications were programmed. Because of numerous design and production stutter steps, the Newton that finally saw the light of day failed once its novelty appeal to early adopters wore off. In the end, it was nothing but an overweight PDA whose handwriting recognition feature, in particular, was an overreach that failed to meet customer needs.

Orderly but frequently ineffective, the gated approach has lost some of its luster in recent years. Many companies have replaced it with lean product development, which focuses on eliminating waste and improving speed-to-market. Lean product development has improved project execution efficiency, allowing the best lean-focused companies — for example, United Technologies, General Electric, and Toyota — to launch more projects and products within their budgetary limits. Companies applying lean techniques add continuous touch points with customers so they can test product concepts, prototypes, and features along the development and launch cycle. In so doing, they have reduced cycle time by as much as 30 percent compared to the gated approach, as well as lowered development costs by as much as 40 percent and achieved dramatic gains in first-time quality.

But lean techniques fall short at the front end of the process. The enhanced efficiency of lean product development is (like the gated model) still highly dependent on early stabilization of requirements, rather than iterating, optimizing, and trading off requirements to get to the winning product design. As a result, whatever innovation there is in this approach tends to be based on safeguarding the status quo rather than being creative — leaving companies exposed to disruptive changes in the market later on.

Agile and Lean

Given these shortcomings, we believe that a new, third-generation process is critical for success: one that applies agile product development techniques at the front end and lean approaches at the back end. Software companies have been the earliest adopters of this process, because they must routinely iterate numerous versions of their programs, and must assess them against customer needs and preferences well before the software is ready for mass release. Without customer codevelopment, a deep knowledge of product integration risks, and extensive testing to eliminate bugs at the beginning of the development cycle, software companies would essentially be operating blind, uncertain of the stability of their products or how they will be received.

The goal of agile product development is to achieve rapid and frequent iterations with multiple design options up front — driven by continuous testing and granular customer analyses — in order to optimize, balance, and prioritize requirements and identify risks earlier. This early stage of the process has four primary characteristics.

1. Rapid, iterative development model. Companies generate multiple concepts, and in a period of weeks, rather than months, test product prototypes with customers. As the results come in, cross-functional product development teams — design, engineering, manufacturing, procurement, and sales and marketing, among others — work together in problem-solving sessions to produce a blueprint based on customer responses and the new ideas that these responses generate. Frequently, these sessions are held in rooms with paper placed on the walls and scribbled on as new concepts gestate, rather than in more traditional and formal meetings. Toyota calls this approach oobeya, or “big room.” An effective approach for implementing this step is to pick an upcoming market opportunity and conduct a front-end pilot, applying rapid iterations to generate and test multiple product options.

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