The Executive’s Dilemma: Faster, Better, Cheaper
Executives everywhere are being urged by their Boards to deliver a steady stream of new product winners, and sooner rather than later. Quite clearly, investors have figured out that cost cutting and acquisitions are not the way to sustainable, profitable growth. As markets mature and competition increases, products become commodities and margins inevitably shrink. Cost cutting can keep up with commoditization for only so long. Acquisitions are one way to deal with the growth goal, but these are expensive, do not always work, and often do not provide access to the hoped-for innovative products with new life.
So the message is “innovate or die!” One issue is that the goals of “faster, better, cheaper” are frequently in conflict. As one insightful executive declared: “You can have two out of three – take your pick. But you cannot have all three”.i
“Better” usually means better executed, as well as bigger and more profitable new products. So the quest for winning and major new products is on. One challenge is that many firms’ development portfolios currently are consumed by small, incremental developments with low value to the company. There are many reasons for this, including a short term orientation and an over-emphasis on speed to market; being overly reactive to every customer and salesperson’s requests; an aversion to risk; a shortage of resources required to do major projects; and too heavy a financial focus with an over-emphasis on financial criteria to select projects. ii Thus, finding, resourcing and executing these major and profitable new products is not as easy as it seems!
A second push is for “faster”, which translates into a reduction in time to market. While cycle time reduction is an admirable goal as noted above, often the results of trying to reduce time-to-market have unexpected and negative consequences. For example, many maladies have been attributed to an overzealous pursuit of speed. Cutting corners on projects, dumbing-down projects, doing only “low hanging fruit” projects, and poor team morale have all been blamed on excessive emphasis on cycle time reduction. iii
In recent years, the goal of cycle time reduction has been achieved in the U.S., but not in the intended way! A PDMA study shows that new product times-to-market have decreased dramatically from 41.7 months to 24 months over a decade. iv But the reasons are not that product developers have become more efficient; rather, businesses are simply not undertaking the challenging, step-out and significant innovations and new products they once did v. They are focusing on incremental improvements that inherently take less time but also make less money. One business unit executive put it bluntly: “Unless it contributes to this quarter’s bottom line results, don’t do it!”, as he urged his people to focus strictly on near term results and commit nothing to the longer term.
A third push has been for making the numbers and short-term profits. That has led to many cost-cutting initiatives within firms and the desire to do product development more cheaply. To meet short-term financial goals, business management faced two choices: They could do what was good for the business for the longer term, or resort to short-term maneuvers – cost cuts and resource freezes – in order to achieve the immediate goals set by corporate headquarters. vi As one exasperated business unit General Manager declared (and this is typical): “I grew the business – both top line and bottom line – by 20 percent last year. But I’m being ‘punished’ by Corporate [head office] for doing this. To achieve this growth, I had to increase operating costs – we hired more technical people – and so my operating ratios suffered. I’m being measured and incented all wrong!”
This preoccupation with short term profitability and cost cutting has ultimately resulted in the resource crunch in many organizations. Simply stated, managements have “hollowed out” the company in a zealous attempt to make the numbers. And the immediate result is that in many major corporations, that have been displaying superb operating results, the ability to innovate has been lost – there’s no one left to do the work! The end result is that projects are thinly staffed, corners are cut and execution suffers. With too many projects for the available resources, projects end up in a queue and take too long to get to market. And when they are finally launched they underperform, mostly due to shoddy work done in the earlier stages. And, then, there is even more pressure to cut costs, so the downward spiral gets worse.
The goal is lean, rapid and profitable product innovation. But these major drivers for performance – more profitable projects, but faster to market, and using the same or fewer resources – have placed business managers in a serious dilemma. Focusing only on “lean” or cutting costs alone can lead to resource reductions and cost cutting with potentially negative consequences on NPD results, as noted above. A strict focus on accelerating projects also has many negative consequences. Similarly, over-emphasizing major and profitable projects may lead to many long-term initiatives that never get to market; or, this may simply be an elusive goal, given businesses’ preoccupation with tweaks, modifications and extensions.
If the goal is really lean, rapid and profitable new product development, all three goals must be considered together and holistically. The solution, of course, is to focus on maximizing NPD productivity – maximizing the output, measured in profits and sales, for a given level of resource commitment. This need for a more balanced, integrated and holistic approach – balancing the goals of lean, rapid and profitability – is why we focus on NPD productivity rather than on any one element such as “lean”.
Where does one start? A difficult question, and the answer will vary by business. But here are some starting points:
- You’ve designed a good process and it has served your company well for years now. However, recently you are hearing a rumbling from the users – it’s taking too long, it’s bureaucratic, it’s not producing results. Dismiss their feedback at your own peril! Chances are your process has not kept pace with your organization’s evolving customers, skills, people and demands! Read Lean, Rapid and Profitable New Product Development and learn how to zero in on typical problem areas and more importantly, how to fix them.
- Discover how to Maximize Productivity in New Product Development. Leverage the seven principles of high-productivity product innovation, and recognize how your portfolio management strategy influences productivity. Discover new and advanced techniques your organization should incorporate into your new product development process to realize performance.
- Not sure where to start or if your process can/should be improved? Many organizations mistake negative comments or feedback as a sign of resistance to adopt the company’s standard procedures. However, in many cases, these are signs that the organization has evolved its Stage-Gate process maturity level. Consider speaking with our team to learn more about the Stage-Gate Maturity Model and how we can work with you when you are ready to advance to a new level of product innovation performance.
ii R.G. Cooper, “Your NPD portfolio may be harmful to your business’s health”, PDMA Visions, XXIX, 2, April 2005, pp. 22-26 – click here to read.
iii R.G. Cooper & S.J. Edgett, “The dark side of time and time metrics in product innovation”, Visions, XXVI: 22, Apr-May 2002, pp. 14-16. – click here to read. The negative impacts of cycle time were first articulated in: C.M. Crawford, “The hidden costs of accelerated product development,” Journal of Product Innovation Management, Vol. 9, No. 3, Sept 1992, pp. 188-199.
iv PDMA studies: M. Adams & D. Boike, “PDMA foundation CPAS study reveals new trends”, Visions, XXVIII: 3, July 2004, pp. 26-29; and: The PDMA Foundation’s 2004 Comparative Performance Assessment Study (CPAS), PDMA Foundation. For mid 1990s data, see: A. Griffin, Drivers of NPD Success: The 1997 PDMA Report. PDMA 1997.
v As reported in endnote 17.
vi Parts of this section are taken from: R.G. Cooper and S.J. Edgett, “Overcoming the crunch in resources for new product development,” Research-Technology Management, Vol. 46, No. 3, May-June 2003, pp. 48-58 – click here to read
image credit: bodyshopmag.com
Wait! Before you go…
Choose how you want the latest innovation content delivered to you:
- Daily — RSS Feed — Email — Twitter — Facebook — Linkedin Today
- Weekly — Email Newsletter — Free Magazine — Linkedin Group
Scott J. Edgett is CEO and Co-founder of Stage-Gate International. Considered the pioneer of the critical practice of new product portfolio management, he principally focuses on issues affecting product innovation leadership and capability. He is a co-author of eight publications, including ‘Product Innovation & Technology Strategy’.
NEVER MISS ANOTHER NEWSLETTER!
Photo by Jenny Ueberberg on Unsplash In the last few years, electric vehicles (EVs) have become more and more…Read More