For example, companies that measure suppliers innovation performance show an average short-term profit growth thats 15.4 percentage points higher than the rest (Exhibit 3). The results of this effort reinforced the value of identifying a product manager to guide the development team and experts through the process. Over the long term, however, companies should also measure the things that build customer loyalty, such as satisfaction with a products performance, price, and specifications. Theres a riptide cutting through automotive-product development, and its forcing OEMs and suppliers to reoptimize their product development processes and R&D operating models. LOG IN or SIGN UP TOP 5 Comments The best new product development process includes portfolio management as a way to select new projects. The first use case takes advantage of advanced simulation techniques to improve multiphysics simulations via surrogate models or virtual testing with an AI-based driver in the loop. Enabling future customer experiences and accelerating product development. KEY NOT FOUND: ei.filter.lock-cta.message. The company then applied its new vision and strategy to the redesign of its highest-volume product. Product development is inherently risky and unpredictable: no plan survives contact with the enemy. Todays customers demand new capabilities in their vehicles. The shift toward electrification due to market and regulatory forces has resulted in new requirements across all main vehicle domains, including new electric powertrains; thermal management and heating, ventilation, and air conditioning (HVAC) systems; and new infotainment services keyed to finding charging stations. OEMs focus on material cost optimization to reduce product costs and improve product profit. For almost a decade, the McKinsey Product Development Fingerprint diagnostic has gathered data based on in-depth assessments of companies product-development practices and outcomes. Product development should be ongoing, as many products can be improved based on what happens during their lifespan. To study the impact of individual KPIs on short- and long-term financial performance, we compared the average of each of our two metrics for companies that used a given indicator with the average for those that did not. Process breakdowns. All of these scenarios have a significant impact on product revenue, profitability, and ROI. Breakthrough innovation in product development is often not a straightforward process: it requires a company to continually pivot and iterate to identify and pursue the biggest opportunities and the right scope. Such investments can bring significant benefits: McKinsey analysis has found companies that invest in innovation during a crisis outperform the competition on market capitalization by 10 percent; investing in innovation after a crisis gives them a 30 percent advantage. This new approach to product development isnt just a fadits the future. For companies, that means lower costs and lower risksa powerful combination of benefits to have in a highly competitive environment. A global team of analysts from five Sourcing Centers, located in best-cost sourcing hot spot locations, help provide our clients implementation-level support in global sourcing diagnostics; country and category prioritization; supplier identification and evaluation; supplier bidding, negotiation and selection; and global sourcing organization design. In practice, of course, such problems do affect almost every project. The consumer-goods industry can learn from the evolution of product management in the technology industry and empower product managers to play this critical role. The variable with the most significant negative correlation with short-term financial performance was budget adherence. It requires more sophisticated software, including a software abstraction layer, Ethernet usage, and connectivity at scale. We helped a high-tech company elevate the skills and impact of its 300-person product organization through a three-month capability building program that encompassed learning forums, online modules, In our analysis, we considered a company to be using a metric if it was cited by more than one-third of staff interviewed. product management leadership development model. Please email us at: McKinseys new weekly newsletter, featuring must-read content on a range of topics, every Friday. OEMs must transition from working with several suppliers to creating alliances and partnerships centered on key technological control points, while tier-one suppliers must adapt to software sales and develop solutions in partnership with OEMs. Requirements for change include conducting constant reviews, adjusting objectives as necessary, and tracking target achievements. The product leader coordinated this collaboration, translated the insights into new product concepts to inspire ideation and alignment on specific features, and led the team through teardown walk-throughs and brainstorming discussions. In particular, we wanted to identify the approaches used by companies that achieve consistent high performance. Direct customer interactions or feedback remain rare and limit the voice of the customer in important product decisions. Each department or function brings its own perspective on the problem at hand, and competing lenses can either enhance or derail the innovation process. Unlock your team's curiosity and willingness to take smart risks. Horizon 3 is the creation of new capabilities and new business to take advantage of or respond to disruptive opportunities or to counter disruption. Until recently, even companies that understood and sought to address these issues didnt have effective tools for doing so. The team should set targets for all core steering dimensions, especially material costs, R&D costs, and capital expenditures, centered on benchmark-based target costing. That allows a much more thoughtful, fact-based discussion, far preferable to missed deadlines or being forced to drop features at the last minute because they werent finished in time for launch. The product manager has emerged as a crucial force to steer this process and balance these lenses. Weve spent more than a decade investigating the root causes of R&D scheduling and budget challenges. We strive to provide individuals with disabilities equal access to our website. They should implement end-to-end product development steering and controlling basedon a single source of truth. AirBnB, Uber, Lyft, Craigslist, SpaceX, and Tesla are examples of Horizon 3 disruptions using existing technologies and deployed in extremely short periods of time. Anna Herlt is a partner in McKinseys Munich office, where Martin Kellner and Paul Jana are associate partners, and Sebastian Kchler is a partner; and Henrik Rochlitz is an associate partner in the Berlin office. Join our McKinsey experts as they delve into the cost savings, sustainability, and commercial advantages of reducing the size of product packaging, and discuss innovative solutions such as nesting products and honeycomb packing formats to reduce stock outs and improve . design focus, and the evolution of software-development methodologies. S2P enables clients to realize the full potential of procurement savings in profit and loss by linking category-sourcing strategies to procurement operationsputting the optimal processes, organization, and digital procurement tools in place that enable simple, efficient, and compliant third-party spend. Agile methodologies in hardware development and concept sprints have recently gained momentum as effective tools for steering the innovation process because they promote an iterative, build-to-learn mentality. Many OEMs employ a static financial steering approach that focuses on the SOP of a vehicle and does not consider dynamic or cyclical effects along the product development process. Never miss an insight. In our work with consumer-goods companies, we have identified a critical need for a product manager to connect these many stakeholderssomeone who is ultimately accountable for delivering consumer and business outcomes. Modern CPG product development calls for a new kind of product manager. Apr 2021 - Present1 year 11 months. It can be a complex challenge to refine a product concept and make the right adjustmentswhile balancing input from varying perspectiveswithout straying from the concepts core consumer-value proposition. In part, thats because R&D activities require companies to juggle so many dimensions. If you would like information about this content we will be happy to work with you. Stages of the Product Development Cycle Our analysis suggests that this is a measure that deserves more attention, since it is strongly correlated with both short-term profit growth and long-term stability. This benchmark reveals areas of strength and opportunities to build capabilities for individual product managers and organizational changes to enable their development. Such direct sales will give the automaker full control over the customer experience, whereas a traditional overreliance on franchised dealers could lead to inconsistent customer handling. In this new environment, routine upgrades will happen throughout the vehicles life cycle, including over-the-air (OTA) updates to fix bugs, update software features, improve customer experiences, or sell new features not available at the time of the vehicles original sale. We take a blended approach to learning, combining assessments with online courses, classroom training, coaching, and group work to create targeted learning journeys for different cohorts. Becoming customer centered also requires a new go-to-market model that features direct interactions between the OEM and the end customer. The first was relative-profit growth, based on profit growth at the company in the year the data was collected, compared to the average for its sector. In particular, only one-third of companies measure innovations that were developed by or with their suppliers and partners. This connective tissue is particularly vital for companies seeking to revitalize their product portfolios: low-performing products often indicate a lack of coordination across functions. Beyond woefully insufficient budgets, anemic resource allocations, and misaligned success metrics, companies too often follow a traditional, siloed approach that creates blind spots, handoff issues, and inefficiencies. Im a big fan of McKinseys Three Horizons Model of innovation. They want advanced autonomous-driving features, for example, and new personalization and infotainment options. Consequently, OEMs and suppliers need to shift their R&D processes and operating models from hardware engineering to a combination of software and tech-driven systems engineering. The scope of the product manager is expanding rapidly, driven by changes in how software is developedthe growing role of data in product decisions, the evolution of product development practices and execution pod, and the consumerization of B2B software, with an elevated role for design. There are three keys to making agile product development work: structure, process, and people. Sidebar About the authors Today's customers demand new capabilities in their vehicles. Consequently, such steering is currently not based on a TCO perspective and a holistic business case. The performance of a sample of over 1,600 integrated-circuit-design projects was even more telling. Incentivize external resources to focus on your goal or mission. Finally, OEMs and suppliers should pursue software and hardware development target costing, including for the needed resources and associated costs. We strive to provide individuals with disabilities equal access to our website. This metric delivered an ambiguous result: In the short term, it is associated with poorer relative-profit growth, but over the long term, it is linked with better profit-growth stability. This approach features a harmonized systems landscape and a single end-to-end data backbone along the entire process of product development and life cycle management that connects all relevant steering KPIs. The transformation will need to happen along three dimensions: technology, commercial structure, and commercial change. Likewise, the lack of clarity regarding key trends such as whether battery electric vehicles (BEVs) or fuel cells will become the dominant battery and energy solution could lead to increased R&D cost pressures. Product managers in the consumer-goods industry tend to fit a more traditional profile, with a focus on project management and tactical execution. The result is a faster, more reliable way to bring all of an organizations expertise together in finding the best options for delivering value to customers. Exhibit 1. Built in a modular fashion, this program can be tailored to offer personalized learning journeys across different inflexion points in a product-oriented career. Consumer-goods companies need to balance rapidly changing consumer and market needs with relevant product experiences. The fingerprinting approach has now been applied to more than 500 projects at around 130 organizations. In the 20th century McKinsey created a model called the Three Horizons to explain how businesses must invest in current products, incremental innovations, and breakthrough innovations. This should include a concrete, actionable description of what the organization wants and expects from its product managers. I interviewed at McKinsey & Company (Miramar, FL) in Jun 2016. Consumer-goods companies face a unique set of challenges. Only 15 percent of the companies in our sample did not make widespread use of this metric, but those companies had an average relative-profit growth 11.4 percentage points higher than the remaining 85 percent. Its paired with algorithms based on machine learning to intelligently collect data at scale and identify interesting situations to propel the development of Level 4 and Level 5 autonomous-driving features or optimize driver-assistance features. After reading it, . After SOP, the team drives CX upgrade opportunities and product life cycle management. Software will be a key driver of customer experience and generate new revenue streams. Instead, OEMs need to become more customer centered across the entire product development process, even to the point of launching a dedicated customer experience (CX) unit. Furthermore, the centers of gravity in global and regional markets continue to shift toward Asia, requiring local strategies to provide incentives for OEMs and suppliers to maintain local footprints and keep data in the region. This success will shift the business model away from one-time sales and toward vehicle life cycle revenue streams and new forms of monetization, such as pay-per-use or subscription-based models. Brand managers often act as product owners, but rarely play the central integration role that we believe is crucial to propelling innovation. If you would like information about this content we will be happy to work with you. Systems engineering is about breaking large, complex projects down into smaller, more manageable pieces and orchestrating the interfaces between them. True breakthrough innovation in product development has the potential to reshape categories, reinvigorate brands, and create deep consumer relationships. Know Your Worth. Incumbents now face a new competitor that makes their existing product line, infrastructure, or business model obsolete. We correlated the use of selected metrics with two measures of financial performance. It collects and aggregates user feedback, supports the R&D department in analyzing feedback, and disseminates conclusions to the relevant development teams. The use of function points in the industry, ISBSG, October 2016, isbsg.org. The structure of line organization must build on defined ways of working in things such as team structure, roles, and processes, and delivery teams should be stable across different projects. The process took 1 day. Example of our work Video Our approach, which combines customer, technology, operations, and market insights, along with our partnership with, Our innovative methodology to optimize products shifts the focus from design-to-cost to, By delivering a holistic transformation of engineering departments, we ensure organizations remain agile, effective, and ready to deal with a rapidly evolving marketincluding supporting our clients in identifying forward-looking insights through leading, We leverage proven methodologies to optimize direct and indirect spend categories. That puts these product-related metrics among the most commonly used across our sample. Steering toward the right ambition level. The product development team should derive targets by benchmarking development projectsand the benchmarks should reflect the true project intent. The adoption of these capabilities will also be pushed toward suppliers. But for practical reasons, the only useful factors are ones easily measured, consistently gathered, and known early enough to drive budget and planning decisions. During development, the team focuses on realizing a CX-driven unique selling point design. Critically, top management must actively drive this change. Creating a logical and physical architecture that combines functional and physical elements typically starts with a functional system view based on system requirements. At its heart, the new approach relies on the fact that, while every development project is unique, the underlying complexity drivers across projects are similar and can be quantified. It can then assess the risk of the current plan or create a more realistic staffing plan along with a good budget estimate and an achievable schedule. The Product Strategy Playbook from McKinsey Alum - Free PPT Templates PRODUCT STRATEGY THE BIG PICTURE ON PRODUCT STRATEGY 1. A multifunctional team undertook a series of workshops to brainstorm, align, and tactically plan key design choices across its product portfolio. In the second step, players need to prioritize their efforts and set up a transformation office to drive change. Because established companies tend to move slowly and must invest resources in existing products, this means that unlike in the 20th century, attacking disruptors now have the advantage. That led us to wonder about the relationships between what companies track in product development and how they perform. The first root cause is underestimating the complexity of the project. More than 40 percent of consumers also say they will use connectivity services more in the future, and about the same number are willing to pay for connected services. In addition, companies must continue to prioritize innovation even as the pandemic puts pressure on budgets. 2. McKinsey - Refueling the innovation engine in vaccines (2016) If you'd like to download more consulting decks from BCG, Bain, L.E.K Consulting, Oliver Wyman, Kearney and more, then check out our free database of 71+ downloadable consulting presentations. If you would like information about this content we will be happy to work with you. The modern product-manager role is rooted in the voice of the consumer and elevates that perspective throughout the process to ensure that product development is guided by these insights. People. These models can even identify the productivity impact of changes to working methods. The three horizons are no longer bounded by time. Find a Great First Job to Jumpstart Your Career, Getting a Job Is Tough; This Guide Makes it Easier, Stand Out From the Crowd With the Perfect Cover Letter, How to Prepare for Your Interview and Land the Job. Last, companies will have to rethink innovation and collaboration in remote-working team structures. Today, some companies are adopting a new approach, one that uses powerful data analysis and modeling techniques to bring new clarity to the estimation of project-resource requirements. Companies should focus their efforts on several areas. It also influences requirement changes and cocreates the vehicle with technical R&D teams to ensure the product accurately reflects CX elements. Accelerate your career with Harvard ManageMentor. McKinsey suggested that to remain competitive in the long run, a company allocate its research and development dollars and resources across all three horizons. In another example, a company had a tight deadline to complete a new release for a big customer, with competitors vying for the work. It represents a critical enabler and precondition for leaping into Level 4 and Level 5 autonomous driving. Smartphones on wheels: New rules for automotive-product development, This article is a collaborative effort by. Are you asking enough from your design leaders? Often, a large amount of work is finished before other stakeholders have a chance to weigh in, causing misalignments, delays, and rework. OEMs and suppliers that hesitate to make this change could find themselves playing catch-up for a long time to come. Breakthrough innovation in product development requires the rigorous engagement of all functional lenses throughout the end-to-end process. It should also include all revenues and costs generated over the product life cycle, which can include product maintenance, releases and product updates for hardware and software, function-on-demand offers, and sustainability costs such as CO2 penalties. We combine services and software to help companies unlock procurement value from spend insights. Serviceability, maintainability, completeness, scale, etc. Companies should base their product development steering efforts on holistic business case optimization. Beyond participation in the vehicles initial sale, OEMs need to cultivate a true life cycle experience with multiple car and noncar touchpoints per month. Filter your search results by job function, title, or location. Combine the existing strengths of a company or agency and its business model by acquiring external innovators who can operate at the speed of the disruptors. Introducing the next generation of automotive electrical and electronics architecture requires a comprehensive business case that looks beyond the vehicle start of production (SOP) and initial bill of materials. In addition, product managers learn most effectively through activities that are grounded in their day-to-day work, rather than through generic product-management trainings. (When I say business model I dont just mean private businesses, but also government agencies, nonprofits, and others who have a mission model instead.). Indeed, the average relative-profit growth of the companies that did use this metric was 12.9 percentage points higher than those that did not (Exhibit 2). First, product managers, like most professionals, learn better by doing than by watching videos or sitting in classrooms. A fifth of those projects cost over 50 percent more than originally expected. This approach requires a top-down definition of general requirements with a strong focus on customer expectations and experience. 1 Likewise, the approach applies iterative and incremental development processes to hardware and mechatronics development, synchronizing them with top-down planning. To existing competitors, or to existing government requirements and acquisition systems, these new products/services look like minimum viable products barely finished, iterative, and incremental prototypes. For example, Google buying Android. Successful product development requires teams to engage with experts across disciplines while aligning four critical development lensesbusiness, design, consumer, and technical (Exhibit 1). In that time, weve interviewed hundreds of project stakeholders, including executive managers, technical leaders, and program and project managers. This dynamic will place more importance on roles and skill sets that involve orchestrating and integrating product-development processes. They generally give excel exercise and logical reasoning problems to solve. Earn badges to share on LinkedIn and your resume. In the 20th century McKinsey created a model called the Three Horizons to explain how businesses must invest in current products, incremental innovations, and breakthrough innovations. This employer has claimed their Employer Profile and is engaged in the Glassdoor community. More than three-quarters of companies in our sample made widespread use of product volume, revenue, unit cost, and time-to-market KPIs. Over the years, HBR articles have referenced the Three Horizons as a foundation of innovation strategy, here, here and here. 2 By Arjun Balaji, Raghavan Janardhanan, Shannon Johnston, and, How predictive analytics can boost product development. OEMs should also conduct an opportunity diagnostic, which involves making a quantitative assessment of R&D productivity based on historical programs and developing a digital workspace for continuous program review. When we looked at profit-growth stability, however, a different picture emerged. Interviews are similar as the one for generalist positions, they both include the PEI, the fit and the Q&A parts. Thats important, because widespread knowledge of a metric indicates that the company is using that indicator actively as part of its performance management processes. OEMs and suppliers create a network of cross-functional, empowered teams. They must balance new features and innovative technologies against cost, risk, and time to market. Last, it is important to evaluate these programs by tracking KPIs that measure both participation and effectiveness. Other new regulations related to cybersecurity, systems to manage software updates, and the use of Society of Automotive Engineers (SAE) Level 3 autonomous-driving capabilities could also make future vehicle performance parameters more complex. This requires that OEMs and suppliers shift their current development processes toward a cyclical, more integrated pattern and establish R&D steering approaches that connect software and hardware development along the entire life cycle of the vehicle. Tier-one suppliers should prepare for software-defined vehicles by building up software capabilities, developing new business models for software, and creating new collaboration models with suppliersfor example, working in joint agile teams. Similarly, the models will show if an aggressive budget or timeline can be made achievable by adding more resources. They assume that specifications will not change and that resources will be available when needed. To create our ten-year index of profit-growth stability, we calculated each companys relative-profit growth for every year between 2007 and 2016, then divided the sum of these values by their standard deviation. Moving from a conventional car to an automotive ecosystema kind of smartphone on wheelsrequires changes to the vehicles electronics and software architecture. By their very nature, FPs focus only on function and not the actual effort drivers associated with implementation and validation, thereby leading to inaccuracies of greater than 60 percent in more than 50 percent of projects that use FP-based estimates. Something went wrong. Across the globe, ten Design Labs support clients with design-to-value (DTV) efforts, including competitive teardowns, cleansheet costing, training workshops, customer and brand analytics, and idea generation. To be successful, players must resolve new technical and commercial challenges at speed as new business models and specialist players in hardware and software introduce established, nonautomotive products to the market. By maintaining a consumer-driven vision throughout the entire processfrom initial concept through transfer to manufacturingthe company was able to shorten the development timeline by 40 percent. Please try again later. The second was profit-growth stability, which quantifies the variability of profit growth over a ten-year period, again in comparison to the sector average. Jeremy Hope and Robin Frasier, Who needs budgets? Harvard Business Review, February 2003, hbr.org. This results in maximum impact from supplier relationships, using advanced programs to create integrated product and service life cycles. In a few of them, however, that fact was not widely known, suggesting that these companies were not using the metric as an active management tool. Beyond product-related improvements, this transformation should propel productivity and efficiency advances due to predictive maintenance or defect detection enhancements.