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The seven principles of the latest Stage-Gate method add ...

The seven principles of the latest Stage-Gate method add up to a streamlined, new-product idea-to-launch process. B Y R O B E RT G . C O O P E R. 18 R MM March/April 2006 ave you ever wondered why The ADL study provides insights into H some companies make product innovation seem so easy gener- ating one big winner after another? Here is NPD productivity by industry. It looks at output (five-year sales from new products as a percentage of company sales) and a startling fact: New-product development input (research and development spending (NPD) productivity in the top performing as a percentage of company sales). One company is five times what it is in the startling conclusion is the difference in average company. The top performer gets productivity between top performers and five times as much new-product output for the rest, regardless of industry. On aver- the same investment, according to the age, there's an almost 1,200% difference Innovation Excellence Study 2005 conducted between the most productive (top 25%.)

18 MM March/April 2006 The seven principles of the latest Stage-Gate® method add up to a streamlined, new-product idea-to-launch process. BY ROBERT G. COOPER www.stage-gate.com

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Transcription of The seven principles of the latest Stage-Gate method add ...

1 The seven principles of the latest Stage-Gate method add up to a streamlined, new-product idea-to-launch process. B Y R O B E RT G . C O O P E R. 18 R MM March/April 2006 ave you ever wondered why The ADL study provides insights into H some companies make product innovation seem so easy gener- ating one big winner after another? Here is NPD productivity by industry. It looks at output (five-year sales from new products as a percentage of company sales) and a startling fact: New-product development input (research and development spending (NPD) productivity in the top performing as a percentage of company sales). One company is five times what it is in the startling conclusion is the difference in average company. The top performer gets productivity between top performers and five times as much new-product output for the rest, regardless of industry. On aver- the same investment, according to the age, there's an almost 1,200% difference Innovation Excellence Study 2005 conducted between the most productive (top 25%.)

2 By Arthur D. Little (ADL). For the rest of of companies on this metric) and least us, developing a steady stream of success- productive (bottom 25% of companies on ful new products is a real challenge. this metric). And in some industries, the difference is even greater. For example, Major Productivity Gaps the top 25% pharmaceutical companies The concept of productivity is simple: are 31 times more productive in NPD. the most bang for the buck. In product than the bottom 25%. What are these development, it is output (new-product high productivity companies doing so sales or profits) divided by input (research differently, and can your company learn and development or NPD costs and time). from them? 2000-2012 Product Development Institute Inc. Product Development Institute Inc. and Stage-Gate International are registered trademarks. EXECUTIVE Many businesses use the Stage-Gate process which this author introduced in 1988 to conceive, develop, and launch new products.

3 As proficient companies have implemented, mod- briefing ified, adapted, and improved the methodology, it has morphed into a faster, leaner, and more effective tool. The next generation process, or NexGen Stage-Gate , builds in seven principles of lean, rapid, and profitable new-product development to maximize productivity in product innovation. Maximizing Productivity ent from relying on the salesperson or product manager to seven key principles of lean, rapid, and profitable NPD are speak for the marketplace; such information is often filtered, common denominators of high productivity businesses in biased, and incorrect. The result is that the customer becomes product innovation. They are very much fact-based and were an integral part of the entire process: scoping, product defini- uncovered in benchmarking and best practice studies of top tion, development, validation, and beyond.

4 Performing companies. These principles were developed from Front-end loading. Due diligence in the early days of a a long tradition of solid research, culminating in the most project pays off; just ask a venture capitalist. A good dose of recent American Productivity & Quality Center (APQC) study the right up-front homework pays for itself tenfold, saving of best practices in product innovation. Our research shows time and producing higher success rates. Smart managers that companies or project teams that employ these principles demand such preparation on projects: fact-based market, tech- achieve superior performance results, and that poor perform- nical, and business assessments. This homework is not exces- ers tend to ignore them (see Exhibit 1). Integrating the follow- sive; rather, it yields just enough vital information for making ing principles of NPD into your new-product methodology the go-to-development decision, and for sufficiently defining results in a next generation idea-to-launch process, or NexGen the product and project to proceed.

5 It's also instrumental in Stage-Gate . ( Stage-Gate is a registered trademark of the generating a winning product. Product Development Institute Inc.) Spiral development. Things change. Often a team charges Customer focused. Developing and delivering new prod- into development with a product definition based on informa- ucts that are differentiated, solve major customer problems, tion that was right at the time, or thought to be right. But it and offer a compelling value proposition to the customer are the top drivers of NPD success and profitability. The prod- I Exhibit 1. uct or service must possess a wow fac- High productivity businesses practice the seven NPD principles tor or a little excitement, something that is missing from most new products. But 1. Customer focused conceiving such a product seems beyond 69%. the reach of many companies. Indeed, a 2.

6 Heavy front-end homework major reason for the decline in NPD before development begins productivity is that many company pipelines simply lack stimulating and 3. Spiral development loops with genuine new products. Instead, they are users throughout development focused on tweaks, modifications, and extensions with little real competitive 4. Holistic effective advantage. cross-functional teams 58%. The quest for unique, superior prod- 5. Metrics, accountable teams, ucts begins with a thorough understand- profit/loss reports for ing of the customer's unmet and often continuous learning I Low productivity businesses unarticulated needs through in-the- 9% I Average productivity businesses field, voice-of-customer work. This means 6. Focus and porfolio management I High productivity businesses that the entire team technical, market- ing, and operations people interviews 7.

7 Lean, scalable, and adaptable Stage-Gate process 54%. and interfaces with real customers/users, and learns their problems, needs, and Source of data: APQC study 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%. challenges firsthand. This is quite differ- Percentage of businesses 2000-2012 Product Development Institute Inc. Product Development Institute Inc. and Stage-Gate International are registered trademarks. I Exhibit 2 itability results for the entire company are missing. Spiral development Without metrics, teams can't be held accountable for results and continuous learning and improvement is A series of build, test, obtain feedback, revise iterations or loops next to impossible. Top performing companies establish metrics: They measure how well individual projects perform by Build Test and business validate building post-launch and gate reviews into their idea- case to-launch processes, and hold teams accountable for delivering promised results against these metrics.

8 Gate stage 2 Gate stage 3: Development Gate stage 4. 2 3 4 When gaps, difficulties, and weaknesses are identi- fied, they hold problem solving sessions focusing on the causes, and identifying corrective actions to stop recurrence. In this manner, continuous learning and improvement become an integral, routine facet of the development process: Every project is executed User Full prop Rapid First Next Field better than the one before. needs and concept protocept protocept protocept trial, wants test and test and test and test beta test Focus and effective portfolio management. Most study companies have too many development projects under way, and often the wrong ones: They fail to focus, spreading their resources too thinly across too wasn't, or the market shifted, or a competitive product was many initiatives, and their portfolio choices result in the introduced.

9 And when the product is developed, it isn't quite wrong mix and balance of projects. Consequently, there are right for the market. Smart teams practice spiral development. too many low-value projects and they take too long. They create the first version of a product (perhaps a virtual Development projects are investments and therefore must one) and test it with the customer, seeking feedback. Then be carefully scrutinized and focused through an effective they use that feedback to produce the next, more complete portfolio-management system. This is achieved with a funnel- version maybe a working model or protocept. These fast- ing approach: Start with many solid new-product concepts, paced teams remove unnecessary work and quickly move to and successively remove the weak ones via a series of gates. finalized products, by forming a series of these iterative steps This results in fewer projects, but ones with higher value to or loops: build, test, obtain feedback, and revise.

10 The loops are the company and a significant improvement in productivity. built into the entire process, from scoping through develop- Adequate project resources also must be in place. Securing ment and into testing. When sketched on a flow diagram, they these is partly the result of an effective portfolio-management appear as spirals (see Exhibit 2). system, which ensures that the pipeline isn't overloaded. A holistic approach. Product innovation is very much a Planning is another facet of correctly pulling together business function (not a research and development activity) resources: accurately estimating the resource requirements, and a team-based endeavor. The core team, an effective cross- projecting how long key tasks will take, and preparing an functional group, is the No. 1 key to reducing cycle time and effective go forward plan. Finally, the needed resources.


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