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The speed of bringing new products to market is no doubt one of the single most important factors that will determine the success or failure of a company. At one time, Hewlett Packard (HP) took 54 mos. to develop a new computer printer. This was reduced to 22 mos. to develop its first inkjet printer, and then 10 mos. for its first color DeskJet printer. Intel has reduced the time to introduce a new personal computer motherboard from 12 mos. to only 6 mos. No matter how good your products are, if you introduce them to the market later than your competitors, you won't be able to demand a premium price, and in many cases it’s one of the most common factors that cause the downfall of a product. Therefore, being first to market and frequently introducing new models will obviously lead to the domination of a particular product family in this digital world. Studies show that the first product in the market will gain about 60 to 70 % market share. Due to today's rate of change, if you take too long to finish a new product, it may just become obsolete. Speed is one of the few competitive advantages you have. -- Speed is life! -- A study by HP showed that when they were a month late to introduce a new computer to the market, they would lose about one-third of the total product sales-which would eliminate any profit for that product. They also found that they could actually spend up to 25 % more than originally budgeted to develop the product, and it would only affect profits by a few %age points, so long as they met the target market introduction date! In other words, speed is more important than development cost in this market. Another example is the introduction of new handheld computers. In early 2000, HP introduced Jornada, which came with a black-and-white screen, compared to Compaq's iPaq, which had a brighter, color screen, a faster processor, and better performance (this was before HP bought Compaq). But at the end of year, HP had sold 350,000 units more than Compaq, which had sold only 90,000 units in the same year. The main reason: Jornada was introduced six mos. ahead of iPaq. Let's look at a typical cash flow in a product life cycle. A product development project usually starts at the concept and planning stage. At that time, most of the spending is applied to the feasibility study of a product, the study, and some mock-ups. These are only small in vestments. Once the project is approved, it enters the implementation stage, where the bulk of your investment is spent. These expenditures include (but are not limited to) equipment and production setup costs, prototype sample build (which normally are more expensive than the high-volume production build), the ordering of materials, the testing and evaluation cost of the new products, and the qualification cost (both internal and by customer). The product will start to generate income only when it enters the mass production stage, when you start to sell the product in quantity. Note that the money spent before the product is produced in quantity is your total investment. This is represented by area A in the diagram. When you have sold enough product to recover that investment, you have reached the break-even point. All revenue received to the right side of this point contributes directly to profit. The final point on the diagram is the extinction of the product, its end-of-life. At this point, you stop production, scrap any unused raw materials on hand, and set aside re placement parts to service units already sold. The longer the mass production stage, the bigger the sales quantity, and the bigger the profit. -- Cash Flow Analysis of a Product Life Cycle-- --Cumulative Cash Flow over a Product Life Cycle-- When we look at the cumulative cash flow (Ill.2), the maximum risk is prior to production, when you have in vested in the production equipment and started to bring in raw materials for production. When the production quantity increases, the new product development project is now ready to enter its closeout stage. However, the product has not yet achieved break even. The breakeven point for the product is in the middle of the mass production stage, after the product has generated enough income to cover the total development cost. At this point there is not much the project team can do except to change the cash flow conditions. However, the cash flow conditions can be greatly improved if the project is completed earlier. This is shown in Ill.3. When the development cycle is shorter, the new product is introduced to market earlier, the product price can be higher, and the production quantity will be greater: that means more market share and more profit. Furthermore, the breakeven point will be earlier. Under these conditions, due to the shorter development cycle, the project team will have a better project focus, which will result in a higher "hit rate" (the project is more likely to achieve all its targets). Thus, a shorter development cycle will lead to a number of financial benefits, such as lower risk, better cash flow control, an earlier breakeven point, and higher ROI. --Cash Flow for Reduced Development Time CASH FLOW Shorter throughput time and earlier market introduction = Higher hit rate; Better project focus; Higher market share; Higher market price; Shorter throughput Longer production time; - The benefits of reducing the development time are obvious. Early new product introduction not only enhances the pricing position for the product and increases market share, but also creates additional cost advantages as a result of the early manufacturing learning curve. Because of this learning curve, production can be gin efforts for continuous improvement before the competition, which also leads to higher profits (Ill.5). Product price inevitably must be reduced because of competition, so the earlier one introduces a product compared to your competitors, the easier it’s to lower your production cost and maintain your profit margin. This is a big advantage. On the other hand, if one enters the market late, one has to lower your price to gain market share, but when your competitors lower their price in response, one will have little room to maneuver. [ One way to reduce the development cycle is through effective project management.] -- Financial Benefits of a Reduced Development Cycle-- -- Advantage of Early Product Introduction -- THE NEED FOR EFFECTIVE PROJECT MANAGEMENT Many companies have found that adopting sound project management methods allows them to introduce products faster than their competitors. Formal project management be comes a standard way of working, where innovation and new product development are the primary activities. However, few companies consistently produce good results. Many of them have won the race for one or two products but were soon left behind in other areas. To be successful in the new digital race, where product life cycles have become shorter and product families are quickly replaced by new technologies, companies need to organize themselves differently than in the '80s and ''90s. To consistently be first-to-market (FTM), a company must establish an environment for total project management, which includes developing business processes that will foster the success of project management. Successful projects depend on more than just improving project execution. Both internal and external factors influence a project, and many are beyond the control of the project team. Studies have found that the most common causes of project failure are: 1. Frequent change of specifications/ project scope. 2. Unclear project goals. 3. Unclear roles and responsibilities. 4. Inadequate estimation of required human resources and efforts. 5. Inadequate project monitoring and control. 6. Inadequate project management skills. 7. Inadequate risk management. 8. Poor project planning. 9. Staff turnover that affects the project. ROLE OF SENIOR MANAGEMENT [ Senior managers must create the conditions needed for projects to succeed. ] These factors must be addressed if formal project management is to succeed. The role of senior management is to create the best possible conditions for projects to succeed. To win in this lightning fast digital race, one must set your direction; start with formulating your vision for the company. The vision should establish the strategic direction of the company for years to come. It will allow one to decide which market you wish to conquer and to develop your long-term product strategy to dominate this market. Your team will turn your clearly defined strategy into an actionable product roadmap, and new product projects will then be realized through the new product introduction process, and its supporting processes, the platform and building blocks development processes. In addition to these internal business processes, it’s also important that one develops strong cooperation with your key component suppliers in developing new key components or new technology (this is called the early supplier involvement process). The strong link between product, production processes, and equipment architecture will enable one to ramp up your new products in a fast and reliable manner. Again, the tactic is not just improving project execution, as many books have suggested, but also to create best processes and an environment in which project teams can excel. So what are the optimal conditions for the project team? This is a difficult question. It depends on the maturity of the organization itself. However, it covers the following general areas:
1. Management's Attitude toward Projects One day after the company's strategic product planning meeting, the project management office (PMO) manager asked the general manager, "Since we have set priorities for the top six projects in the company, and have allocated re sources accordingly, I suggest we cancel the six non-priority projects still on the priority project list. These projects are not critical to our product roadmap, nor have they received any firm project commitment from the project managers. Hence we should cancel them so that the project teams have a clear direction." The general manager replied, "Oh no, let's just leave them on the priority list. The engineers can just do these projects in their spare time. Maybe we just don’t push them to complete projects per the project plan." This is not a fabricated story. It happened. Senior managers are sometimes unaware of the implications of their decisions. If there is no clear direction on priority and importance of a project, the agreement to allocate resources by the next-level managers and the commitment by the project team members will never be secured. The end result may be devastating. One could guess that, after this conversation with the general manager, the projects did continue but none of the "priority projects" were completed on time, nor did any of the nonpriority projects ever get moving, as the general manager had wished. Senior management's role in setting the right conditions for projects cannot be overstated. There are a few important tasks that senior managers cannot delegate to the next-level managers, and prioritizing projects so that they support the strategic direction for the company is one of them. Following are the project responsibilities of senior management: _ Project priority: Define clearly the priorities of active projects and the top three to five must-do projects. This creates a sense of urgency and importance for the respective project teams and the whole company. However, don't overdo it. No organization can focus on more than five projects at the same time. Review and update your priority list at least every six to nine mos. _ Adequate resource allocation: Allocate the resources and budget for each project. You don’t expect free lunch in your business dealings, right? So you will have to invest your resources into the project before you can gain a profit in return. _ Management milestone review and approval: If you don’t care, no one will. One must lead by demonstrating attention to the progress and success of the projects. _ Approval of the alternatives: When a project is in trouble, the team will come up with suggestions and an alternative plan. To show your support and endorsement of their actions, you must seriously review the alternative plan-and approve it if you agree with it. _ Closeout of the project: Time to assess and learn from the project-and ideally to celebrate success. This is a way of encouraging the heart that motivates the team for future success. Another important role for senior management is to state clearly what they want in the product roadmap. It’s not uncommon in the middle of project execution for management to say, "We need these new features and functions to be included in this product. If we don’t include them, we won’t be able to sell it." While this may be true, management typically underestimates the degree of delay that such changes cause. Not only does the project team have to work on the new features and functions, but they also have to re work what they've already done. This will cause a longer de lay than just adding in the new features and functions. More importantly, management has missed two important improvement opportunities: 1. To examine why these features and functions were not included in the product roadmap in the first place, and how to prevent this from happening again. 2. To discover the root cause of the project delay. Since there were many new requirements and features added along the way, there is no way the project team can know if the delay was due to the project team or to the additional new requirements. There is often a disconnect between engineers and senior managers, which is illustrated by a story widely circulated over the Internet. A man in a hot-air balloon realized he was lost. He reduced altitude and spotted a woman below. He descended a little and shouted, "Excuse me, can you help me? I promised a friend I would meet him an hour ago. I am late but I don't know where I am." The woman below replied, "You're in a hot-air balloon hovering approximately 20 ft. above the ground. You're between 40 and 41 degrees north latitude and between 59 and 60 degrees west longitude." " You must be an engineer," said the balloonist. "I am," replied the woman, "How did you know?" "Well," answered the balloonist, "Everything you told me is technically correct, but I have no idea how to make use of your information, and the fact is I'm still lost. Frankly, you've not been much help at all. If any thing, you've delayed my trip." The woman below responded, " You must be in management." "I am," replied the balloonist, "but how did you know?" "Well," said the woman, " You don't know where you are or where you're going. You have risen to where you are due to a large quantity of hot air. You made a promise which you've no idea how to keep, and you expect people beneath you to solve your problems. The fact is you are in exactly the same position you were in before we met, but now, somehow, it's all my fault." 2. A Clearly Defined Product Strategy and Roadmap Another key role for management is to set a clear product roadmap with specific key features and functions. This is very important, as the roadmap provides a clear direction for the project as well as the technological advancement required for future projects. When a company lacks a clear strategy on the type of products it wants to produce, or its schedule to introduce new products, it becomes a follower of other companies or market leaders. This leads to poor product roadmaps and smothers the impetus for key technology breakthroughs. So the company lags in developing new technologies, or relies on cooperation with key suppliers to develop more cost-effective solutions. This leads to delayed product introduction and further losses to the competition. At the same time, the company is pressured to speed up project development. However, due to the delays, the project teams are forced to work on unrealistic project schedules. More short-cuts and trade-offs lead to more rework. This delays projects even further. As a result, projects are always late, and late-to-market becomes a norm. This leads to poor product strategy-and more poor product roadmaps. The whole vicious cycle starts again, a vicious cycle that only strong management determination and action can break. 3. Critical Component Planning and Development (External and Internal) With a clear product roadmap, many of the key features and functions based on new technologies or new key components are now defined. This gives the team more time to prepare for the development of these components. While most companies prefer to develop new technologies and key components themselves, this may not be the optimal approach. To win the digital race, where technology change is swift and product life cycle is getting shorter, it’s better to let the experts develop the new technologies while you leverage them to develop your products. However, this is easier said than done, especially if you have to cooperate with your key component supplier to define a future technology that is important to you but does not yet represent a clear market for your suppliers. Identify key suppliers who are willing to be your long-term partners to create a win-win situation. Developing a product internally is challenging, and developing a product with a supplier could be even more challenging because of different organization structures, culture, and approaches. To overcome these difficulties, a focused team will develop a technology roadmap with the commitment of its suppliers. Nobody can see much beyond three to six mos. Longer duration projects often get into trouble. 4. Right-on-time Projects [[ The problem with common sense is that it isn't common. -Mark Twain ]] Big projects violate organizational physics Think about this: if one has 200 strong developers, does one want to commit to a two-year-long project that takes up more than 30 % of your resources and have no deliverables until two years down the road? No project team can predict accurately much beyond 6 mos. A project team in general is capable of listing all the tasks required for the next 3 to 6 mos. to accomplish the deliverables as com mitted. Anything more than 6 mos. will just be an educated guess. Anything beyond 12 mos. will be just a wild guess. Short projects (3 - 6 mos.) with value-added deliverables and clear quality requirements (for each deliverable) will help to ensure that the projects are accomplished right on time, every time. This seems to be common sense. But, as Mark Twain once said, the problem with common sense is that it isn't common. Most people prefer big projects so that they will have a big forecasted profit. Big projects also make people feel important. The reality is that these big projects are seldom on time and the budget is almost always overrun. The biggest problem is that the completion of the project is only a best guess to which no one is ever seriously committed. No one can really tell you what must be done a year or two down the road. Especially when technology is changing daily, a long and/ or big project lacks flexibility and can hardly be modified along the way. That is why some big, successful companies like CISCO have no projects longer than 90 days as a matter of policy. This, however, does not mean that you don’t have a clear product strategy for more than six mos. What it re ally means is that you need to scope, manage, and prioritize your projects differently. You need to break big, long projects into smaller projects that have clear value-added deliverables. There are many advantages of this practice: _ Smaller projects take up fewer resources and are focused on the value-added deliverables. _ Due to the short lifespan, there is little or no chance for changing the specifications/requirements, which were determined and committed to up-front. _ The team is clear about the requirements and tasks necessary to complete the project and is therefore more committed to making the project successful. _ Overall product strategy can be made more flexible to combine the many value-added deliverables from the smaller projects into one product or several products to suit market needs, leading to a faster development cycle and time-to-market. _ As the duration is short and deliverables/objectives are clear, it’s much easier to manage and reward the team. Thus team morale usually remains high. 5. Systematic Project Management Structure With many smaller projects running at once, one needs an overview of their progress. A management overview is essential for one to provide the support when needed and give a small push when projects lag. This is always part of senior management focus, especially when your company's future is heavily dependent on the success of these projects. The innovation project office (IPO) (in the United States this is commonly called simply the project office) will provide the metrics to monitor the health of the projects and acts as a key link between strategy and implementation. The IPO provides an early warning before the project veers out of control, and it looks for possible alternatives to make necessary adjustments. The IPO provides the following added-value services: a. An overview of project progress b. Project deliverables management (bridging the gap of the product roadmaps) c. The reallocation of short-term development re sources d. Establishing and maintaining PM standards, methods, and templates e. Turning lessons-learned in each project into knowledge for future projects f. Providing project management training to improve the effectiveness of projects g. Assessing project management maturity of the organization and executing improvement actions 6. Planning and Competence Building While setting the conditions for your team to excel, one also want to set up the basic structure that will enable them to communicate, discuss, and resolve problems. The technical experts are always the most important and scarce resources in the company. Making the best use of this talent is the most difficult part of managing resources. Most organization structures are either full-functional or matrix. These structures don’t provide the best possible conditions to fully utilize scare resources. In many companies, technical experts are tasked to head a functional department where half of their time (if not more) is spent in administrative paperwork. Nowadays, many successful companies have grouped all these functional experts as a "resource center" (Philips calls it the Innovation staff) with specific expertise (product development, process development, engineering, quality validation, logistics, cost calculation, etc). The project draws resources from the resource center, as defined by the project plan and schedule. The re source center is responsible for building up the technical competence of the Innovation staff and delivering the right technical solutions. Based on the long-term product roadmap, it also manages the department's capacity to meet long-term project requirements. Technical councils--e.g., quality council, software development council, etc.--are formed to align technical aspects of products and design principles, and to enforce basic design rules. Project managers are responsible for developing processes and integrating technical tools, such as FMEA, into project execution and control. -- Functional and Matrix Organization Structures -- A resource center brings about a major change in the role of functional managers. It supplies professional engineers to work on the project. The process, integration of the roles for specific functions (such as quality and software development), project plan, and budget are the responsibilities of the project team. The quality engineer, For example, is responsible for carefully reviewing the quality requirements of the project and formulating actions to prevent problems. The quality engineers then prepare a quality plan for the project team to review. To support the quality engineers, there should be a quality council to provide technical expertise for issues that the engineer is not capable of handling, or that need a senior engineer's advice. Senior quality professionals head the quality council, and this forms part of the resource center's plan to build up technical competence. However, the quality council should not be involved in the project directly, nor should it try to control or resolve specific project problems. The council reviews and challenges the design to en sure that design principles are sound and basic design rules are followed. As such, it remains accountable for the robustness of the technical solutions. The same approach applies to other disciplines as well. This has been found to be the best way to fully utilize experts in their respective specialized fields. |
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