Expanding product complexity in the form of more control units, more software, and complex distribution functionality makes it difficult to attain high product maturity levels across product development processes. The model described innovation occurring on three time horizons: Each horizon requires different focus, management, tools, and goals. leaders, deploying bespoke category strategies, and building innovative capabilities. This is extremely difficult for large companies or government agencies as it is as much a culture and process problem as a technology problem. Freeing teams from strict budgetary limits may lead to product designs that perform better in the market. When we looked at profit-growth stability, however, a different picture emerged. Learn how to build slide decks like McKinsey Overview Overview 9.2k Reviews 257 Jobs 16k Salaries 4.7k Interviews 2.6k Benefits 88 Photos. Traditionally, OEMs and suppliers steer their product development activities without the support of a single source of truth. Instead, they rely on scattered data lakes and data systems for the most important product and cost data, including product specifications and features, material costs, R&D costs, capital expenditures, and other data. McKinsey & Company Account Executive - Salt Lake City Salt Lake City, UT Easy Apply 30d+ McKinsey & Company Senior QA Engineer United States 30d+ McKinsey & Company Senior Director of Software Engineering United States 30d+ Orpheus elevates the focus of spend analytics to guide procurement strategy development and execution. Companies must nurture a culture that emphasizes and supports the following ways of working: A key challenge for organizations is to identify the right talent. Consumer research takes place early in the product development process, yet many consumer-goods companies then shift their focus internally to R&D and engineering and can lose the critical connection to consumer insights. A modern product manager fills both organic and inorganic gaps between team functions, providing connective tissue and promoting a much higher level of collaboration and alignment. 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. Healthier teams may be better-equipped to regroup and produce good results, project after project, year after year. This enables the reuse of software and individual purchasing of hardware and software, as well as the integration of OEM-developed software modules. New rules for automotive product design and development | McKinsey DOWNLOADS There's a riptide cutting through automotive-product development, and it's forcing OEMs and suppliers to reoptimize their product development processes and R&D operating models. And if it cant, the company can run what-if analyses to evaluate the impact of dropping certain features or simplifying performance requirements. The risk here is that copying innovation without understanding the customer problem can result in solutions that miss the target. Filter your search results by job function, title, or location. For those who grew up with the notion that creative disruptive Horizon 3 products takes years are in for some unpleasant surprises. Larger development teams are less productive than small ones, for example, as they must expend more effort on internal coordination and communication. The systems landscape and data backbone must feature a common product structure that enables end-to-end steering from a systems perspective for team leads and department leads, all managed by the R&D controlling staff. By Mike Gordon, Marek Kowski, and Sander Smits, Taking the measure of product development. 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. The majority also have metrics in place to measure the reliability of their manufacturing operations. The COVID-19 pandemic has further complicated the development of consumer products. procurement functions leverage the power of analytics. LOG IN or SIGN UP TOP 5 Comments In our work on strategic product efforts for consumer-goods companies in recent years, we have found that specially appointed product leaders made a significant impact. The team also collaborated with end consumers, sales reps, distributors, purchasing managers, consultants, and internal stakeholders to pinpoint market trends and consumer needs. The mindset change to the agile model becomes core to the entire organization and all communications. Over a ten-year period, the benefits of tracking product-focused metrics disappeared, suggesting a different focus becomes increasingly important as time passes. Our dataset comprises 42 companies, for which detailed data on product-development metrics and financial performance was available. Thats no longer true in the 21st century and leadership hasnt gotten the memo. By themselves, metrics arent a solution to product-development challenges, but the key performance indicators (KPIs) companies use do show where management is focusing its attention. Engineering intuition tends to be linear, while the cumulative effect of increasing performance, features, and quality is highly nonlinear. It is not the same as the conventional list of competencies used to assess employees; instead, it should reflect the organizations strategy and priorities. 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. For example, cost and margins can overshadow other development considerations and appear inherently at odds with the design and consumer departments, which seek to create differentiation and delight end users. Find out how we work on site with clients to help them achieve long-term improvement and measurable, bottom-line results. 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. Startups are born betting it all. By interacting with all partners in the product-development process, the product manager helps to spur collaboration and knowledge sharing. 2. This in turn will allow them to provide agile teams with high-level inputs and boundary conditions. With warning of such resource bottlenecks, it can take appropriate actionadjusting the schedules to separate the peaks in demand, bringing in contractors, or outsourcing part of the work. 1 And they must understand how new products will fit into their existing portfolio, and how they stack up against competitor offerings. But for practical reasons, the only useful factors are ones easily measured, consistently gathered, and known early enough to drive budget and planning decisions. The results of this effort reinforced the value of identifying a product manager to guide the development team and experts through the process. As partners and suppliers play an ever more important role in product-development and innovation activities, a systematic approach to developing these relationships provides benefits in both the short and long-term. In practice, of course, such problems do affect almost every project. This should include a concrete, actionable description of what the organization wants and expects from its product managers. Companies can use waterfall practices to define the overall vehicle and domain architecture. The offering is a powerful combination of Orpheus advanced platform technology with McKinseys industry experience and content-rich services in digital procurement. Moreover, those projects were almost as likely to suffer an 80 percent overrun as they were to finish on time. From electrification and autonomous driving to digital services and connectivity, a massive number of innovations are on deck today, expanding the innovation pipeline. 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. Top-down micromanaging can prematurely squash promising ideas, devalue necessary iteration, and demotivate otherwise highly engaged team members. The overall results: time-to-market for the new products dropped by 40 to 60 percent, margins improved by 6 percent in the first six months after the sprint, and market share is on track to rise by 8 to 10 percent within the next two years. Weve spent more than a decade investigating the root causes of R&D scheduling and budget challenges. 1. 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. Procurement Interview. 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. When embarking on efforts to design complex things, companies often have little idea how long a project will take, what it will cost, or what they'll finally be able to deliver to the end customer. Never miss an insight. Successful product development requires teams to engage with experts across disciplines while aligning four critical development lensesbusiness, design, consumer, and technical (Exhibit 1). The product manager is well positioned to guide this process as a scrum master would, leading frequent iteration and collaboration across company stakeholders. The team then structures and breaks down the requirements along the reference system architecture. Consumer-goods companies face a unique set of challenges. This approach requires a top-down definition of general requirements with a strong focus on customer expectations and experience. 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. OEMs have an opportunity to redefine their performance regarding R&D hardware and software costs. To estimate the correlation between each organizations KPIs and its overall financial performance, we created a new metric of our own, taking the companys profit growth for the year after its participation in the Fingerprint and subtracting the average profit growth for companies in its sector. In this approach, the OEMs CX team is involved in the entire R&D process, from the initiation of the project to SOP and life cycle management. We are continuously seeking the best talent at all levels and for all types of roles, and are particularly keen to talk to experienced professionals looking for their next challenge. Beyond participation in the vehicles initial sale, OEMs need to cultivate a true life cycle experience with multiple car and noncar touchpoints per month. Sidebar About the authors Today's customers demand new capabilities in their vehicles. Automotive OEMs are undergoing an essential transformation from experience-based engineering toward data-driven, virtual engineering. The first root cause is underestimating the complexity of the project. It was more of a behavioral interview. One global consumer-goods company had lost its position as a market leader because of a lack of innovation, a recently failed launch of a critical product, and decreasing margins in an increasingly competitive market. By Arjun Balaji, Raghavan Janardhanan, Shannon Johnston, and, How predictive analytics can boost product development. Unlock your team's curiosity and willingness to take smart risks. The projects planners arrived at this estimate on the basis that 90 percent of the new design would be carried over from its predecessor. It is important to note, however, that while this strategy will generate additional revenues, it will also create additional costs. Instead, companies are now exploring a holistic product development approach that optimizes the total cost of ownership (TCO) or the product business case over the entire vehicle life cycle, including sustainability-related costs. 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. They made limited use of testing fleets or static hardware-in-the-loop or software-in-the-loop testing environments. McKinsey research has found that more than 40 percent of companies arent talking with end users during product development. Where in the past automakers had to contend with patchy customer relationship management (CRM) data and limited sales lead analytics, this new approach provides full access and the full use of customer data through advanced analytics. The goal is to improve the product by developing new features (such as SAE Level 4 and Level 5 autonomous-driving capabilities) and increase R&D efficiency. Thats important, because widespread knowledge of a metric indicates that the company is using that indicator actively as part of its performance-management processes. We also wanted to look at the relationship between product-development metrics and profitability over the longer term. 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. As shown in Exhibit 1, OEMs and suppliers need to manage several game changers and shift their mindset to be competitive in future automotive-product development: Automotive manufacturers and suppliers are moving from a strong hardware focus to a functional one, and many are changing their operating models to a systems-based development approach. They play a variety of roles, using a broad base of knowledge to make trade-offs, and convene cross-functional teams to align diverse functions. McKinsey suggested that to remain competitive in the long run, a company allocate its research and development dollars and resources across all three horizons. When they reevaluated the plan using analytic models, they found that the project would actually take three or four times as much effort. The predictive analytics models showed that with the companys current resources and project plan, it was going to miss its delivery schedule by 50 weeks. Likewise, the approach applies iterative and incremental development processes to hardware and mechatronics development, synchronizing them with top-down planning. One element of the diagnostic involves structured interviews with staff from all parts of the R&D function, who are asked about the metrics their organization uses to monitor product-development activities. Across industries, innovative ideas and enabling technologies are increasingly likely to come from outside the organization. It was not that tough. 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. A total-cost-of-ownership approach, including considerations of. In practice, every company we surveyed was collecting data on budget adherence. Automotive OEMs and suppliers need to adapt quickly to maintain their R&D competitiveness in areas including time to market, cost, quality, and new-feature rollouts. Never miss an insight. This emphasis on building brand equity marked a critical juncture in reinvigorating the companys approach to product development. The goal is to achieve customer-centered product development with integrated feedback from customers in short iteration cycles, where the voice of the customer sets the pace for the product development process. Led teams of up to eight consultants in growth strategy, marketing & sales, and technical product . One possible explanation for this finding is that some organizations are sacrificing long-term performance in the pursuit of short-term objectives, for example by working hard to get the next product into the market without sufficient attention to the development of a broad portfolio, or to the technologies and strategies that will underpin future product generations (Exhibit 1). The team concentrated on three priorities to build momentum: use a design-to-value approach to improve the margins of two key products by 20 percent, use this margin creation to self-fund an innovation engine, and develop a growth strategy to take advantage of white space in the market. The approach anchors the responsibilities for prioritization, architecture, road maps, and commonality on each system level, driven by strong decision making in the project organization. They assume that specifications will not change and that resources will be available when needed. Process. We'll email you when new articles are published on this topic. 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. Accelerate your career with Harvard ManageMentor. Developing a set of models, then, relies on an array of advanced analytics, machine learning, and artificial-intelligence techniques to predict the complexity and required development effort and schedule in a reliable way. In our experience, the most effective product managers look to orient new product development around a consumer-first focus, connect different functions, and facilitate an agile process (Exhibit 2). Direct customer interactions or feedback remain rare and limit the voice of the customer in important product decisions. It also means greater use of more sophisticated microprocessors instead of embedded microcontrollers to boost performance, reduce power consumption, and centralize control. Other important key performance indicators and business case dimensions include R&D costs, capital expenditures, variants-based complexity costs (for example, testing and validation and integration of life cycle maintenance), and sustainability costs (including CO2 penalties). We believe consumer-goods companies can gain insights from how the product-manager role has emerged in the tech industryand, increasingly, in digital companies outside of techto solve persistent challenges in consumer-product development. Product managers in the consumer-goods industry tend to fit a more traditional profile, with a focus on project management and tactical execution. Spurred into action by the finding, the company took steps to reduce the complexity of its design and prioritize the scope of the effort, resulting in a project that met the customers minimum requirements and could be delivered on time. Last, it is important to evaluate these programs by tracking KPIs that measure both participation and effectiveness. Regional regulations and the cybersecurity ecosystem will in part enable this change. The risk here is that the mismatch of culture, process, and incentives may strangle the newly acquired innovation culture. Please email us at: McKinseys new weekly newsletter, featuring must-read content on a range of topics, every Friday. Likewise, the line organization reflects competencies and module ownership to optimally support the delivery organization and safeguard component and system communality. And they should think about their people, understanding team morale and working to address the issues they find. Please email us at: World Economic Forum: A preview of Davos 2023, Author Talks: The worlds longest study of adult development finds the key to happy living, The executives guide to new-business building. Critically, top management must actively drive this change. In the second step, players need to prioritize their efforts and set up a transformation office to drive change. The adoption of these capabilities will also be pushed toward suppliers. 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. 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. OEMs must transform their approach to product development steering to focus on cost and revenue optimization over the entire vehicle life cycle as shown in Exhibit 3. 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. Elements of these include the data backbone; the backend or big-data stack; in-vehicle architecture; technology such as machine learning algorithms and simulation techniques; and governance, including data governance, legal framework, and consent management processes. Instead, they should ensure that product-development teams arent shackled by budgetary constraints, leaving them sufficient freedom to take risks, alter course, and pursue ambitious innovation. 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. We correlated the use of selected metrics with two measures of financial performance. The new service will enable spend transparency, spend and cost analytics, and value-capture management. Please try again later. The larger and more stable a companys profit growth over the analysis period, the higher this figure would be. Story points, by their nature, are qualitative and team specific, making estimation difficult when multiple teams are working on the same release. This makes intuitive sense, as understanding your customers real requirements, delivering on your promises, and offering strong value for money are good ways to build reputation and customer loyalty.