For companies that outperformed their sector, this index of relative-profit growth would be positive, and the better their performance, the higher it would be. Today, however, tech and digital product managers are increasingly the mini-CEO of the product. Measure your organizations product management maturity across five individual dimensions and four organizational dimensions compared with peers and best-in-class software companies. Absent a role that represents the voice of the consumer from inception through to completion, companies can end up with overengineered products that exceed cost targets and dont meet core consumer needs. Never miss an insight. Organizations must closely examine the product development cycle as an important part of optimizing a product to perform in a fluid, changing market. Find out how we work on site with clients to help them achieve long-term improvement and measurable, bottom-line results. 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. We also help companies develop and retain this crucialbut often overlookedtalent pool. That was the case for one former leader in the consumer-goods space that had lost 50 percent of its market share over the course of a decade-long slide. 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. The goal is to design a modular product architecture to ensure that different teams can develop modules independently from each other in an agile way. This architecture consists of a big-data stack in the backend, broad OTA capabilities, and a protected mode in the vehicle stack for in-vehicle simulations. The variable with the most significant negative correlation with short-term financial performance was budget adherence. design focus, and the evolution of software-development methodologies. Learn from top product professionals and thought leaders in a cohort-based learning program and get recognized with a graduation badge. The product-development process must integrate input from design, engineering, sales, marketing, procurement, and other functions. In the 21st century the attackers have the advantage, as the incumbents are burdened with legacy. Typically, little data consistency exists across systems, and stakeholders base their planning and steering on different versions of data. 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. are all secondary to speed of deployment and asymmetry. This new approach to product development isnt just a fadits the future. 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. 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. 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. This process leads to development blind spots, which in turn introduce unnecessary risk and inefficiencies. The specially appointed product manager led the creation of a new portfolio vision to differentiate the companys products from the sea of sameness that pervaded the marketplace. Unlock your team's curiosity and willingness to take smart risks. OEMs typically do not consider other items, such as revenues and costs for product or feature updates, in their R&D steering approaches. 1
In our analysis, we considered a company to be using a metric if it was cited by more than one-third of staff interviewed. Im a big fan of McKinseys Three Horizons Model of innovation. There are three keys to making agile product development work: structure, process, and people. For something so fundamentally important to a companys success, product development is notoriously tricky to manage. This means that OEMs must move from distributed architectures with ECUs for each specific functionality to a centralized architecture with the domain and vehicle computer abstracting hardware from software and the use of standardized interfaces. Built in a modular fashion, this program can be tailored to offer personalized learning journeys across different inflexion points in a product-oriented career. 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. Visit our Product Management & Development page, McKinsey_Website_Accessibility@mckinsey.com. Ironically, rapid Horizon 3 disruption is most often used not by the market leaders but by the challengers and new entrants (startups, ISIS, China, Russia, etc.). Know Your Worth. In another example, a company had a tight deadline to complete a new release for a big customer, with competitors vying for the work. They also want to integrate digital services into an automotive ecosystem that goes far beyond the conventional car to a smartphone-like experience. Horizon 1 ideas provide continuous innovation to a companys existing business model and core capabilities in the short-term. The average overrun is around 25 percent of the originally planned schedule. Mike Gordon is a senior expert in McKinseys New Jersey office, Marek Kowski is a knowledge specialist in the Wrocaw Knowledge Center, and Sander Smits is a partner in the Amsterdam office. 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. Taking the measure of product development | McKinsey DOWNLOADS Article (PDF-424KB) For something so fundamentally important to a company's success, product development is notoriously tricky to manage. Next-generation electrical and electronics architectures will require significant upfront investments that will pay off only in the following generation. The team also collaborated with end consumers, sales reps, distributors, purchasing managers, consultants, and internal stakeholders to pinpoint market trends and consumer needs. Sidebar About the authors Today's customers demand new capabilities in their vehicles. The involvement of many stakeholders creates a multitude of opportunities for even the most promising innovations to go off track. Strategies such as market penetration (e.g.
Product development is inherently risky and unpredictable: no plan survives contact with the enemy. This development is strongly integrated and will affect automotive suppliers in the same way. 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. It provides standardized processes for the product development process. McKinsey Study Supports Balanced Product Portfolio. For those who grew up with the notion that creative disruptive Horizon 3 products takes years are in for some unpleasant surprises. 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. Before development starts, the team examines CX insights and conducts mid- to long-term planning as it collects business and industry trends and user feedback. Accelerate your career with Harvard ManageMentor. 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. 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. These conversations helped the team align on product-redesign choices that not only met consumer needs, but also achieved cost targets. Modern CPG product development calls for a new kind of product manager. In a time of rapid innovation, we help clients leverage the broader supply ecosystem to drive process and product development.
This approach requires a top-down definition of general requirements with a strong focus on customer expectations and experience. We'll email you when new articles are published on this topic. This requires the introduction of a holistic systems-engineering approach combined with an agile organization and agile ways of working. This shift focuses on standardization by using IT components and systems via horizontally interlinked technical stacks instead of relying on integrated, embedded systems. This benchmark reveals areas of strength and opportunities to build capabilities for individual product managers and organizational changes to enable their development. Please try again later. Their initial project plans are sometimes no more than educated guesswork. leaders, deploying bespoke category strategies, and building innovative capabilities. In an effort to reverse course, the company appointed a team member to maintain organizational focus and promote a culture of consumer centricity. The breakthrough product brought in an estimated $50 million in incremental earnings before interest, taxes, depreciation, and amortization (EBITDA). Please try again later. Companies should focus their efforts on several areas. 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. This results in maximum impact from supplier relationships, using advanced programs to create integrated product and service life cycles. A multifunctional team undertook a series of workshops to brainstorm, align, and tactically plan key design choices across its product portfolio. After reading it, . Please try again later. In addition, companies must continue to prioritize innovation even as the pandemic puts pressure on budgets. In other words, they take into account not only the complexity of the project (both the functional and implementation aspects) but also the complexity of the team environment. More than three-quarters of companies in our sample made widespread use of product volume, revenue, unit cost, and time-to-market KPIs. This enables the reuse of software and individual purchasing of hardware and software, as well as the integration of OEM-developed software modules. 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. For companies, that means lower costs and lower risksa powerful combination of benefits to have in a highly competitive environment. Industry structure.
The company also expects to improve its margins by 20 to 25 percent. 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. Positioned at the intersection of a variety of functions, product managers must also have strong communication skills and diplomacy. Last, companies will have to rethink innovation and collaboration in remote-working team structures. 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. Product development should be ongoing, as many products can be improved based on what happens during their lifespan. 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. 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. LOG IN or SIGN UP TOP 5 Comments Consumer beliefs and preferences will continue to evolve rapidly, forcing companies to redouble their efforts to embed the voice of the consumer throughout the product-development process. These managers can speak the language of every function: they have the technical knowledge to engage in engineering problem solving, yet they think strategically enough to support the businesss goals. 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. Bringing automotive-product development into the 21st century is a difficult but necessary step if OEMs and suppliers want to remain competitive in the face of new architecture and software-centered challenges ahead. We're exploring the concept of 'skinny design' and its potential benefits for consumers, retailers, and the environment. Our work in product development includes developing, defining, and implementing strategies that . While traditional analysis suggests that Horizon 3 disruptive innovations take years to develop, in todays world this is no longer the case. Last, it is important to evaluate these programs by tracking KPIs that measure both participation and effectiveness.