Breakthrough innovation in product development requires the rigorous engagement of all functional lenses throughout the end-to-end process. 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. The average overrun is around 25 percent of the originally planned schedule. In part, thats because R&D activities require companies to juggle so many dimensions. Companies that measure their effort to identify and exploit external innovation are more likely to get better at it. This role combines the orchestration of an agile scrum master, the insights of a data scientist, and the consumer centricity of a design lead. Learn how we work intensively with clients across all industries and topics to improve performance and produce results: rapid, significant, measurable improvements in productivity, cost, quality, sales, and other metrics. AirBnB, Uber, Lyft, Craigslist, SpaceX, and Tesla are examples of Horizon 3 disruptions using existing technologies and deployed in extremely short periods of time. OEMs and suppliers create a network of cross-functional, empowered teams. Cleansheet analyzes a products underlying cost structure to help organizations establish cost transparency, set target costs, and capture savings. Horizon 3 is the creation of new capabilities and new business to take advantage of or respond to disruptive opportunities or to counter disruption. They want advanced autonomous-driving features, for example, and new personalization and infotainment options. leaders, deploying bespoke category strategies, and building innovative capabilities. Subscribed to {PRACTICE_NAME} email alerts. Weekly progress reports enable managers to track progress between CX and R&D teams and their alignment on requirement changes. Senior leaders should champion innovation in product development, but they shouldnt control the process. 2. 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. 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. 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. Commercial change. The OEM needs to ensure that all required information is shared with the suppliers, allowing them to significantly increase their customer centricity. To benchmark R&D performance, they should compare their performance against peers on dimensions such as R&D intensity, new-product costs, time to market, and R&D offshore ratios. 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. 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. The industry structure will change significantly when OEMs start sourcing hardware and software separatelyfor example, new players could enter the hardware and software space, or OEMs could work directly with tech players or tier-two specialists. Measure your organizations product management maturity across five individual dimensions and four organizational dimensions compared with peers and best-in-class software companies. executive coaching and on-the-job learning. The product-development process must integrate input from design, engineering, sales, marketing, procurement, and other functions. Leaders estimate the renewed focus on the consumer will result in a 15 to 25 percent price premium and incremental market share of more than 20 percent by year two. Delays, and the extra resources needed to counter them, mean higher costs too. And competing priorities can cause organizations to lose sight of the initial product and business goals. The product manager has emerged as a crucial force to steer this process and balance these lenses. A critical element of product development is instilling consumer centricity in the end-to-end process. 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. The Fingerprint survey is retrospective: It asks participants to comment on practices and metrics used in a specific, recently completed project. In the second step, players need to prioritize their efforts and set up a transformation office to drive change. That meant significant extra testing and integration work, which the analytical models identified. Boston, Massachusetts, United States. In practice, of course, such problems do affect almost every project. The McKinsey Growth Pyramid takes this one step further and posits that companies should further develop their growth strategies based on four choices; operational skills, privileged assets, growth opportunities and special relationships. And, on our short-term measure, companies that use these metrics perform better than the minority that dont. The risk here is that copying innovation without understanding the customer problem can result in solutions that miss the target. 1 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. Over the years, HBR articles have referenced the Three Horizons as a foundation of innovation strategy, here, here and here. The collaboration between OEMs and suppliers requires well-defined interfaces, using the logical or physical system breakdown as the guiding structure. 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. An initial round of ethnographic research provided fodder for speculative product concepts that could be tested with consumers. That could indicate a trade-off between performance and health. 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. Thats important, because widespread knowledge of a metric indicates that the company is using that indicator actively as part of its performance-management processes. 2. In our experience, the primary skills of a modern product manager are often dispersed across a number of talented individuals. McKinsey Three Horizons: this article explains the Mckinsey Three Horizons of Growth model in a practical way. 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. 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. Similarly, the models will show if an aggressive budget or timeline can be made achievable by adding more resources. They should implement end-to-end product development steering and controlling basedon a single source of truth. This time-based definition made sense in the 20th century when new disruptive ideas took years to research, engineer, and deliver. Product development is inherently risky and unpredictable: no plan survives contact with the enemy. We guide the creation of a streamlined next-generation operating model, characterized by digital user journeys. Orpheus elevates the focus of spend analytics to guide procurement strategy development and execution. 0 5 Want to comment? By interacting with all partners in the product-development process, the product manager helps to spur collaboration and knowledge sharing. The involvement of many stakeholders creates a multitude of opportunities for even the most promising innovations to go off track. Becoming customer centered also requires a new go-to-market model that features direct interactions between the OEM and the end customer. HBR Learnings online leadership training helps you hone your skills with courses like Innovation and Creativity. Arjun Balaji is a partner in McKinseys Bengaluru office, Raghavan Janardhanan is a partner in the Chennai office, Shannon Johnston is a specialist in the Toronto office, and Noshir Kaka is a senior partner in the Mumbai office. To investigate this issue, we conducted a new analysis to compare companies use of different product-development KPIs and their overall financial performance. Structure. The fingerprinting approach has now been applied to more than 500 projects at around 130 organizations. McKinsey Study Supports Balanced Product Portfolio. For incumbents, there are four ways to counter rapid disruption: The Three Horizons model is still very useful as a shorthand for prioritizing innovation initiatives. McKinsey & Company. Weve spent more than a decade investigating the root causes of R&D scheduling and budget challenges. The introduction of new teams, new platforms, or new development approaches can also hit productivity in the short term, even if they are intended to boost it over the long haul. 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. 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 . Earn badges to share on LinkedIn and your resume. This dynamic will place more importance on roles and skill sets that involve orchestrating and integrating product-development processes. Companies should base their product development steering efforts on holistic business case optimization. If you would like information about this content we will be happy to work with you. Learn how to build slide decks like McKinsey But to unleash the full potential of this role, all stakeholders in the development ecosystem need to be aligned on a common aspiration and working toward a shared goal. This requires the introduction of a holistic systems-engineering approach combined with an agile organization and agile ways of working. 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, Planners tend to assume that the issues that befell their previous project would be cured and that no new issues would crop up.