Closing the Chasm

In the 1991 book, “Crossing the Chasm”, Geoffrey A Moore presented the view that successful companies shrink the chasm between early adopters of products and the early majority by: choosing target markets, understanding the whole product concept, positioning the product, building marketing strategies and choosing appropriate distribution channels and pricing. Today, those are basic elements in most companies.

However, implementation of those marketing tactics does not guarantee success in today’s competitive environment. Essentially, a new chasm has emerged – product development performance. In almost any market sector, companies are faced with developing strategies and processes for making product development choices, and only a quarter of businesses are doing it effectively and efficiently. Those who don’t are left behind.

The Product Development and Management Association (PDMA) Foundation conducted a Comparative Assessment Study (CPAS) in 2004, focused on this challenge, the result being a clear delineation between companies who effectively and strategically manage their product development process (‘best’) and those who struggle (‘rest’). Simply put, the chasm is real and growing wider every day.

On the bright side, the materials needed to close the chasm exist today. Here are some guidelines for any company developing and managing products to close that chasm.

The NPD performance chasm
The 2004 CPAS report queried companies in a variety of markets, from consumer goods, software and services, to chemicals and capital goods, garnering 416 responses. To identify the ‘best’ versus the ‘rest’, PDMA looked at the percentage of:

• Products categorized as successes over the last five years.
• Products categorized as successful in terms of profitability.
• Sales from new products over the past five years.
• Profits from new products over the past five years.

The results were clear -- the ‘best’ organizations were above average in both New Product Development (NPD) program and sales-profit success. Overall, 24 percent of organizations were identified as the ‘best’ and 76 percent as the ‘rest’.

The most significant measure of the NPD performance gap is in the percentage of profits from new products reported by the ‘best’, with 49.1 percent, more than double that reported by the ‘rest’ at 21.2 percent. The ‘best’ also reported twice the proportion of sales from new products at 47.6 percent versus 21.4 percent for the ‘rest’.

Most organizations report 14 percent of new ideas make it to successful products, yet the ‘best’ organizations recognized one product success for every four new product ideas, while the ‘rest’ see just under 10 percent of new product ideas reaching fruition.

The bottom line? The ‘best’ product development organizations perform twice as well as the ‘rest’. The next obvious question is, what solutions are used to allow the ‘best’ such success?

Analysis of NPD practices and techniques identifies why some NPD organizations perform better than others.

How to close the chasm
Generally, the ‘best’ organizations employ more product management and team processes, more of the time. The greatest variances relate to having clear goals and objectives, while also linking goals and objectives to strategy. Additional areas demonstrate the need for collaboration and interaction among project/product teams.

One of the challenges to better product team effectiveness is the use of ad-hoc processes and tools, and the type of processes and tools makes a difference to the success rate.

According to AMR Research in the 2004 report Microsoft Is the No. 1 Vendor in NPDI, but Not for Long: “Current tools dominating the new product development and introduction (NPDI) process are low-cost, low-function personal productivity tools like spreadsheets, project management and word processing. The lack of control and scalability of these tools may explain how NPDI failure usually comes in coordinating complex, cross-functional processes.”

For a product development organization to move from ‘rest’ to ‘best’, there are two clear actions that must be taken; establish clear product goals and objectives linked to overall strategy and take deliberate steps to improve cross-functional product team performance. But that is often easier said than done.

Linking clear goals and objectives to strategy
For many organizations, the challenge is not lack of strategy, but not linking that strategy to execution. Information, tools and processes used to define and capture the strategic intent of the organization is often disconnected from the day-to-day operational data and processes.

Most organizations are also experiencing changes to its business, markets, product portfolios, customers and competitors – often at an alarming pace. The 2004 CPAS report found the average cycle time for a new product is only 104 weeks, down from 181 weeks in 1995. At the same time, new product line cycle time has more than halved, down from 126 to 62 weeks over the same period. It’s critical that organizations develop processes that enable rapid alignment of product development efforts with changing strategy for maximum agility.

The creation of a central repository of product planning information is a critical first step. This repository must form the ‘single source of truth’ for every product in the portfolio and include key information on:

• Strategic fit/alignment
• Product stakeholders and team
• Product goals and benefits
• Risk factors
• Lifecycle status
• Resource requirements
• Program schedule
• Budgeted costs
• Status and actual costs

This information must be available to the entire cross-functional product team, allowing stakeholders and management to view information across all products. This global view provides them with a uniform and objective analysis of product attractiveness and performance, and allows them to make informed, strategic decisions.

Strategic alignment must be considered at the individual product level and at the portfolio level. Individual product risk must also be assessed in the context of the overall risk profile of the portfolio, as well as within the overall organizational posture.

The challenge occurs when organizations attempt to use these comparisons and analysis alone. Ideally, the data must be combined with uniform and objective means of scoring and ranking products in combination with strict product selection and lifecycle management processes. The 2004 CPAS study shows the ‘best’ organizations directly engage senior management in the adoption of development processes.

The nature of the processes includes a dynamic set of factors affecting the product portfolio, all constantly in flux, requiring the continuous assessment of product performance, market attractiveness, competitive position and strategy. To achieve balance, key information must be consistent across all products and available to the entire product development organization.

The most critical and poorly managed product development processes are the capture and management of new product ideas, referred to as ‘Ideation’. AMR Research states that the top two reasons for a product failing are that it does not meet customer needs or that it is late to market or missed the window of demand. It is essential, therefore, to develop a uniform process for capturing and elevating the best new product ideas, but also to assess them in the context of their impact on the future state of the entire product portfolio. Any strategic re-alignment of the product portfolio must begin by managing and shaping all new ideas that enter and exit the pipeline.

Effective idea management applies a rigorous and uniform process to all ideas and facilitates the collection, collation, elaboration, and assessment of ideas. This, combined with product program management, form a continuous product portfolio and lifecycle management process.

Improving cross-functional team performance
Another major area of separation between the ‘best’ and the ‘rest’ is cross-functional product team performance. In the 2004 CPAS study, the ‘best’ and the ‘rest’ report using tools such as project management systems over 50 percent of the time. The ‘best’ use other team management and collaboration tools, such as product portfolio management, resource management, document management and collaboration portals, more of the time.

Effective cross-functional team performance can only be achieved when product team members and stakeholders understand their roles and are fully engaged in the product development process. This requires access to integrated product information related to planning, execution and tracking of each product program.

In addition to program schedule information, members of product teams may require access to financial information, resource planning data, documents and other product artifacts, risks, issues, status and program results.

Access to relevant information must be role-based and easily managed by the portfolio owner, giving stakeholders instant access to the data most relevant to their function, while portfolio owners receive bigger picture data allowing them to make portfolio-level decisions tied to the strategic direction of the organization.

Final thoughts
The chasm between the ‘best’ product development organizations and the ‘rest’ is widening. In order to close that gap, companies must realize more successful new product ideas and must have:

• Clear goals and objectives linked to strategy.
• Better cross-functional team performance.
• Broader and deeper use of proven product development processes and tools.

Without these types of solutions, companies that choose to select and prioritize new product development projects blindly will not recognize success, rather the opposite – higher development costs, more failed products and reduced profitability. Falling into the ‘rest’ category spells ultimate doom.