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How can a company mitigate risks in new product development projects?
There's no question that there's a fairly high attrition rate. And it's actually higher than 7 to 1. If you go right back to ideas, it's actually 7 concepts for every successful. But ideas: it's more like 60 to 1.
Incremental commitment
The first thing to remember is it's a bit like playing poker: when you sit down at the poker table and you start betting, you don't put all your money on the table. You put maybe 2$ or 2€, and you get a few cards. And then you bet a little bit more money, and you get a few more cards and more information.
In other words, new product projects you never bet all the money at the beginning. It's a stepwise process. It's an incremental commitment. As you learn more, you bet more. So, the first phase of a project may cost a few thousand dollars; the next phase may cost 10,000$; the next phase may cost 50,000$. But you never bet the full amount until you’re ready to launch, going to full production etc.
And this is one way people mitigate risk. They never eliminate risk, they manage risk, and doing it in an incremental fashion which fits very well the Stage-Gate® process of course is one way of managing risk, mitigating risk.
A balanced project portfolio
And there's a number of other methods people use as well. They balance their portfolio. I mean: the essence of a risk management is having a balanced portfolio; any stock broker will tell you that. You do some high-risk projects, some low-risk investments. And that's another thing we talk about: strategic buckets in that respect, about how to balance the portfolio optimally so you have a reasonable risk: some high, some low but just the right mix and balance.
So there's a number ways that executives can manage risk sensibly. You’re never going to get rid of it. The only way to get rid of the risk is the get out of the game, and then you die another kind of death. But that, you don't want to do. There are ways to manage the risk.
[Michel Delifer] So that's how you get executives to try to get into this “bold innovation”. There is risk, but you've got to take the risk.
[Robert Cooper] Yeah, because again the evidence is very clear: the companies that have failed to innovate, that have not spent the money, not taken the chances: they disappear. I mean, the history books of business are full of stories of companies that failed to seize the opportunities that they should have because they were perhaps a bit timid, didn't have the leadership at the top with the vision, and the fortitude to take those chances. And as I say: it's not an outrageous risk and there are ways to manage it.
How to unstick a stalled new product development process? Next Generation Stage-Gate. (2:55 to 8:28)
Stage-Gate’s only part of it. Very often, a process designed with the best intentions often ends up thwarting innovation because it's so cumbersome, so bureaucratic, so painful to get through. And some people have told me privately, in their companies, because the process is so rigid and old-fashioned that it's stopping innovation. And I say: isn't that a shame because the original model was based on entrepreneurs and innovators. So you've lost something along the way.
So the first thing, we’re always encouraging people is: let's get back to basics here, and let's make sure that the model that you're using is true to the original concept of Stage-Gate: an entrepreneurial guide for moving projects from idea to launch, not a paper form filling out exercise. “Okay guys: let's get back to basics on that.”
But more, companies have evolved the process to make it… I use 3 A's here:
Adaptive
The first is to make it much more Adaptive. In the old days for example, you typically would define the project and the product very early on. You got a product definition and a set of specs, and then you’d charge into the development and develop the product, and then getting the field trials. And then everything would go wrong because it's not quite right, not quite what the customer wanted.
Well today we're talking a very adaptive process. You build something very early on; you don't wait till after development, you start it even before development: a virtual product, a proto-cept, a crude working model, a cardboard cut-out… Something that you can demonstrate to the stakeholders, to management and also to the customers. You seek feedback. You basically make revisions.
So the whole thing is based on a series of spirals or loops: build, test, feedback, revise. Build, test, feedback, revise. All the way through the process to get product right and get it right early, before you spend a lot of money in going down the wrong road. So the notion here's: get something in front of customers, early, often, cheap, and fast because people don't know what they're looking for until they see it. So get it in their face, get it in front of them
So that's one of the things, and that's a very adaptive process where the product evolves rather than is defined up front because the finding out up front usually it's wrong and then you’re faced with all kinds of problems later in the game.
Agile
A second thing that we’re seeing a lot: it's much more Agile than it used to be. The software writers wrote the Agile Manifesto a number of decades ago, and they taught us a lot of things about how the emphasis should be on results not on documentation, that that you should break the process into a series of time-boxed sprints of 3, 4, 5, 6 weeks and produce something at the end of that.
While software development is a lot different than physical product development like a food product or machine. So sometimes you can’t translate all the principles in the physical product development but some you can: we can break the development phase into a series of 3-week or 4-week sprints in which you have to deliver something at the end of that, and not a PowerPoint presentation. We can make the process be very nimble moving from milestone the milestone all the way along. We can place heavier emphasis on results rather than documentation. These are some other lessons we learned from the Agile guys. And I think people are building that into their Stage-Gate processes.
Acceleration
And finally: Acceleration; that's the third A. People are overlapping stages. People are making the process a much more context-based, meaning you don't use a big process for a small project. You know we got our big process for big projects; we got our medium-size process for extensions, modifications and fixes; and we got our 2-stage, 2-gates small, lightweight process called Stage-Gate Express: these are the sales force projects and they move through very quickly. So you don't use big processes for little projects. It doesn't mean you bypass the process altogether. So people are doing that.
And there's a number of other things that people are using to accelerate the process. The use of lean approaches, Lean Six Sigma. A great methodology for improving the way the factory operates. How about improving the way product development is done? Every time we've applied value stream analysis to the innovation process, were able to cut out all kinds of time and all kinds of waste in the process: if it doesn't add value, get rid of it. Value stream analysis is a great way to do this. And so people are trying to accelerate the process by making it leaner, by making a context-based, by overlapping stages and activities.
And also one more thing I should point out, since I know who you work for: by introducing automation, because IT support of the Stage-Gate process and portfolio management does in fact, and that’s been proven, accelerate the process considerably.
What role does portfolio management play in successful bold innovation? (8:29 to 11:05)
Where do we want to focus?
Portfolio management, particularly strategic portfolio management, is a very important component of bold innovation because strategic portfolio management really starts with strategy: “Where do we want to focus?” And too many companies I go into are focused in areas where there isn't much opportunity, where they are not going to find the engines of growth.
So the first issue is: where do we want to focus? What are the playing fields? The hunt for the oasis rather than the sterile desert.
How much do we want to invest in each area?
And once we've decided that, and that's a tough exercise, but once you’ve decided that, then you can move in the portfolio management because then the next question is: “Okay, we've identified to 2 traditional areas, 2 new areas. How much money do we want to put into each? Do we want to put 50% of the R&D in these two new areas or 10%? And that’s strategic buckets and that's part of portfolio management.
So once the big boss – or big bosses, plural – have decided that these are areas that we want to focus on, the next issue becomes: what resources? How much resource do we wanna put against these new areas?
And another part a strategic pockets is the breakdown of project types and mix: what proportion of our resources do we want to put into bold innovations? Normal new products? Extensions and modifications? Very very small changes. Do what 25% / 25% / 25% / 25%? Or do we want to put 50% in the bold innovations? That's part of portfolio management.
The Idea-to-launch process
So all of these decisions are very very critical to pushing the company towards a bolder innovation effort. And then of course there's the process itself, the innovation process, the idea-to-launch process which we've already talked about. If it's not agile and adaptive etc. chances are it's going to thwart, it’s gonna kill bolder innovation. So you have the right process in place too.
But all these pieces fit together, plus the right climate and culture led by the leadership team. So it's not just one thing, it's a number of pieces of the puzzle that have to go together to create a winning football team.
How does Stage-Gate accommodate the Agile methodology? (11:06 to 13:54)
Stage-Gate and Agile are very compatible at a fundamental level
Well first of all, there’s Agile product development as it's being used in software field, and I think I mentioned before that some other principles not all of them but some of the principles from Agile in the software field can be applied in product development in the physical product world such as the time-boxed sprints, the notion of concrete deliverables that are results, and not just PowerPoint presentations and also the idea of building something that you can show people and get feedback; that fits in very nicely with the spiral development or iterative development that I talked about earlier, the adaptive aspect.
Basically what we're doing is taking some of the principles of Agile and building them into an already successful Stage-and-Gate process. Makes sense.
Many people have argued that, if you're using the typical 5-stage 5-gate Stage-Gate process, those principles can be applied to the development phase (stage 3) and the testing phase (stage 4). Maybe in some of the earlier stages, a little harder to apply those principles.
Integrating different systems
Another place that I'm seeing the Agile method used is: we have a company that does both kinds the development work, a company like in Sweden Ericsson: they make systems, electronic systems for cell phone communication / mobile phone communication, but they also developed the IT for the system. So here you’ve got a group of IT guys using Agile, and a group of physical product developers making hardware using a Stage-and-Gate process, their version of a Stage-and-Gate process. And they don't talk to each other they say: “Use our method.” “Use our method” And there's a lot of conflict and consternation.
Finally, the big boss got them together and said: “Integrate the two.” And so they've been able to integrate the two; they're not in conflict; they fit very very nicely. Agile as a project management method that fits very well within a Stage-and-Gate process.
And I've seen that happen in a number of other companies as well. At first they think it's in conflict. Absolutely not! Not when you take a hard look at it. And there’s been papers written on this, and I'm glad to see the people are overcoming that conflict and say: “Hey they're very very compatible.”
[Michel Delifer] So the combination of both does bring value added to project like these.
[Robert Cooper] Absolutely.
The future of Stage-Gate. (13:54 to the end)
The challenge of resource management
I think companies are facing a lot of the same problems they faced many years ago. Resource management is a huge problem, and I'm glad to see that software suppliers such as yourselves are coming up with solutions in the area resource management. I've written several articles over the years. One was called the Resource Crunch in Product Development, and the analysis revealed that many of the ailments, many of the problems in product development can be directly traced to: too many projects not enough resources to do them properly.
And that that starts to impact on everything from: “We didn't do a voice a customer study ‘cause we just didn't have time.” “We put together a business case based on a lot of assumptions because we didn't have time the check it out.” “We were just so so stressed, so thinly spread out.
And it all boils down the resources: they didn't have enough resources on the darned project team, or they’re too busy doing other things. So I think this area of resource management’s got to be one of the areas of the future. And I'm glad to see you guys working on that very very diligently. Solve that problem, and you solve 50% of what ails product development. You'll also solve the problem of time, acceleration: if you want projects done faster, staff up.
One of the things I've seen is: companies that are developing new methodologies, they always put a footnote there saying: “And yes, it's a dedicated project team. This is their job full time. They're not working on 5 other projects.” And that seems to be a given if you want to really accelerate a project. So, resource management will be a key one.
The return to bolder innovation
I think another area of what's coming next is getting back to bolder innovation. The last 15 years have seen major corporations, major companies globally, move away from the kind of innovation that built the companies in the first place. It's sort of sad you know. Companies were very often built on the basis of an owner, or an entrepreneur, or a founder that came up with some Aha! Like a Hewlett and Packard: they came up the first test instruments and now, look at the mess Hewlett-Packard’s into! At countless companies it seems to be, the owners or the creators of the company had some big ideas and built the company, and slowly but surely, over time, this tradition has been lost.
And it is a fact – and there’s heavy documented evidence on this – that major companies have moved away from true innovation, percentage-wise, they're doing less and less as a percentage of the total than they did 15 or 20 years ago, and certainly less than they did when they first started.
So I think we gotta get back and rediscover bold innovation, true innovation. If these companies want to regain the strength, the power, the prosperity that they had in the earlier days… times are tough and there’s one way for sure that people can deal with tough times and that's innovate. And I don't think we are doing enough of it; some companies are, but most of us aren’t.
So bold innovation will be the second big area – resource management, bold innovation – to get back to the way we played the game when we're really winning the game. I think those are two things we're gonna see in the future, I hope.
