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Direct customer interactions or feedback remain rare and limit the voice of the customer in important product decisions. Consumer-goods companies can learn from the evolution of product management in the technology industry to strengthen and accelerate their own product development. Automotive manufacturers are moving away from a traditional product development steering approach focused on direct material cost optimization targeting the SOP. Never miss an insight. These conversations helped the team align on product-redesign choices that not only met consumer needs, but also achieved cost targets. A multifunctional team undertook a series of workshops to brainstorm, align, and tactically plan key design choices across its product portfolio. Enter the modern product manager. The Three Horizons provided an incredibly useful taxonomy. 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. Never miss an insight. Process. By the time you get it built, theyll want something new.. If companies understand the complexity involved in a new project, they can estimate the effort and resources required to complete it (Exhibit 1). 1 Product managers in the consumer-goods industry tend to fit a more traditional profile, with a focus on project management and tactical execution. While the majority of the companies in our sample monitor customers satisfaction with product performance, only 44 percent of them measure customers satisfaction with the price they paid for the value they received. Sidebar About the authors Today's customers demand new capabilities in their vehicles. They want advanced autonomous-driving features, for example, and new personalization and infotainment options. By Arjun Balaji, Raghavan Janardhanan, Shannon Johnston, and, How predictive analytics can boost product development. While traditional analysis suggests that Horizon 3 disruptive innovations take years to develop, in todays world this is no longer the case. Access more than 40 courses trusted by Fortune 500 companies. The company drew on its tradition of standout design to guide product development. The result is a faster, more reliable way to bring all of an organizations expertise together in finding the best options for delivering value to customers. Our dataset comprises 42 companies, for which detailed data on product-development metrics and financial performance was available. 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. 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. This requires that OEMs and suppliers shift their current development processes toward a cyclical, more integrated pattern and establish R&D steering approaches that connect software and hardware development along the entire life cycle of the vehicle. When different stakeholders engage in a myopic, sequential way, using only their own lensesfor example, when engineering comes first, followed by design and then manufacturingthe numerous handoffs create gaps in knowledge. The risk here is that copying innovation without understanding the customer problem can result in solutions that miss the target. Technology will see a consolidation toward domain-centered archetypes (fourth-generation architectures) and zone- or vehicle-centered archetypes (fifth-generation architectures). 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. Process breakdowns. Engineering intuition tends to be linear, while the cumulative effect of increasing performance, features, and quality is highly nonlinear. Per Year (Employer est. Cleansheet analyzes a products underlying cost structure to help organizations establish cost transparency, set target costs, and capture savings. Product development and innovation in the consumer-goods industry has never been easy. The consumer-goods industry in many ways defined the notion of a product that addresses a specific consumer need and creates value. 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. Learn how to build slide decks like McKinsey Organizations that apply analytics and predictive tools to their product-development and project-planning processes see a dramatic reduction in schedule slippage. First, they need to set the right ambition level to drive innovation at a competitive cost level and identify opportunities for efficiency improvements to free up resources for other projects and innovations. Story points, by their nature, are qualitative and team specific, making estimation difficult when multiple teams are working on the same release. Breakthrough innovation in product development requires the rigorous engagement of all functional lenses throughout the end-to-end process. 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. Get a free, personalized salary estimate based on today's job market. Heres whats changed: In the past we assigned relative delivery time to each of the Horizons. This time-based definition made sense in the 20th century when new disruptive ideas took years to research, engineer, and deliver. Likewise, the lack of clarity regarding key trends such as whether battery electric vehicles (BEVs) or fuel cells will become the dominant battery and energy solution could lead to increased R&D cost pressures. But the new products get out of the building, disrupt incumbents and, once established, they scale. An initial round of ethnographic research provided fodder for speculative product concepts that could be tested with consumers. Something went wrong. Once the company understood the work involved, it changed its plans, keeping the team that developed the original product together to work on the derivative, and ultimately delivering it on time. They assume that specifications will not change and that resources will be available when needed. A study by McKinsey and Co., published in the Harvard Business Review found that "Companies . It should also include all revenues and costs generated over the product life cycle, which can include product maintenance, releases and product updates for hardware and software, function-on-demand offers, and sustainability costs such as CO2 penalties. Enabling future customer experiences and accelerating product development. We'll email you when new articles are published on this topic. 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. The Fingerprint survey is retrospective: It asks participants to comment on practices and metrics used in a specific, recently completed project. The team should set targets for all core steering dimensions, especially material costs, R&D costs, and capital expenditures, centered on benchmark-based target costing. It was not that tough. That led us to wonder about the relationships between what companies track in product development and how they perform. Build product management talent through four levers: a well-articulated leadership development model, tailored learning journeys, ongoing development enablers and strategic recruiting. We also help companies develop and retain this crucialbut often overlookedtalent pool. OEMs and suppliers create a network of cross-functional, empowered teams. Larger development teams are less productive than small ones, for example, as they must expend more effort on internal coordination and communication. During development, the team focuses on realizing a CX-driven unique selling point design. Its paired with algorithms based on machine learning to intelligently collect data at scale and identify interesting situations to propel the development of Level 4 and Level 5 autonomous-driving features or optimize driver-assistance features. Recognizing that dramatic action was needed to get back on track, the company embarked on a six-week sprint led by a specially appointed product leader. Through our work with technology companies, we have identified several principles and approaches for running a successful learning program. 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. 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. They should implement end-to-end product development steering and controlling basedon a single source of truth. McKinsey helps companies transform their product management capabilities by helping build the talent capabilities and putting in place the right product operating model and infrastructure, tailored for your product context. Something went wrong. As a result, leading companies are adopting a mini-CEO product manager archetype with skill sets across five capability areas: customer experience, market orientation, business acumen, technical skills, and soft skills. Likewise, the line organization reflects competencies and module ownership to optimally support the delivery organization and safeguard component and system communality. In practice, every company we surveyed was collecting data on budget adherence. 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. Weve spent more than a decade investigating the root causes of R&D scheduling and budget challenges. From electrification and autonomous driving to digital services and connectivity, a massive number of innovations are on deck today, expanding the innovation pipeline. Over the long term, two customer-related metrics were associated with profit-growth stability: customer satisfaction with price for value and product performance against its specification. Typically, this results in higher-level, more integrated ways of working in the collaboration between suppliers and OEMs. Consequently, such steering is currently not based on a TCO perspective and a holistic business case. procurement functions leverage the power of analytics. The company also expects to improve its margins by 20 to 25 percent. Please try again later. By taking a balanced view of the critical development lenses throughout, companies will be poised to achieve the elusive breakthrough innovation that both resonates with markets and supports key business objectives. These challenges require automotive manufacturers and suppliers to shift their focus in product development capabilities, processes, and operating models from mechanical engineering toward electrical and electronics, software, and data engineering. It requires more sophisticated software, including a software abstraction layer, Ethernet usage, and connectivity at scale. We'll email you when new articles are published on this topic. To do this, we designed a second metric. 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, Rewiring car electronics and software architecture for the Roaring 2020s, McKinsey_Website_Accessibility@mckinsey.com, end-to-end product development steering and controlling based. Yet several trendssuch as the growing importance of data in decision making, an increased focus on consumers and design, and the evolution of product-development methodologiessuggest that much can be gained by considering how consumer-product managers can evolve. These rapid Horizon 3 deliverables emphasize disruption, asymmetry and most importantly speed, over any other characteristic. The Three Horizons allowed senior management to visualize what an ambidextrous organization would look like the idea that companies and government agencies need to execute existing business models while simultaneously creating new capabilities and helped to prioritize innovation products and programs. By maintaining a consumer-driven vision throughout the entire processfrom initial concept through transfer to manufacturingthe company was able to shorten the development timeline by 40 percent. 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). OEMs typically do not consider other items, such as revenues and costs for product or feature updates, in their R&D steering approaches. The structure of line organization must build on defined ways of working in things such as team structure, roles, and processes, and delivery teams should be stable across different projects.