mckinsey product development

In the commercial space Uber took existing technology (smartphone app, drivers) but built a unique business model (gig economy disrupting taxis). The Fellow role at McKinsey is a specialed consulting position. Annual MCFM Consumer Survey, McKinsey Center for Future Mobility, December 2021, n = 26,285. Automotive manufacturers are moving away from a traditional product development steering approach focused on direct material cost optimization targeting the SOP. In the 20th century McKinsey created a model called the Three Horizons to explain how businesses must invest in current products, incremental innovations, and breakthrough innovations. Enabling future customer experiences and accelerating product development. Companies that measure their effort to identify and exploit external innovation are more likely to get better at it. Thats no longer true in the 21st century and leadership hasnt gotten the memo. Creating a logical and physical architecture that combines functional and physical elements typically starts with a functional system view based on system requirements. Measure your organizations product management maturity across five individual dimensions and four organizational dimensions compared with peers and best-in-class software companies. 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. 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. Moving from a conventional car to an automotive ecosystema kind of smartphone on wheelsrequires changes to the vehicles electronics and software architecture. Without clarity on business objectives and consumer needs, the product-development process can be arbitrarily influenced by biased perspectives on how to create or improve a product. This results in maximum impact from supplier relationships, using advanced programs to create integrated product and service life cycles. Horizon 1 ideas provide continuous innovation to a companys existing business model and core capabilities in the short-term. This approach requires a top-down definition of general requirements with a strong focus on customer expectations and experience. In an effort to reverse course, the company appointed a team member to maintain organizational focus and promote a culture of consumer centricity. This connective tissue is particularly vital for companies seeking to revitalize their product portfolios: low-performing products often indicate a lack of coordination across functions. In addition, product managers learn most effectively through activities that are grounded in their day-to-day work, rather than through generic product-management trainings. 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. In particular, we wanted to identify the approaches used by companies that achieve consistent high performance. OEMs typically do not consider other items, such as revenues and costs for product or feature updates, in their R&D steering approaches. And if it cant, the company can run what-if analyses to evaluate the impact of dropping certain features or simplifying performance requirements. 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. OEMs have an opportunity to redefine their performance regarding R&D hardware and software costs. 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. 3. 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. We based the work on ten years of data collected through the McKinsey Product Development Fingerprint, a proprietary product-development diagnostic tool. It was not that tough. Traditionally, OEMs incorporated engineering capabilities based on the collective experience of their engineers and experts with only limited data on customer behavior and product performance in the field. The collaboration between OEMs and suppliers requires well-defined interfaces, using the logical or physical system breakdown as the guiding structure. Nevertheless, the work reveals a number of intriguing and potentially counterintuitive findings. 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. We're exploring the concept of 'skinny design' and its potential benefits for consumers, retailers, and the environment. Sidebar About the authors Today's customers demand new capabilities in their vehicles. The mindset change to the agile model becomes core to the entire organization and all communications. While traditional analysis suggests that Horizon 3 disruptive innovations take years to develop, in todays world this is no longer the case. It's All About Customer Value If you beat competitors at the customer value game, your products will win. Over the years, HBR articles have referenced the Three Horizons as a foundation of innovation strategy, here, here and here. A critical element of product development is instilling consumer centricity in the end-to-end process. Delays, and the extra resources needed to counter them, mean higher costs too. We also help companies develop and retain this crucialbut often overlookedtalent pool. This enables the reuse of software and individual purchasing of hardware and software, as well as the integration of OEM-developed software modules. Built in a modular fashion, this program can be tailored to offer personalized learning journeys across different inflexion points in a product-oriented career. But for practical reasons, the only useful factors are ones easily measured, consistently gathered, and known early enough to drive budget and planning decisions. Please email us at: World Economic Forum: A preview of Davos 2023, Author Talks: The worlds longest study of adult development finds the key to happy living, The executives guide to new-business building. There are three keys to making agile product development work: structure, process, and people. Moreover, budget adherence was also the only metric to show a significant negative correlation with both short-term profit growth and long-term stability (Exhibit 4). Likewise, the approach applies iterative and incremental development processes to hardware and mechatronics development, synchronizing them with top-down planning. Then there are the indirect costs. It provides standardized processes for the product development process. To seize this opportunity, OEMs need to switch from purchasing ECUs with embedded software to a more centralized electrical and electronics architecture and hardwaresoftware separation (Exhibit 2). Companies that work their product-development teams harder might squeeze better results from them in the short term, but product development is a marathon, not a sprint. expansion of the product range), fit in perfectly with Horizon 1. 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. Often, a large amount of work is finished before other stakeholders have a chance to weigh in, causing misalignments, delays, and rework. 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. Product development and innovation in the consumer-goods industry has never been easy. The company then sought to develop a bold new look that would serve as a statement upon entering the new product category. 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. The core of the steering approach should be the total product business case based on the TCO, including any costs that arise during the initial product development phase (for example, R&D costs, capital expenditures, and product and factory or production costs). Delayed launches mean lost sales, opportunities for competitors to get ahead, and potentially damaged reputations. By looking at the business opportunities via various dimensions, a company has a good chance to grow. The Key to Unlocking Growth Potential Product companies thrive or die based on their product strategy. Product development steering should fully use the potential of OTA capabilities deployed in vehicles to offer feature updates, function-on-demand offerings, and new features such as higher levels of autonomous driving. Companies must collect a significant amount of data to determine what factors really impact project effort. Im a big fan of McKinseys Three Horizons Model of innovation. 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. 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. Are you asking enough from your design leaders? Automotive OEMs and suppliers need to adapt quickly to maintain their R&D competitiveness in areas including time to market, cost, quality, and new-feature rollouts. The product manager has emerged as a crucial force to steer this process and balance these lenses. That delay would have caused it to miss the market window and lose a $350 million opportunity. That led us to wonder about the relationships between what companies track in product development and how they perform. But the new products get out of the building, disrupt incumbents and, once established, they scale. Where in the past automakers had to contend with patchy customer relationship management (CRM) data and limited sales lead analytics, this new approach provides full access and the full use of customer data through advanced analytics. They want advanced autonomous-driving features, for example, and new personalization and infotainment options. The best new product development process includes portfolio management as a way to select new projects. Across industries, innovative ideas and enabling technologies are increasingly likely to come from outside the organization. The team concentrated on three priorities to build momentum: use a design-to-value approach to improve the margins of two key products by 20 percent, use this margin creation to self-fund an innovation engine, and develop a growth strategy to take advantage of white space in the market. If you would like information about this content we will be happy to work with you. The modern product manager emerged from this evolution as a central role. 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. The product manager has emerged as a crucial force to steer this process and balance these lenses. McKinsey_Website_Accessibility@mckinsey.com. procurement functions leverage the power of analytics. These conversations helped the team align on product-redesign choices that not only met consumer needs, but also achieved cost targets. A study by McKinsey and Co., published in the Harvard Business Review found that "Companies . Build product management talent through four levers: a well-articulated leadership development model, tailored learning journeys, ongoing development enablers and strategic recruiting. This requires the introduction of a holistic systems-engineering approach combined with an agile organization and agile ways of working. For product-development leaders, our analysis offers some important insights. Subscribed to {PRACTICE_NAME} email alerts.