Our approach, which combines customer, technology, operations, and market insights, along with our partnership with, Our innovative methodology to optimize products shifts the focus from design-to-cost to, By delivering a holistic transformation of engineering departments, we ensure organizations remain agile, effective, and ready to deal with a rapidly evolving marketincluding supporting our clients in identifying forward-looking insights through leading, We leverage proven methodologies to optimize direct and indirect spend categories. Per Year (Employer est. Modern CPG product development calls for a new kind of product manager. Through our work with technology companies, we have identified several principles and approaches for running a successful learning program. We're exploring the concept of 'skinny design' and its potential benefits for consumers, retailers, and the environment. Across industries, innovative ideas and enabling technologies are increasingly likely to come from outside the organization. It can then assess the risk of the current plan or create a more realistic staffing plan along with a good budget estimate and an achievable schedule. This finding should not be interpreted as a suggestion that companies stop tracking their R&D project budgets, but it may have important implications for the way budgets are used. It represents a critical enabler and precondition for leaping into Level 4 and Level 5 autonomous driving. (When I say business model I dont just mean private businesses, but also government agencies, nonprofits, and others who have a mission model instead.). The consumer-goods industry in many ways defined the notion of a product that addresses a specific consumer need and creates value. Copyright 2008-2023, Glassdoor, Inc. "Glassdoor" and logo are registered trademarks of Glassdoor, Inc. Many organizations will rapidly test new products and ideas to meet changing market demands, but this complex operating environment increases the urgent need for a sophisticated product-management function. ), Get started with your Free Employer Profile, The Ultimate Job Interview Preparation Guide. Procurement Interview. 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. In practice, of course, such problems do affect almost every project. That could indicate a trade-off between performance and health. In the commercial space Uber took existing technology (smartphone app, drivers) but built a unique business model (gig economy disrupting taxis). Companies that measure their effort to identify and exploit external innovation are more likely to get better at it. True breakthrough innovation in product development has the potential to reshape categories, reinvigorate brands, and create deep consumer relationships. Automotive OEMs are undergoing an essential transformation from experience-based engineering toward data-driven, virtual engineering. This requires that all market players set up complex engineering networks around the world with global and regional hubs and partnerships. 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. One element of the diagnostic involves structured interviews with staff from all parts of the R&D function, who are asked about the metrics their organization uses to monitor product-development activities. 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. 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). 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). This employer has claimed their Employer Profile and is engaged in the Glassdoor community. 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. For example, cost and margins can overshadow other development considerations and appear inherently at odds with the design and consumer departments, which seek to create differentiation and delight end users. 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 average budget overrun experienced by a group of factory-automation-software projects we studied was more than 10 percent. The company also expects to improve its margins by 20 to 25 percent. More than three-quarters of companies in our sample made widespread use of product volume, revenue, unit cost, and time-to-market KPIs. Introducing the next generation of automotive electrical and electronics architecture requires a comprehensive business case that looks beyond the vehicle start of production (SOP) and initial bill of materials. We correlated the use of selected metrics with two measures of financial performance. This makes intuitive sense, as understanding your customers real requirements, delivering on your promises, and offering strong value for money are good ways to build reputation and customer loyalty. 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. We have a proven methodology focused on creating value. The process took 1 day. 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. expansion of the product range), fit in perfectly with Horizon 1. Rewiring car electronics and software architecture for the Roaring 2020s, McKinsey_Website_Accessibility@mckinsey.com, end-to-end product development steering and controlling based. Weve spent more than a decade investigating the root causes of R&D scheduling and budget challenges. 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. If you would like information about this content we will be happy to work with you. Similarly, the models will show if an aggressive budget or timeline can be made achievable by adding more resources. OEMs focus on material cost optimization to reduce product costs and improve product profit. That means shifting from the traditional use of scattered, embedded electronic-control units (ECUs) to a domain-focused system with central vehicle controllers. Direct customer interactions or feedback remain rare and limit the voice of the customer in important product decisions. Filter your search results by job function, title, or location. We also help companies develop and retain this crucialbut often overlookedtalent pool. Furthermore, the centers of gravity in global and regional markets continue to shift toward Asia, requiring local strategies to provide incentives for OEMs and suppliers to maintain local footprints and keep data in the region. Planners tend to assume that the issues that befell their previous project would be cured and that no new issues would crop up. This role combines the orchestration of an agile scrum master, the insights of a data scientist, and the consumer centricity of a design lead. 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. 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. 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. The consumer-goods industry can learn from the evolution of product management in the technology industry and empower product managers to play this critical role. Moreover, those projects were almost as likely to suffer an 80 percent overrun as they were to finish on time. And if it cant, the company can run what-if analyses to evaluate the impact of dropping certain features or simplifying performance requirements. In the second step, players need to prioritize their efforts and set up a transformation office to drive change. Likewise, the line organization reflects competencies and module ownership to optimally support the delivery organization and safeguard component and system communality. OEMs have an opportunity to redefine their performance regarding R&D hardware and software costs. If you would like information about this content we will be happy to work with you. The risk here is that the mismatch of culture, process, and incentives may strangle the newly acquired innovation culture. Such investments can bring significant benefits: McKinsey analysis has found companies that invest in innovation during a crisis outperform the competition on market capitalization by 10 percent; investing in innovation after a crisis gives them a 30 percent advantage. The Three Horizons provided an incredibly useful taxonomy. Measure your organizations product management maturity across five individual dimensions and four organizational dimensions compared with peers and best-in-class software companies. Horizon 3 is the creation of new capabilities and new business to take advantage of or respond to disruptive opportunities or to counter disruption. For our new analysis, we selected 42 companies from the Fingerprint database, choosing those with both a good dataset on the metrics in use, and publicly available data on financial performance over the ten-year period from 2007 to 2016. Likewise, proactive risk and error detection actions will improve overall productivity based on predictive maintenance and machine learning algorithms, as will intelligent talent and team management techniques such as capacity management and scheduling. Yet too many companies are not getting the results they want from their investments: only 6 percent of CEOs indicate they are satisfied with their companys innovation efforts.2McKinsey proprietary market research; S&P Capital IQ, spglobal.com. Built in a modular fashion, this program can be tailored to offer personalized learning journeys across different inflexion points in a product-oriented career. The product manager is well positioned to guide this process as a scrum master would, leading frequent iteration and collaboration across company stakeholders. 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. Two product-related use cases illustrate potential changes in this area. Fusing data and design to supercharge innovationin products and processes. The product-development process must integrate input from design, engineering, sales, marketing, procurement, and other functions. For those who grew up with the notion that creative disruptive Horizon 3 products takes years are in for some unpleasant surprises. Leads McKinseys global product development and procurement work and serves clients in materials, automotive and machinery sectors A career within our Operations Practice offers the opportunity to work with the biggest companies in the world, on projects that transform their core business and build resilience for the future. Larger development teams are less productive than small ones, for example, as they must expend more effort on internal coordination and communication. 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. And traditional methods often fail to account for other external factors, like the programming and development styles adopted by the development team, multisite development, and the impact of challenges the team is facing for the first time. Before development starts, the team examines CX insights and conducts mid- to long-term planning as it collects business and industry trends and user feedback. Each department or function brings its own perspective on the problem at hand, and competing lenses can either enhance or derail the innovation process. 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. They can begin by looking to their internal design, brand management, and consumer-marketing teams as key sources of multi-lens talent, given the inherent focus of those teams on customers, end consumers, and innovation. Armed with such models and a baseline of productivity levels for similar projects, a company can enter the current specification and develop higher-integrity plans for new products. Today, however, tech and digital product managers are increasingly the mini-CEO of the product. To estimate the correlation between each organizations KPIs and its overall financial performance, we created a new metric of our own, taking the companys profit growth for the year after its participation in the Fingerprint and subtracting the average profit growth for companies in its sector. McKinsey Three Horizons: this article explains the Mckinsey Three Horizons of Growth model in a practical way. Breakthrough innovation in product development requires the rigorous engagement of all functional lenses throughout the end-to-end process. As an example, at one company, a project to create a derivative of a newly released product was originally expected to take just 300 person-weeks of effort. Thats important, because widespread knowledge of a metric indicates that the company is using that indicator actively as part of its performance-management processes. And even today, some Horizon 3 disruptions do take long periods of development. This approach requires a top-down definition of general requirements with a strong focus on customer expectations and experience. Then there are the indirect costs. This enables the reuse of software and individual purchasing of hardware and software, as well as the integration of OEM-developed software modules. This process leads to development blind spots, which in turn introduce unnecessary risk and inefficiencies. Regional regulations and the cybersecurity ecosystem will in part enable this change. Over 80 percent of those projects were late, and the average overrun was nearly 30 percent. Rapidly copy the new disruptive innovators and use the incumbents business model to dominate. In our analysis, we considered a company to be using a metric if the metric was cited by at least one-third of participants in the diagnostic interview phase. Companies also need to articulate the product management leadership development modelfor the organization. They must balance new features and innovative technologies against cost, risk, and time to market. We strive to provide individuals with disabilities equal access to our website. Please try again later. They made limited use of testing fleets or static hardware-in-the-loop or software-in-the-loop testing environments. Often, a large amount of work is finished before other stakeholders have a chance to weigh in, causing misalignments, delays, and rework. Apr 2021 - Present1 year 11 months. The product leader coordinated this collaboration, translated the insights into new product concepts to inspire ideation and alignment on specific features, and led the team through teardown walk-throughs and brainstorming discussions. Successful product development requires teams to engage with experts across disciplines while aligning four critical development lensesbusiness, design, consumer, and technical (Exhibit 1). The company drew on its tradition of standout design to guide product development. And they must understand how new products will fit into their existing portfolio, and how they stack up against competitor offerings. Other new regulations related to cybersecurity, systems to manage software updates, and the use of Society of Automotive Engineers (SAE) Level 3 autonomous-driving capabilities could also make future vehicle performance parameters more complex. In our work on strategic product efforts for consumer-goods companies in recent years, we have found that specially appointed product leaders made a significant impact. 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. Companies must collect a significant amount of data to determine what factors really impact project effort. Predictive analytics have already have transformed the outcomes of some high-value projects (Exhibit 2). In our work with consumer-goods companies, we have identified a critical need for a product manager to connect these many stakeholderssomeone who is ultimately accountable for delivering consumer and business outcomes. Furthermore, the strong focus on material costs can lead to a high number of variants in the product portfolio configuration. Tech companies built upon this product- and consumer-centric philosophy and created new ways to bring together different sources of insights to build world-class products. This development is strongly integrated and will affect automotive suppliers in the same way. Healthier teams may be better-equipped to regroup and produce good results, project after project, year after year. Over the next 18 months, the team redefined the companys product lines to better reflect consumer preferences and strengthen the value proposition for each product. Sidebar About the authors Today's customers demand new capabilities in their vehicles. Subscribed to {PRACTICE_NAME} email alerts. Delayed launches mean lost sales, opportunities for competitors to get ahead, and potentially damaged reputations. Todays market research shows customers want more than a traditional car ownership experience. 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. In particular, we wanted to identify the approaches used by companies that achieve consistent high performance. This metric delivered an ambiguous result: In the short term, it is associated with poorer relative-profit growth, but over the long term, it is linked with better profit-growth stability. Over a ten-year period, the benefits of tracking product-focused metrics disappeared, suggesting a different focus becomes increasingly important as time passes. And because they can put the right number of the right people on their projects at the right time, they also enjoy R&D-productivity improvements of 20 to 40 percent. 0 5 Want to comment? 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. 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, The second was profit-growth stability, which quantifies the variability of profit growth over a ten-year period, again in comparison to the sector average. Because these complexity models are based on real data, they dont make unrealistic assumptions about productivity. Are you asking enough from your design leaders? That raises a crucial question: how should they measure the performance of their product-development teams? Story points, by their nature, are qualitative and team specific, making estimation difficult when multiple teams are working on the same release. Developing a set of models, then, relies on an array of advanced analytics, machine learning, and artificial-intelligence techniques to predict the complexity and required development effort and schedule in a reliable way. Instead, companies are now exploring a holistic product development approach that optimizes the total cost of ownership (TCO) or the product business case over the entire vehicle life cycle, including sustainability-related costs. Annual MCFM Consumer Survey, McKinsey Center for Future Mobility, December 2021, n = 26,285. In the short term, companies looking to accelerate their profit growth are wise to focus on the classic metrics that most already use, such as volumes, revenues, unit costs, time to market and process discipline. Build product management talent through four levers: a well-articulated leadership development model, tailored learning journeys, ongoing development enablers and strategic recruiting. The goal is to improve the product by developing new features (such as SAE Level 4 and Level 5 autonomous-driving capabilities) and increase R&D efficiency. One possible explanation for this finding is that some organizations are sacrificing long-term performance in the pursuit of short-term objectives, for example by working hard to get the next product into the market without sufficient attention to the development of a broad portfolio, or to the technologies and strategies that will underpin future product generations (Exhibit 1). Critically, top management must actively drive this change. For something so fundamentally important to a companys success, product development is notoriously tricky to manage. Please email us at: Four levers can address this industry-wide challenge. Remember that use of a metric by a company indicates that it was cited by more than a third of respondents from that organization. This time-based definition made sense in the 20th century when new disruptive ideas took years to research, engineer, and deliver. In another example, a company had a tight deadline to complete a new release for a big customer, with competitors vying for the work. But for practical reasons, the only useful factors are ones easily measured, consistently gathered, and known early enough to drive budget and planning decisions. For almost a decade, the McKinsey Product Development Fingerprint diagnostic has gathered data based on in-depth assessments of companies product-development practices and outcomes. Based on these inputs, agile teams can create detailed requirements before developing and testing the components. Our hypothesis here is that freeing R&D teams from excessive pressure to ensure budget compliance enables them to be more flexible, effective, and innovative. It is not the same as the conventional list of competencies used to assess employees; instead, it should reflect the organizations strategy and priorities. Steering toward the right ambition level. The product development team should derive targets by benchmarking development projectsand the benchmarks should reflect the true project intent. Brand managers often act as product owners, but rarely play the central integration role that we believe is crucial to propelling innovation. 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. Please try again later. 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. 1. Typically, this results in higher-level, more integrated ways of working in the collaboration between suppliers and OEMs. Expanding product complexity in the form of more control units, more software, and complex distribution functionality makes it difficult to attain high product maturity levels across product development processes. Successful product development requires teams to engage with experts across disciplines while aligning four critical development lensesbusiness, design, consumer, and technical (Exhibit 1). Agile product development relies on a dynamic model that ignites passion in people. 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. Thats no longer true in the 21st century and leadership hasnt gotten the memo. Last, companies will have to rethink innovation and collaboration in remote-working team structures. Delays, and the extra resources needed to counter them, mean higher costs too. Requirements for change include conducting constant reviews, adjusting objectives as necessary, and tracking target achievements. Companies should focus their efforts on several areas. Please email us at: McKinseys new weekly newsletter, featuring must-read content on a range of topics, every Friday. For companies that outperformed their sector, this index of relative-profit growth would be positive, and the better their performance, the higher it would be. A modern product manager fills both organic and inorganic gaps between team functions, providing connective tissue and promoting a much higher level of collaboration and alignment. A global team of analysts from five Sourcing Centers, located in best-cost sourcing hot spot locations, help provide our clients implementation-level support in global sourcing diagnostics; country and category prioritization; supplier identification and evaluation; supplier bidding, negotiation and selection; and global sourcing organization design. Subscribed to {PRACTICE_NAME} email alerts. In our experience, companies face the following common pitfalls: Lack of well-defined goals. With enough industry data, however, the models can see how these sorts of changes affected productivity in the past and provide a good estimate of likely future effects. Product development should be ongoing, as many products can be improved based on what happens during their lifespan. And, on our short-term measure, companies that use these metrics perform better than the minority that dont. It also influences requirement changes and cocreates the vehicle with technical R&D teams to ensure the product accurately reflects CX elements. Traditional product-focused R&D and product development processes typically remain in their lanes and have few structured interactions with other functions such as marketing and sales. 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. In software engineering, for example, those models would need to understand the complexity of the system requirements, the architectures, the testing, and the potential required interactions with hardware. This in turn will allow them to provide agile teams with high-level inputs and boundary conditions. This should include a concrete, actionable description of what the organization wants and expects from its product managers. Led teams of up to eight consultants in growth strategy, marketing & sales, and technical product . The shift toward electrification due to market and regulatory forces has resulted in new requirements across all main vehicle domains, including new electric powertrains; thermal management and heating, ventilation, and air conditioning (HVAC) systems; and new infotainment services keyed to finding charging stations.