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Actually Doing Technology & Product Strategy

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Actually Doing Technology & Product Strategy

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  1. Actually Doing Technology & Product Strategy

  2. Course Outline: • First Day: • Why have a strategy? • The Evolution of Technologies and Markets • Making Money from Innovation: Understanding Competition • Second Day: • The Strategic Management of Organizational Competence • Actually Doing Strategy

  3. Is This Your Project Pipeline?

  4. Overcommitment destroys productivity 100% Average Value-Added Time on Engineering Tasks 80% 60% 40% 20% 0% 1 2 3 4 5 6 Number of Projects per Engineer Source: IBM Development Efficiency Study

  5. The Timing and Impact of Management Attention and Influence Phases Knowledge Concept Basic Prototype Pilot Manufacturing Acquisition Investigation Design Building Production Ramp-Up High ABILITY TO INFLUENCE OUTCOME Index of Attention and Influence ACTUAL MANAGEMENT ACTIVITY PROFILE Low

  6. Making Choices In Theory& In Practice

  7. Outline • A process for doing technology strategy • Tools for making decisions

  8. Given to Small Groups of Managers at Company XYZ 1. Identify the salient characteristics of your organization’s innovation funnel 2. Draw a diagram of the innovation funnel that captures these characteristics

  9. Group A Quality Control Research OEM Customer Marketing Strategic Planning

  10. Group B Senior Management Injector Marketing Inputs Screen 1 Department Changes Screen 2 Final Evaluation

  11. 10-minute exercise: Funnels You Have Known What does the innovation funnel you have been involved in look like?

  12. Making Choices in Practice

  13. Technology Strategy in Practice • Strategies are worthless unless they are linked to real resource allocation decisions • Decide • Who will make the decisions • How often • By what criteria

  14. Understand Capacity Identify the Functions Most Involved in New Product Development and Understand their Staffing Structures Estimate the Resource Requirements of a New Product Development Project by Breaking Out Project Tasks Estimate the Demands of Product Support and Administration Efforts by Functions over Time Consider the Current Portfolio of New Projects and the Continuing Demands of non-NPD to Determine Overall Demand for Development Resources Understand the Impact of Current Commitments Upon Resource Supply, Identify Bottlenecks and Over- Commitment

  15. Phase I Phase II Phase III Launch The ideal innovation funnel

  16. The Ideal Innovation Funnel: • Defined separation between stages: Clearly defined criteria: a way to kill “living dead” projects • Senior managers engaged at the right time • Capture ideas from everywhere, manage ideas in an organized way so that they turn into products • A continuous process: Does this fit with our strategy? • A picture of the business: an overview of the shape of the pipeline • Give teams the freedom they need between gates

  17. KEY = GATE = DOCUMENT An Innovation Funnel Example Gatekeeper Gatekeeper Gatekeeper Gatekeeper Idea Generation Launch & Rollout Feasibility Capability Concept refinement and prototype creation Product optimization Commercialization Production & Distribution Initial marketing and technical concepts Post Launch Review Launch Proposal Contract Tracks success of and key learnings from launched products Charter Launch Plan including CEP approval request. Cross-functional development plan including project plan as contract between team and Gatekeeper. One page description of proposed project including objective, rationale and development routes. Early Commercial Assessment

  18. E N T E R E X I T Example: The Key Questions Answered By Each Phase Portfolio Review Phase Review 1 Phase Review 2 Phase Review 3 Phase Review 4 Current Product Support Idea Generation Phase 1: Concept Investigation Phase 4: Post Release Phase 3: Development Phase 2: Feasibility • Does the idea fit roughly with our strategy and resource availability? If yes, then concept document approved & sub-team allocated • Does the product make sense from marketing, technical & financial perspectives? If yes, then concept approved & full team allocated • What is the product spec? • Can we develop it within budget and schedule? • Can we produce it at the required cost & volume? If yes, then prototype approved & full team allocated • Has the product been fully verified and validated? • Have production objectives been met? If yes, then full manufacturing approved & sub-team allocated • Is the product meeting safety, efficacy and business targets in the market? If yes, then closeout approved & handoff to product support

  19. Overall Business Strategy Idea generation Launch Innovation Funnel Technology Project APP strategy Management Post Toolbox Category (Project Funnel Architecture Execution) Feedback (Boundaries, Portfolio Milestones Movements, Marketing Management Management roadmap etc.) strategy Regional mixes and rollout to Business Review defined countries The Innovation Funnel in the Total Business System Divisional Strategy

  20. Gates: • are major milestones • are intended to allow passage of the projects more likely to succeed by sacrificing projects more likely to fail as early as possible • focus decision-making. At a gate, a decision is made to either: • Continue working on the project, moving it along to the next stage in the funnel; or • Stop working on the project, shelving it or canceling it; or • Get additional information and reconsider the project for passage through the same gate once that information becomes available

  21. SELECTION CRITERIA SELECTION CRITERIA SELECTION CRITERIA • Concept, product and packaging meeting agreed quantified action standards. • Satisfactory assessment of practical feasibility, and financial viability of safe formulation, packaging, supply chain, customer and total project • Capex proposal ready • Human resource and other resource requirements are acceptable. • Defined and agreed action standards for consumer tests to pass Stage III. Example: Gate Selection Criteria Gatekeeper Gatekeeper Gatekeeper Gatekeeper Idea Generation Launch & Rollout Feasibility Capability Post Launch Review Launch Proposal Contract Charter Criteria may change depending on strategic intent! • Product and Marketing mix elements successfully meet previously defined action standards. • Safety requirements satisfied. • Capital proposal has been implemented. • Key functional areas approve launch plan. • Total project is commercially viable and fits company plan. • Key consumer needs identified. • Product ideas meet identified consumer need, can be successfully communicated and delivered, and are perceived to be unique and different by consumers • Ideas pass strategic fit assessment: • Fits portfolio • Potential to strengthen a priority brand • Potential to be deliverable • Can pass minimum financial criteria (NPS, PBI,Margin Contribution) • Project fits product line architecture.

  22. The Reality?

  23. Redesigning the stage/gate process Different Types of NPSD Systems A supplier of communications hardware, software and services was finding that it’s customers were struggling to be first to market themselves, so their needs changed rapidly and frequently over the course of a development project. The client needed to upgrade it’s NPSD system to be both fast and flexible. loose process informal mechanisms tight process formal mechanisms High Dynamic process paced by experiments Organic Flexible (target for client) Degree of market dynamics and technology uncertainty Phase-Gate Static process paced by tasks Low Low Degree of program complexity High

  24. Customer Events Market Interest Lead Customer Enrollment (multiple) Customer Confirmations Market Release Market Feedback Phase II Phase 0 Phase I Phase III Design and Development Market Release Concept Charter Ramp Up & Manufacturing Distribution Internal Reviews Concept Review Charter Review Market Release Review Closure Review (multiple) Design and Functional Planning Reviews Phase 0: 1-2 weeks, low investment, concepts sourced from ongoing marketing & engineering activity Phase 1: short, time-bounded, low investment, significant % of concepts will be discarded Phase 2: process flexes to accommodate different customer needs Phase 3: team hands off product only after receiving sufficiently positive market & internal feedback A More Flexible Process Customer Needs & Deadlines Internal Reviews

  25. Development Concept Charter “Traditional” Product Creation Path PLs Continuous products Source of Idea Product Ideas Discontinuous products EPL Business case or Product Concept New Additional New Product Creation Path Ventures Group Product Concept Spinout Out Use Multiple Paths to Market Ideation Process Integrated Product Development Process

  26. Making a funnel work: • Formally: • Pacing the funnel to the needs of the business, not the other way around • Involving key decision makers early • Informally: • Leadership: tolerating “high respect, high conflict” debate • Trust: “but this would only work if we told the truth…” • Consistency

  27. Analytical Tools for Making Choices

  28. Analytical Tools for Making Choices • Financial Tools: • IRR & NPV • Risk vs Return • Options • Portfolio Concepts: • The Aggregate Project Plan • Scenario Analysis

  29. Strengths A focus on the quantifiable costs and benefits of the project Allows for easy ranking and comparison Weaknesses Forces a focus on “the numbers” Neglects the role of uncertainty Neglects strategic considerations Ignores interdependency between projects IRR and NPV: A great place to begin but a terrible place to finish?

  30. The Risk vs. Return Matrix N Latex Ferritin Liquid MORE ATTRACTIVE Cuvette rotor rev cTNI Liquid PT N Latex B2m neu IMS Software 3.0 BCT/Software 2.0 Fibrinogen standards Glyc HB LO Improvement Pro C US Update DM Cyclosporin Carbonate Sensor FAST Pharma Bence Jones OEM CAQ*/Update DAT Improvement Heparin N Latex lgE CRP mono PP (4) MOD Procalcitonin Aggregate Project Risk Controls for Lupus test Forecast Project Expense Viva lgG Subklassen Liquid conversion program CDT DM CEA DOAs TTS Cystatin C Protein S SRT 8,9,10 rev. C reactive Pro SCS Digoxin Chemilum >$5Mi $1-5Mi HIV p24 Ag HTLV/I/II 6-Acetyl Morphine HI Tacrolimus ex-Lock-Out Cystatin-C (PP) <$1Mi Lithium TLA Interface aPTT reagent -Direct LDL N latex SSA ISD Group Homocystein Homocysteine SW V 2 Tick Borne Ezyphalitis LESS ATTRACTIVE 0% 50% 100% 150% 200% 250% 300% >500% Return (IRR)

  31. C1 V1 p C0 1-p V2 C2 Why is an option valuable? • Thinking of investments as options values uncertainty more appropriately • Delaying investment until there is more information can be very valuable

  32. When is thinking of a project as an “option” likely to be fruitful? • When the future is very uncertain • When investing now will create unique opportunities for the firm • When failing to invest now means that it will be very expensive to invest later

  33. How much is an option worth?

  34. A Range of Tools Risk adjusted NPV Decision Trees Simulations e.g. Monte Carlo Closed Formulas e.g. Black-Scholes Differential Equations Pros • Established methodology widely accepted and understood • Relatively easy and quick to implement • A building block for more complicated valuation methods • Incorporates decision making and uncertainty • Determines optimal decisions • Transparent and easy to understand. • Building block for other more complicated valuation methods. • Allows for complicated and multiple uncertainties spanning both discrete and continuous outcomes. • Easier to model non-standard uncertainties • Elegant, easy to implement with formula in hand • A numerical solution incorporating optimal decisions and (possibly) both continuous and discrete uncertainties. Cons • Does not allow for contingent decisions • Collapses many decisions and outcomes down to a single scenario • Does not account for managerial ability to react to information. • Trees can become complicated with many decisions and uncertainties. • Essentially limited to discrete decisions and discrete characterization of uncertainties. • Methods do not determine optimal policies. • Programming becomes complicated with many decisions and uncertainties. • Less transparent than trees • Limited to relatively simple decisions and uncertainties. • Many simplifying assumptions usually have to be made to obtain closed form solutions. • Extremely difficult, if not impossible, to implement in realistic situations. • Time Consuming • Does not allow for many different uncertainties.

  35. Portfolio Concepts: Aggregate Project Planning Tools

  36. Process Impact Entirely new process Improvement No change Breakthrough Radical Platform Product Reach Derivative Product Support Off the shelf The Aggregate Project Plan (1)

  37. Marketing Impact Entirely new benefit Improvement No change Breakthrough Radical Platform Technology Reach Derivative Product Support Off the shelf The Aggregate Project Plan (2)

  38. Consumer/Technology Matrix: An Example High Resource Low Resource Moderate Resource Consumer Value Perception New New Core Improvement No Change Variant Enabling Benefits Product Technology Breakthrough Radical Platform Next Sxxxx Generation Cxxxx Fruit Fruit Natural Cxxxx 2000 Derivative Fxxxx Face Lxxxx Export Vxxxxx Improvement Incremental Rxxxx Fruit Brand Support Super Cxxxx Txxxx Cxxxx Langnese Bxxxx Extension Base

  39. Benefits of an Aggregate Project Plan: • Explicit choice of projects balances the long and short term, allows for the explicit discussion of the match to strategy • Match between project type and organizational form allows for a focus on the generation of competence • Focus builds speed and productivity for the individual and the organization

  40. SPARROW OWL ROME II Before: Medical Products Co. Process Changes New Core Next Single Tuning and No Process Generation Dept. Incremental Change Process Upgrade Improvement Product New Core ALPHA WATER Changes Product EARTH FIRE CALIFORNIA Next generation of Core Product NEW YORK Addition to ROME V ROME III ROME I Product Family ROME VI ROME IV FINCH SUMMER SIGMA GEMINI 1-10 (10 PROJECTS) CROW Add-Ons and KENYA DELTA O CLEO Enhancements DALLAS SOLSTACE LEO OAK HAWK AUSTIN SPRING CEDAR SANTA FE WINTER No Change PINE ROLAND FLAGSTAFF FALL B-THROUGH / PLATFORM DERIVATIVE / CPS

  41. LEO After: Medical Products Co. Process Changes ADVANCED DEVELOPMENT New Core Next Single Tuning and No Process Generation Dept. Incremental Change Process Upgrade Improvement Product New Core Changes Product GAMMA ALPHA VENUS Next generation of Core Product BETA Addition to MARS Product Family ZEUS DELTA DELTA I ATLANTIS SIGMA ROME V DELPHI ROLAND Add-Ons and DELTA II CLEO Enhancements ROME I OAK ROME II ROME III CEDAR No Change PINE ROME IV B-THROUGH / PLATFORM DERIVATIVE / CPS 2

  42. Less Is More: Medical Products Co. 36 21 8 5 Before After Before After # of Projects Launched /Year # of Projects in Portfolio

  43. What is a Project? • An organized activity with a finite time span which consumes Development, Marketing and/or Research resources and yields either: • A new or revised product that meets the business’s strategic needs or • A new capability applicable to current or future products or processes which will support future business needs • A project is not: • Ongoing cost savings programs with no end point • Promotional packaging • Administrative programs

  44. Consumer Value Perception -- Definitions Consumer Value Perception New Core Product New Benefits Improvement Variant No Change Fills previously unknown, unmet needs. First introduction of a revolutionary new product in the market. Stimulates new consumer usage and purchasing habits. Fills known but as yet unmet needs. Delivers new concepts and benefits that fulfill consumer needs that are otherwise unmet by any products in the market. Better meets needs or meets more needs. Significant, consumer discernible improvement, amplification, or enhancement relative to existing product benefits in the market. Meets same needs differently. Minor revisions, adjustments, and alterations with relative parity to existing product performance, claims, features, or market positioning. ? Meets same needs with no change. No consumer-perceived market activity, but involving improved processes that result in cost reductions or meet legislative mandate with no change in product quality or other benefits.

  45. Incremental Extends existing Technologies beyond the normal operating window Enabling Technology-- Definitions Enabling Technology First use of a Technology that is new to the industry Radical Next Generation Pushes existing Technologies into a completely different operating window Exploits current standard Technology without extending the operating window Base

  46. C/T Matrix - Balancing the portfolio Consumer Value Perception Portfolio clustered top left This portfolio contains a significantly high proportion of projects in the high-risk upper left hand area of the matrix. This does not it well with a strategy for an existing business as it exposes the business to the risk of potential launch failures and, at the same time, fails to support existing brands through less ambitious brand support projects. Consumer Value Perception Portfolio clustered bottom right This portfolio could potentially illustrate a scenario in which a Enabling Technology business follows, rather than leads, the market and / or does not invest adequately in support of its brand through technology or product innovation. Consumer Value Perception Balanced portfolio There is no ideal but, generally a well balanced portfolio will tend to be distributed along the diagonal top left - bottom right. Enabling Technology

  47. No Change (Business benefit only) KEY: Green = Global Bubble Size Indicates High Red = Regional Resource Demand or Low expected NPS No Change (Business benefit only) KEY: Green = Global Bubble Size Indicates High Red = Regional Resource Demand or Low expected NPS C/T Matrix - Global vs. Local Portfolios The local portfolio might reflect only those projects which have local significance Consumer Value Perception New New Core Enabling Improvement Variant Benefits Product Technology Breakthrough Radical Platform Next Generation Derivative Incremental Brand Support Base Scale: Med APPINTR.ppt 6/1/95 Consumer Value Perception New New Core Enabling Improvement Variant Benefits Product Technology Breakthrough Radical Platform Next Generation Derivative Incremental Brand Support Or: The local portfolio might position projects differently due to different local conditions Base Scale: Med APPINTR.ppt 6/1/95

  48. Creating the Aggregate Project Plan 1. State and understand the business strategy 2. Characterize projects types and plot them on the C/T matrix 3. Provide a utilization plan for innovation efforts - resource consumption 4. Identify existing capacity to do innovation - resource availability 5. Define the set of future innovation projects and allocate resources to them 6. Align portfolio to the business strategy iteratively around the tools and rationalize conflicts in resource allocation and strategic portfolio balance

  49. Explosion in Resources Cycle Time Longer than Competition 450 5 400 New Product - 4.5 350 Portables Competitor 4 New Products - 300 Technical 3.5 Client Support 250 Server 3 Engineers 200 2.5 150 2 Low End 100 Desk Top 1.5 50 1 High End 0 0.5 Desk Top 1992 1993 1994 0 -15 -10 -5 0 1991 1992 1993 Months Case Study: Computer Manufacturer The Firm: personal computer manufacturer • 50% of employees have < 1 year experience • rapid growth, but without the appropriate systems or infrastructure. The Problem Lagged Behind Competitors in New Product Introductions

  50. Next Product Computer Manufacturer: Before Process Changes Research & Development New Core Process Next Generation Process Single Department Upgrade Tuning and Incremental Changes Breakthrough New Core Product Thyme Sage Cogen B Saffron Platform Generation Poppy Product Changes Cumin Othello II Derivative Addition to Product Family Hamlet II DD Bay AII Ariel II Cost Reduction Derivatives and Enhancements