Stage Gate Review Process

Integrating project execution and review process • Often, project execution and project review are two separate processes. • It is desirable to integrate these two processes, because you get: - Better project results, - Better project review decisions, - Faster decisions – projects move faster, - Happier people: - Everyone knows the rules of the game beforehand, - Everyone follows the rules all the time, - Everyone’s expectations are kept realistic. Stage Gate Review Process

What Problem We Are Trying To Solve? • Example: Eaton Corporation - • ~ 10,000,000,000 ~ $10 billion annual sales, • Goal: 10% increase in sales per year, • Driven by stock market expectations, • And stock market is “main customer” in capitalistic system. That equates to $1B in new products per year – every year!(compounded!) Stage Gate Review Process

What’s The Problem We Are Trying To Solve? • Need new products that can “move the needle”. • Hard to get to $1B by adding $1M at a time. • You need 1,000 new products! • Significant growth in many small increments is difficult to manage. • Many low-impact products are difficult to support. • Solution: Fewer high-impact projects. Stage Gate Review Process

Possibly the biggest cause for failure of good projects: • Under-funding Lack of adequate resources. • Inability to ruthlessly focus on only the best opportunities. • Inability to identify best opportunities early in life. Stage Gate Development Process Stage Gate Review Process Stage Gate Review Process

New Product Pipeline Many Low-Impact Products Out Many Small Projects In What’s the MAIN Problem We Are Trying To Solve? Before: Difficult to manage many small projects. After: Difficult to support many small products. Stage Gate Review Process

New Product Pipeline Many Small Projects In Few High-Impact Products Out What’s do we want to have? Stage Gate Review Process

AverageeCOST Per Project Overall Goal: Maximize Bang-For-The-Buck. Feed the winners well Kill losers before you spend lots of money on them TotalNUMBER of Projects Early Project Life Late Stage Gate Review Process

Many Small Projects In Few High-Impact Products Out We must kill many of these projects… …but how do we discover which are the best? Stage Gate Review Process

AverageIMPACT Per Project Overall Goal: Weed out projects that have low impact. Problem:We don’t know the winners at the start of their life. Goal:Survival of the best. TotalNUMBER of Projects Early Project Life Late Stage Gate Review Process

What about small businesses? • It doesn’t matter if you are one of10,000 engineers trying to add$1B in sales for Eaton Corporation. • Or Joe of Joe’s Garage Shoptrying to add $1,000 in sales. • Trying to grow by $1,000 in$10 increments is hard to manageand hard to support when you are done. Stage Gate Review Process

Product Development Stage Gate Process Stage gate reviews Stage Gate Review Process

Technology Development Stage Gate Process Stage gate reviews Where projectsget killed! Stage Gate Review Process

Stage Gate Development Process S1 S2 S3 G1 G2 Stage Gate ReviewProcess Stage Gate Concept is Quite Simple… Put “Stage Gate Review” decision blocks in the process flow… Our topic So, how does a Gate work? Stage Gate Review Process

Redirect Continue S S G Hold Kill All the Gates work the same way… At the end of each development stage, you hold a stage gate review to determine if you should: - Continue: Go to the next stage, - Redirect: Go back to the previous stage, - Hold: Put the project on hold, - Kill: Kill the project. Stage Gate Review Process

G G G Purpose of ALL Gates is to create BOTH of these curves: Size Number This is very simple! So what’s the Big Deal?! Stage Gate Review Process

Stage Gate Review Execution: • Review is usually a meeting. So - • How do you make decisions? • Who should attend the meeting? • How do you organize the meeting? Stage Gate Review Process

Redirect Continue A A G Hold Kill How do we decide what the decision will be? - Continue? - Redirect? - Hold? - Kill? Let’s lookinside of a gate Stage Gate Review Process

Is thisa “good”project? All information needed? Whatis itspriority? Yes Yes High Continue No No Low Kill Re-Direct Hold Three-Step Decision Process: Ask questions in this order. Does this project make business sense:~ Strategically?~ Financially?~ Technically? Has the team completed all outputs in a quality fashion? What is the impact relative to other projects? Are people and money available? Stage Gate Review Process

Purpose of Stage Gate Review Meeting: • Stage gate reviews… • Are business decision meetings • Are not project reviews • Are not design reviews • Are not performance reviews • A key advantage of a well-deigned and well-executed stagegate process is that it makes the engineer/technologists anintegral contributor to business decisions. • This is absolutely essential in technology-driven businesses. About picking the projects that will have the biggest impact on your business Stage Gate Review Process

PetProjects • Purpose of Gate Review Meeting: • Picking “winner” projects and killing “losers”. • For “winners”, this is about: • Making an investment decision (where to put money), • Allocating and committing resources (where to put people), • Assessing potential of project (all info needed to make good decision), not quality of project or product, • Assessing risk of project (but “winner” may be high or low). Stage Gate Review Process

Suppliers (V):Asking for next project Executors (R):Running thecurrent project Customers (V):Receiving next project outputs StageGateReview Experts (R):Validating project deliverables Investors (V):Paying* for next project Who Should Attend the Review? R = RecommendV = Vote* = “Paying” means providing money and/or peopleNote: a particular individual may play more than one role. Stage Gate Review Process

Typical Stage Gate Review Agenda: • 20 min. Executor presentation and recommendation – All participants – Silent listening to presentation No discussion, but clarifying questions allowed. • 15 min. General discussion – All participants – Led by non-voting facilitator. • 15 min. Voter deliberation – Typically voters only – Led by facilitator. • 10 min. Tem briefing on decision and action items – All participants – Led by facilitator. • 1 hour Yes, this can, and must, be met! Stage Gate Review Process

Gatekeeper Rules of Order • “Gatekeepers” are the voters at the stage gatereview meeting. • If gate review meetings degenerate tovicious attacks by gatekeepers onproject teams… • …then before long you won’t have any new projects! • To avoid having this happen, gatekeeper rules of order need to be established and enforced (by review meeting facilitator). Here are some rules… Stage Gate Review Process

Gatekeeper Rules of Order – Page 1 • Gatekeepers must attend review meeting in-person or virtually, or your vote defaults to “Continue”. A substitute may be sent. • Gatekeepers must review team presentation before* the meeting. • Serious concerns must be communicated to teams before the meeting. No “surprise attacks” allowed in the meeting. • No “cross-examination” allowed during team presentations. You are not trying to “break down the witness” in a courtroom. • * Typically the project team sends the gatekeepers a stage gateproject report one week before the stage gate review meeting. Stage Gate Review Process

Gatekeeper Rules of Order – Page 2 • Gatekeepers cannot require information outside of the scope of the stage being reviewed (e.g., can’t require Stage B information at Stage A review). • Decisions must be made in accordance with the criteria for the gate, not a gatekeeper’s opinion of the project - no “pet projects”. • Final vote must be unanimous. Gatekeepers must be willing to negotiate with other gatekeepers to make a decision. Stage Gate Review Process

Gatekeeper Rules of Order – Page 2 • You can “Hold” a project, but you can’t “Hold” a decision. The decision must be given at the stage gate review meeting. “We will get back to you later” is not allowed. • “Continue” decision means that money and resources are committed! This is a promise that the team can actually execute the project! Stage Gate Review Process

Stage GateCultural Issues Stage Gate Review Process

Impact on Morale • So, Stage Gate review is about killing off projects. • You start with many small projects and end up with few big projects. • This means that you kill off many projects. • This can lower the morale of the engineers. • You are killing off their great ideas! Stage Gate Review Process

Hey! Wait a minute! I didn’t come here to have some guy tell me how to kill off my projects! Well… You are much better off helping kill off your own bad projectsbefore they get out of control… Than to have someone else kill off your good projectsbecause they ran out of money. It’s your choice! Stage Gate Review Process

The Six Realities of Stage Gate Reviews: • Even when you try to do everything correctly,some things will go wrong. • Here are six different things to worry about. • These tend to be related to: • Organizational culture, • Human behavior. Stage Gate Review Process

The Six Realities of Stage Gate Reviews: • You allow resources migrate to last-stage projects, So you can’t start new projects. • You don’t kill as many projects as you need to, So you can’t start new projects. • You put too many projects on hold due to lack of resources, So your new product pipeline clogs. • Stage gate processes slow individual projects down, So people abandon the system. • Project teams overwhelm system with info to support project continuation, So excess resources are consumed needlessly. • Culture can’t tolerate “failure-driven system”, So project teams refuse to participate. Final note: There are no magic solutions to these problems! Stage Gate Review Process

< 4:1 Attrition < 4:1 Attrition Example: Three-Stage Technology Development Project Goal 1 $10,000 A How to spend a $10M budget Number of Projects Average COSTPer Project B C Early Project Life Late Stage Gate Review Process

Reality 1 $10M ~$5M • Your boss thinks he is spending all his money on Stage C. • But actually, you must balance spending across all three stages. • Even though most of the projects will be killed! • This takes significant managerial courage. Stage Gate Review Process

Goal 2 Kill projects at ~ 4:1 attrition rate. From the preceding example… 60 Number of Projects 15 4 Early Project Life Late Stage Gate Review Process

You always have more Stage B and C projects than you can support, so… • You never have enough money or people to start as many Stage A projects as you intend. Reality Reality 2 • You never kill as many as you intend, so… Goal Number of Projects Early Project Life Late Stage Gate Review Process

Reality: • You never kill as many as you intend, • So you never start as many as you intend. Reality 2 • Management Perception: • Poor Stage Gate Review Process, and/or • Incompetent reviewers. • But Also: • Educational system trains us to never raise our hand unless we have the right answer. • There is significant unconscious pre-process screening by project initiators. • Many of the small projects at the front end are really pretty good. • Bottom Line: • You will have to discipline yourself to kill relatively good projects. Stage Gate Review Process

Goal 3 • You want to have a good balance among the various Stage Gate Review decisions. • You do not want the system clogged up with projects on Hold. • Here’s a possible example of stage gate targets… < 4:1 attrition target Stage Gate Review Process

Reality 3 • Excessive number of projects put on hold due to lack of resources. • This clogs up system with things that you will probably never get around to anyway! • This is “lottery ticket management”. At some point,you must kill these! Stage Gate Review Process

Lottery Ticket Management: Hey! You never know! This this lottery ticket (or project) might be worth $100,000,000! But it probably isn’t, So kill it already! If you want to play lottery ticket project management, Then use your product development funds to buy lottery tickets, The odds are better! Stage Gate Review Process

Stage Gate Development Process I1 A1 A2 A3 O2 I2 O1 G1 G2 Stage Gate ReviewProcess Always use the Stage Gate processfor every project.. Goal 4 Stage Gate Review Process

Stage Gate Reviews will slow projects down! • Reviews are sequential events scheduled at specific times and attended by particular individuals, usually very busy individuals. • Reviews usually grouped in bunches to accommodate reviewers. • There may be significant project delays while waiting for the project’s next gate review. • This does slow things down. Reality 4 • But killing bad projects earlier in the project ultimately frees up resources that would have been wastedon weak projects. • So, projects slow down, but overall throughput increases. • If you don’t believe this, read The Goal, by Eli. Goldratt. Stage Gate Review Process

Reality 4 • Long-Term Impact… • If you are going to do Stage Gate, • Then everyone has to play by the rules. • If people start going around the system for personal advantage, • The system will collapse. • Some projects will suffer, • But in the long run everyone benefits. Stage Gate Review Process

Goal 5 • In Stage Gate, you provide exactly the information that you needexactly when you need it. • Whole idea is to spend as little money and time as possible to make a good (not perfect) decision. • Goal: • Never spend one penny more than what you need to get through the gate. • Never spend one second more than you need. • This is the “survive and advance” mentality. • You only need one more goal than your opponent to win. Stage Gate Review Process

Reality 5 • Big mental shift: • This goes against human nature, • Especially for engineers, who are taught to be highly risk-adverse. • Tendency on part of engineers is to overwhelm decision-makers with too much information to justify continuing with the project. • But here, you provide exactly the information that you needexactly when you need it. • This takes courage on the part of the project team! Stage Gate Review Process

< 4:1 Attrition < 4:1 Attrition Goal: Most projects are killed – best are preserved Goal 1 A Number of Projects Average COSTPer Project B C Early Project Life Late Stage Gate Review Process

Reality 6 • The vast majority of projects will be killed. • People will see this as: • Personal failure – My project was killed, I must be a bad engineer, • Disruptive and unsatisfying - Constantly starting new projects – never “finishing” anything. • Threat at performance review time – - What am I being judged on? - What is “success”? What is “failure”? - What is “excellence”? • Threat to job security – Constantly killing projects implies an insecure position. • This is the ultimate cultural challenge of Stage Gate! Stage Gate Review Process

Stage Gate Review Process