The Problem
Product development is emotionally exhausting, financially terrifying, and so fraught with conflict and risk that it is a wonder anyone wants to do it. This may seem over-negative, but it unfortunately does cover the experience of many. Experts offer panaceas but rarely are they of practical use?
Many of the issues lie in the method of approach, and there is no better exemplar of good practice than Toyota, which follows exactly the method outlined.
What follows is an outline. If a deep study is needed the EM recommends: The Principles of Product Development Flow – Reinertsen.
Follow Modern Thinking
The thinking actually isn’t that modern. The tech giants and companies like Toyota have been following the product development principles below for years. Unfortunately, less than 3% of the product development community are even aware of these gems. Shame, but there you go.
Cost of Delay (£CostDelay)
The core unit of measure in product development is money.
It is the one basis that everyone understands and is the ultimate goal, but very few product developers use it as a key process indicator. All sorts of proxy measures are used, like development turn or ratios of hours, but these measures are removed from the real goal – to make money by developing a product. Every product developer should know what the cost of delay (£CostDelay) is for every project being run, but less than 3% do.
The £CostDelay is the daily cost of every day that is a block to the date on which sales can be made. It isn’t just meeting or missing a delivery, it is the cost/risk balance of an activity in terms of its effect on delivery. It is usual for the £CostDelay to be quoted as a cost/day. An example will serve to illustrate this. Suppose a product is being developed for which the first year of sales is expected to be £1,000,000. It would be normal to expect a net profit of at least half of this, so £NetProfit = £500,000. If we assume the year has 260 working/selling days this gives a daily £CostDelay = £1,923. This means, neglecting material and labour costs of actually taking an action, a task that takes 10 days causes £19,230 in potential lost profit, but this is only half the picture because we need to balance what it costs in delay against the monetary risk that not doing it would represent in terms of customer dissatisfaction or even returns. Let’s cover this with something real: a camera and the design question is whether or not to develop an injection moulded lens cover. Let’s assume that it takes 10 days to design and configure the lens cover and the probability that customers will be dissatisfied if the product has no lens cover is 20%. The formulas and calculations below serve to make the point:
£CostDelay = £NetProfit((Duration/260) – Risk)
If Risk > Duration/260, the decision is do because the complaint cost exceeds the action cost.
If Risk < Duration/260, the decisions is leave because it will cost more to do than it will cost in customer dissatisfaction.
For information, £CostDelay = -£80,769 for the camera – definitely do!
How often are such decisions made on gut feel in your development team? Or worse, the gut feel of the most egotistical in the team! The only arbitrary figure in the above is really estimate of Risk. It is much better basis upon which to make decisions than gut feel!
Queues and Flow
These days and for many years the focus is on capacity because development teams have been led by Six Sigma and Operations successes with the same – minimising variation. Whilst this approach is profoundly rewarding for Operations it is deeply flawed for Product Development. The reason is development, like digital communications, is subject to a great deal of variability and risk, which Operations isn’t. This translates into the need to break the product development process down into much smaller processes than is traditional. It is also necessary to remove the linear thinking. If a 3D model rather than a simple 3 or 4 phase stage gate process is adopted the flexibility is greatly enhanced. The reference in the opening paragraph is recommended for further coverage of this, or feel free to contact the EM – link below. The EM will be glad to help.
How?
The EM would be delighted to help you through the rewarding transition that working like Toyota delivers. Please click below or book a call if desired.
