Consumer-goods companies can learn from the evolution of product management in the technology industry to strengthen and accelerate their own product development. 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. We'll email you when new articles are published on this topic. Agile product development relies on a dynamic model that ignites passion in people. Subscribed to {PRACTICE_NAME} email alerts. Unlock your team's curiosity and willingness to take smart risks. By interacting with all partners in the product-development process, the product manager helps to spur collaboration and knowledge sharing. Measure your organizations product management maturity across five individual dimensions and four organizational dimensions compared with peers and best-in-class software companies. This shift focuses on standardization by using IT components and systems via horizontally interlinked technical stacks instead of relying on integrated, embedded systems. 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. Delayed launches mean lost sales, opportunities for competitors to get ahead, and potentially damaged reputations. Next-generation electrical and electronics architectures will require significant upfront investments that will pay off only in the following generation. That was the case for one former leader in the consumer-goods space that had lost 50 percent of its market share over the course of a decade-long slide. McKinsey & Company. Leaders estimate the renewed focus on the consumer will result in a 15 to 25 percent price premium and incremental market share of more than 20 percent by year two. The industry structure will change significantly when OEMs start sourcing hardware and software separatelyfor example, new players could enter the hardware and software space, or OEMs could work directly with tech players or tier-two specialists. Product development should be ongoing, as many products can be improved based on what happens during their lifespan. 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. 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. This role combines the orchestration of an agile scrum master, the insights of a data scientist, and the consumer centricity of a design lead. In particular, we wanted to identify the approaches used by companies that achieve consistent high performance. McKinsey's Product Leadership Forum is a quarterly webinar that brings together product leaders across different markets and regions to discuss key and emerging global product management topics. Consumer-goods companies need to balance rapidly changing consumer and market needs with relevant product experiences. After reading it, . The three horizons are no longer bounded by time. The team also collaborated with end consumers, sales reps, distributors, purchasing managers, consultants, and internal stakeholders to pinpoint market trends and consumer needs. Smartphones on wheels: New rules for automotive-product development, This article is a collaborative effort by. Engineering intuition tends to be linear, while the cumulative effect of increasing performance, features, and quality is highly nonlinear. 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. Product Development & Procurement - McKinsey & Company By themselves, metrics arent a solution to product-development challenges, but the key performance indicators (KPIs) companies use do show where management is focusing its attention. The ability to relate credibly to all stakeholders, especially when passions are high, is extremely valuable. The projects planners arrived at this estimate on the basis that 90 percent of the new design would be carried over from its predecessor. The risk here is that copying innovation without understanding the customer problem can result in solutions that miss the target. The first root cause is underestimating the complexity of the project. When embarking on efforts to design complex things, companies often have little idea how long a project will take, what it will cost, or what they'll finally be able to deliver to the end customer. We strive to provide individuals with disabilities equal access to our website. Exhibit 1. Managers and engineering teams are often surprised by the combined impact of all the features and performance targets and the cost of integration into a finished product. Healthier teams may be better-equipped to regroup and produce good results, project after project, year after year. 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. Industry structure. Companies should focus their efforts on several areas. McKinsey & Company. Learn how to build slide decks like McKinsey It represents a critical enabler and precondition for leaping into Level 4 and Level 5 autonomous driving. The acquisition, development, and retention of new software and system-engineering talent and capabilities will be core to success. Instead, OEMs need to become more customer centered across the entire product development process, even to the point of launching a dedicated customer experience (CX) unit. The goal is to achieve customer-centered product development with integrated feedback from customers in short iteration cycles, where the voice of the customer sets the pace for the product development process. You will lead the execution of digital product development and transformation projects for leading industry players, mainly in Johannesburg. We also help companies develop and retain this crucialbut often overlookedtalent pool. Positioned at the intersection of a variety of functions, product managers must also have strong communication skills and diplomacy. We also help companies develop and retain this crucialbut often overlookedtalent pool. A total-cost-of-ownership approach, including considerations of. To investigate this issue, we conducted a new analysis to compare companies use of different product-development KPIs and their overall financial performance. Senior leaders should champion innovation in product development, but they shouldnt control the process. 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. To do this, we designed a second metric. Accelerate your career with Harvard ManageMentor. In this role, you will be a core member of the McKinsey consulting team with responsibilities that range from shaping product vision and strategic designs to managing and transforming agile product and . Companies also must ensure they are making the right use of limited resources, allocating people, time, and money to the projects that will best meet their short- and long-term strategic goals. By maintaining a consumer-driven vision throughout the entire processfrom initial concept through transfer to manufacturingthe company was able to shorten the development timeline by 40 percent. It can be a complex challenge to refine a product concept and make the right adjustmentswhile balancing input from varying perspectiveswithout straying from the concepts core consumer-value proposition. 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. Earn badges to share on LinkedIn and your resume. They must consider how well they are meeting the needs of customers with varying requirements. A modern product manager acts as a catalyst and objective arbiter of competing interests and perspectives in the product-development process to facilitate both designing the right thing and designing the thing right.1McKinsey proprietary market research; S&P Capital IQ, spglobal.com. Elements of these include the data backbone; the backend or big-data stack; in-vehicle architecture; technology such as machine learning algorithms and simulation techniques; and governance, including data governance, legal framework, and consent management processes. Rewiring car electronics and software architecture for the Roaring 2020s, McKinsey, August 4, 2021. 2 In particular, only one-third of companies measure innovations that were developed by or with their suppliers and partners. 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. They assume that specifications will not change and that resources will be available when needed. That led us to wonder about the relationships between what companies track in product development and how they perform. R&D projects are inherently unpredictable. 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. setting up a new branch), or product development (e.g. The company then sought to develop a bold new look that would serve as a statement upon entering the new product category. True breakthrough innovation in product development has the potential to reshape categories, reinvigorate brands, and create deep consumer relationships. ), Get started with your Free Employer Profile, The Ultimate Job Interview Preparation Guide. In your case, you will have to work on Product Development and Procurement projects primarily, so you will build an expertise on those topics for the beginning. Process breakdowns. 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. Absent a role that represents the voice of the consumer from inception through to completion, companies can end up with overengineered products that exceed cost targets and dont meet core consumer needs. For example, in an analysis of more than 1,800 completed software projects, we found that only 30 percent of them met their original delivery deadline and one in five of these did so by removing or deferring feature content. McKinsey's Three Horizons Model Defined Innovation for Years. Here's Automotive manufacturers and suppliers often combine overarching, classic engineering methods with agile development. design focus, and the evolution of software-development methodologies. There are two aspects to Product Portfolio management (each with different stakeholders): . From electrification and autonomous driving to digital services and connectivity, a massive number of innovations are on deck today, expanding the innovation pipeline. Based on these inputs, agile teams can create detailed requirements before developing and testing the components. executive coaching and on-the-job learning. 1 It also influences requirement changes and cocreates the vehicle with technical R&D teams to ensure the product accurately reflects CX elements. We guide the creation of a streamlined next-generation operating model, characterized by digital user journeys. However, the trap of the Three Horizon model is not recognizing that today many disruptions can be rapidly implemented by repurposing existing Horizon 1 technologies into new business models and that speed of deployment is disruptive and asymmetric by itself. At its heart, the new approach relies on the fact that, while every development project is unique, the underlying complexity drivers across projects are similar and can be quantified. Learn how we work intensively with clients across all industries and topics to improve performance and produce results: rapid, significant, measurable improvements in productivity, cost, quality, sales, and other metrics. Over 80 percent of those projects were late, and the average overrun was nearly 30 percent. Automakers should also increase their engineering efficiency and use their limited R&D resources most efficiently. OEMs focus on material cost optimization to reduce product costs and improve product profit. Learn from top product professionals and thought leaders in a cohort-based learning program and get recognized with a graduation badge. They play a variety of roles, using a broad base of knowledge to make trade-offs, and convene cross-functional teams to align diverse functions. New rules for automotive product design and development | McKinsey DOWNLOADS There's a riptide cutting through automotive-product development, and it's forcing OEMs and suppliers to reoptimize their product development processes and R&D operating models. And if it cant, the company can run what-if analyses to evaluate the impact of dropping certain features or simplifying performance requirements. Roni Luo - Senior Engagement Manager - McKinsey & Company - LinkedIn This dynamic will place more importance on roles and skill sets that involve orchestrating and integrating product-development processes. Their initial project plans are sometimes no more than educated guesswork. Strategies such as market penetration (e.g. Software will be a key driver of customer experience and generate new revenue streams. 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. 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. In our experience, the primary skills of a modern product manager are often dispersed across a number of talented individuals. Designs and leads major operational transformations for basic materials clients; brings extensive expertise in procurement. Planners tend to assume that the issues that befell their previous project would be cured and that no new issues would crop up. 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. The breakthrough product brought in an estimated $50 million in incremental earnings before interest, taxes, depreciation, and amortization (EBITDA). Predictive analytics have already have transformed the outcomes of some high-value projects (Exhibit 2). If you would like information about this content we will be happy to work with you. The first use case takes advantage of advanced simulation techniques to improve multiphysics simulations via surrogate models or virtual testing with an AI-based driver in the loop. Often, a large amount of work is finished before other stakeholders have a chance to weigh in, causing misalignments, delays, and rework. Instead, they should delegate ownership at the product-manager level. are all secondary to speed of deployment and asymmetry. Resource Cleansheet applies an environmental lens, calculating the environmental impact of the entire product or service lifecycle. The results of this effort reinforced the value of identifying a product manager to guide the development team and experts through the process. 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. We'll email you when new articles are published on this topic. 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. In this new environment, routine upgrades will happen throughout the vehicles life cycle, including over-the-air (OTA) updates to fix bugs, update software features, improve customer experiences, or sell new features not available at the time of the vehicles original sale. In fact, its the speed of deployment of Horizon 3 products, strategies, and capabilities that are a devastating upset to the status quo. And competing priorities can cause organizations to lose sight of the initial product and business goals. The new service will enable spend transparency, spend and cost analytics, and value-capture management. Serves clients in consumer and retail and leads consumer durables and our growth by design work, Leads product optimization at McKinsey globally, using digital capabilities and analytics to improve product design and cost, Transforms operational performance and optimizes research and development for leading companies in the advanced industries sector, Advises oil and gas companies on capital projects, procurement, and strategy. In that time, weve interviewed hundreds of project stakeholders, including executive managers, technical leaders, and program and project managers. OEMs and suppliers create a network of cross-functional, empowered teams. Its paired with algorithms based on machine learning to intelligently collect data at scale and identify interesting situations to propel the development of Level 4 and Level 5 autonomous-driving features or optimize driver-assistance features. 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. For example, companies that measure suppliers innovation performance show an average short-term profit growth thats 15.4 percentage points higher than the rest (Exhibit 3). A critical element of product development is instilling consumer centricity in the end-to-end process. As a result, leading companies are adopting a mini-CEO product manager archetype with skill sets across five capability areas: customer experience, market orientation, business acumen, technical skills, and soft skills. Product Portfolio Management - 5 Examples + 4 Frameworks - TCGen The Product Management Academy leverages a field-and-forum approach and adult learning techniques to build skills for product managers from diverse backgrounds. And even today, some Horizon 3 disruptions do take long periods of development. $50K That puts these product-related metrics among the most commonly used across our sample. Thus, they systematically underestimate the effort and cost required today versus future revenues or costs over the vehicles life cycle. This emphasis on building brand equity marked a critical juncture in reinvigorating the companys approach to product development. Jeremy Hope and Robin Frasier, Who needs budgets? Harvard Business Review, February 2003, hbr.org. This approach features strengthened end-to-end responsibilities through clearly defined system-engineering roles and aligns the organizational structure with the system architecture to integrate the functional, logical, and physical architectures. Interviews are similar as the one for generalist positions, they both include the PEI, the fit and the Q&A parts. Companies that measure their effort to identify and exploit external innovation are more likely to get better at it. New rules for automotive product design and development | McKinsey And, on our short-term measure, companies that use these metrics perform better than the minority that dont. We strive to provide individuals with disabilities equal access to our website. When they reevaluated the plan using analytic models, they found that the project would actually take three or four times as much effort. This success will shift the business model away from one-time sales and toward vehicle life cycle revenue streams and new forms of monetization, such as pay-per-use or subscription-based models. Over the long term, however, companies should also measure the things that build customer loyalty, such as satisfaction with a products performance, price, and specifications. For example, Google buying Android. Only 15 percent of the companies in our sample did not make widespread use of this metric, but those companies had an average relative-profit growth 11.4 percentage points higher than the remaining 85 percent. Arjun Balaji is a partner in McKinseys Bengaluru office, Raghavan Janardhanan is a partner in the Chennai office, Shannon Johnston is a specialist in the Toronto office, and Noshir Kaka is a senior partner in the Mumbai office. Last, companies will have to rethink innovation and collaboration in remote-working team structures. These conversations helped the team align on product-redesign choices that not only met consumer needs, but also achieved cost targets. McKinsey - Refueling the innovation engine in vaccines (2016) If you'd like to download more consulting decks from BCG, Bain, L.E.K Consulting, Oliver Wyman, Kearney and more, then check out our free database of 71+ downloadable consulting presentations. 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. For those who grew up with the notion that creative disruptive Horizon 3 products takes years are in for some unpleasant surprises. KEY NOT FOUND: ei.filter.lock-cta.message. Technology has made that assumption incorrect: Today innovations like Uber and Airbnb can be rolled out extremely quickly. Training at scale includes change management to support the overall transformation. The fingerprinting approach has now been applied to more than 500 projects at around 130 organizations. Per Year (Employer est. And they must understand how new products will fit into their existing portfolio, and how they stack up against competitor offerings. It's All About Customer Value If you beat competitors at the customer value game, your products will win. Beyond participation in the vehicles initial sale, OEMs need to cultivate a true life cycle experience with multiple car and noncar touchpoints per month. Rewiring car electronics and software architecture for the Roaring 2020s, McKinsey_Website_Accessibility@mckinsey.com, end-to-end product development steering and controlling based. For example, NASA and. (When I say business model I dont just mean private businesses, but also government agencies, nonprofits, and others who have a mission model instead.). 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. 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. Horizon 2 ideas extend a companys existing business model and core capabilities to new customers, markets, or targets. Executives will have to decide whether to develop in-house talent or hire to fill this need. 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. All of these scenarios have a significant impact on product revenue, profitability, and ROI. The average budget overrun experienced by a group of factory-automation-software projects we studied was more than 10 percent. 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.

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