The most common complaint I hear from within organizations that are struggling with delays is “We don’t know how to say no.” But maybe what’s most surprising is that so many companies are unable to commit to the up-front assessment work necessary to make their new product portfolio more productive.
If your organization ever struggles to get new products to market on time, you know that these delays can demoralize an organization faster than anyone expects. But what you might not realize is that establishing effective governance is the first link in the chain to on-time performance and higher innovation productivity. That’s because weeding out low impact and low feasibility projects is key to making sure new product resources aren’t wasted on projects that never should have been started in the first place.
There is nothing more useless than doing efficiently that which should not be done at all.—Peter Drucker
A governance firewall like this pays big benefits by killing questionable projects before they can waste resources. One company we worked with was planning an extension of their high efficiency industrial line into the commercial market. But with the governance that we helped them establish, they realized that they had not done sufficient payback analysis to understand what pricing would be required to get customers to switch. After learning that the selling price needed to be below the expected manufacturing cost, they killed the project. That saved hundreds of thousands of dollars, and instead redirected the resources to a better opportunity.
The first step in establishing this type of governance is to screen every new product idea or opportunity first against your own new product strategy and then against what we call the “Big Five” feasibilities.
- Commercial – Will this product alleviate a significant limitation for the customer and will the financial payback be attractive enough to entice purchase? Even if the answer is yes, can you easily reach and convince the buyers with this problem?
- Technical – Do you have a technology solution available, or does it have to be developed and what is the level of uncertainty?
- Manufacturing – What are the supply chain implications involved and what kind of investment might be required?
- Regulatory – Are there any governmental agencies that must be appeased before you can produce or sell your new product and what is the timing required for approval?
- Intellectual Property – Of course you may want to patent your technology, but here we’re looking at it from the other direction. Do you have the freedom to operate without violating others’ patents?
After answering all of these questions you can then determine if the return and investment you have to make are acceptable to justify moving forward with development.
The Prioritized Backlog
But just because a project makes it through governance doesn’t mean you should start it immediately or even at all. If this sounds contradictory, just imagine that you had six good projects come through governance at the same time but only had enough resources to work on three of them at the same time. Starting all six would mean that all of them would take twice as long.
Instead, the next step in governance is force ranking the projects you do have and placing them on a prioritized backlog waiting for resources (I’ll cover how and when to move projects off the backlog and into execution in a later article). And the best way to rank your projects is on return per unit of your most constrained resource. I won’t go into the math here, but if software engineering resource is your highest loaded function, then you maximize throughput for your portfolio by prioritizing based on return per engineering hour.
One company that we worked with initially had 45 active projects running with a development staff of only 12. Their time-to-market had ballooned to 36 months; even small projects seemed to go on forever. Very early on we worked with the leadership to force rank their projects. After determining how many the team could handle, we froze the remaining projects and placed the rest on a backlog. Initially, some managers were anxious—but not for long.
With key programs moving once again, they soon experienced the value of focus. They cut time-to-market in half and were eventually finishing projects on-time and in as little as 10 months. As a result, they brought more successful new products to market in the next year than they had in the last three. Costs also dropped by over $1 million since they were no longer paying for regulatory certifications on products that had little chance of ever getting to market.
Some Pitfalls to Look Out For
Pitfall #1 Bureaucratic Governance – It’s a tricky balance to add governance and at the same time remain agile. But with careful planning and communication, it can be done.
Yes, you want a standard governance approach, but you don’t want to make the mistake of trying to force fit the same evaluation across different classes of new products. What works best in R&D or NPD is quite different from what fits in an OEM supplier or engineer to order environment.
You may also need to backlog some projects that are already underway—never popular but effective when handled and communicated correctly. You want to make sure all stakeholders understand the reasoning behind those decisions so you get good buy-in and solid alignment.
Pitfall #2 Pretend Governance – Good governance has integrity, is transparent, and is well communicated so that people continue to believe in and work within the system. When you turn a blind eye as certain people within the organization are allowed to breeze through or even skip governance, you run the risk of letting it become a political process that is easily ignored.
Another example of pretend governance is when certain lower margin opportunities are spared scrutiny. Allow this to go on too many times and the organization will lose their respect for the entire process. That’s not to say there aren’t times when you have to take on lower margin opportunities for strategic reasons. But with the right approach you can turn some of these lower margin opportunities around. Not by saying no, but by saying not at that price.
Pitfall #3 Static Governance – Good governance is dynamic. If we have three projects on the backlog and an even better one comes along, do you have the flexibility to reprioritize the backlog? This can be quite a challenge in an environment involving customer driven work where completion dates have been promised. Your system needs to be well thought out in terms of whether and how to manage a dynamic backlog.
Building Robust Project Plans with Realistic Timelines
This article has summarized the necessary elements of governance required to build a disciplined system for bringing work into the organization. In the next article, I’ll explain how to plan projects and create realistic timelines that both your team and your customers will understand and accept.
In the next article, I’ll explain how to plan projects and create realistic timelines that both your team and your customers will understand and accept.
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