PD
Prac'ces
for
Mee'ng
Financial
and
Opera'onal
Objec'ves
MIT
and
McKinsey
Team
MIT
:
*Pedzi
Makumbe,
Nisheeth
Gupta,
Eric
Reben'sch,
Warren
Seering
McKinsey
:
**Mike
Gordon,
Chris'e
BarreM,
Chris
Musso,
Jochen
Link
*pmakumbe@mit.edu
&
**
michael_gordon@mckinsey.com
Presenta'on
Agenda
•  Mo'va'on
•  Key
Ques'ons
•  Research
Design
and
Methods
•  Analysis
and
Results
Mo'va'on
Mo#va#on
Ques#ons
Research
Methods
Analysis
and
Results
•  Product
development
is
cri'cal
for
the
financial
success
of
firms
(Ulrich
and
Eppinger,
2004;
Clark
and
Fujimoto,
1991)
•  Product
development
is
an
integral
part
of
firm
opera'ons
(Wheelwright
and
Clark,
1992;
Eisenhardt
and
Tabrizi,
1995)
• Clark,
K.
and
T.
Fujimoto
(1991).
Product
Development
Performance.
Cambridge,
MA,
Harvard
University
Press.
• Ulrich,
K.
and
S.
Eppinger
(2004).
Product
Design
and
Development.
Boston,
MA,
McGraw‐Hill/Irwin.
• Wheelwright,
S.
and
K.
Clark
(1992).
Revolu'onizing
Product
Development.
New
York,
NY,
The
Free
Press.
• Eisenhardt,
K.
and
B.
Tabrizi
(1995).
"Accelera'ng
the
Adap've
Process:
Product
Innova'on
in
the
Global
Computer
Industry
"
Administra've
Science
Quarterly
40(1):
84‐110.
Key
ques'ons
Mo#va#on
Ques#ons
Research
Methods
Analysis
and
Results
•  What
are
the
key
product
development
prac'ces
that
directly
impact
firm
financial
outcomes?
•  What
are
the
key
product
development
prac'ces
that
directly
impact
firm
opera#onal
outcomes?
Research
design
and
methods
Mo#va#on
Ques#ons
Research
Methods
Design
•  Quasi‐experimental
design
–  Gathered
project‐level
prac'ces
data
from
top
execu'ves
in
PD
•  Popula'on
–  Projects
in
the
high‐tech,
industrial
and
medical
industries
•  Sampling
strategy
Methods
•  Agreement
entered
between
MIT
Researchers
and
McKinsey
in
July
2007
to
define
survey
•  Agreement
entered
between
MIT
and
McKinsey.
McKinsey
sponsored
grad
student
and
post‐doc
beginning
in
September
2008
•  Pre‐test
–  McKinsey
‐
data
collec'on
–  MIT
‐
analysis
–  MIT‐
McKinsey
results
interpreta'on
–  Convenience
sample
•  Sample
size
–  110
projects,
327
execu'ves
and
57
firms
Analysis
and
Results
•
•
•
Weekly
7:30am
team
mee'ngs
Con'nued
data
gathering
Analysis
and
results
interpreta'on
Survey
par'cipants
responded
to
143
Product
Development
prac'ce
ques'ons
and
17
performance
metrics
Mo#va#on
Examples of Categories
(9 of 25)
Ques#ons
Research
Methods
Analysis
and
Results
Examples of Practices*
(9 of 143)
Portfolio management
We measure portfolio throughput performance, i.e., the average time for projects to
go from commitment of capital to generating revenues
Technology investment
We don’t use a formal make-buy decision process to determine whether we acquire
new technologies or development them in-house
Align product to strategy
Customer insights
Modular architecture
Our project has had a clear view of its scope and scale from the start, resulting in very
stable development with a very small number of disruptive scope and scale changes.
We periodically test and validate end-user preferences throughout product
development stages
We explore the tradeoff space of candidate architectures to identify and define
product platforms and variants, and/or product families, as appropriate to our market
Cost management
Subteams lack an understanding of cost targets by subsystems, and rarely review
progress toward cost reduction goals
Project planning and
execution
We have a quantified understanding of the potential sources of delays and plans to
mitigate them
Supplier development
Mindsets
Beyond price, we select suppliers using a fact-based assessment of total value
contributions (e.g., design contributions, quality improvements, delivery capability,
product lifecycle costs)
We encourage and reward reusing of designs and methods over clean sheet
development
6
*
Prac'ces
measured
on
a
Likert
scale
(1
to
6),
i.e.
1
=
strongly
disagree
and
6
=
strongly
agree
Analysis
for
prac'ces
directly
correlated
with
financial
outcomes
Mo'va'on
Research
Methods
Ques#ons
Analysis
and
Results
Financial
Outcomes
3
of
143
Prac#ces
49
Our product concept complies with a Correlation Coefficient
long-term architectural road-map
Sig. (2-tailed)
N
50
Our business plan does not address Correlation Coefficient
the full lifecycle costs and impact
Sig. (2-tailed)
N
51
We identify the key product functions Correlation Coefficient
that address the identified customer
Sig. (2-tailed)
needs before locking down the
N
feature set
Project IRR Product Product
& NPV
revenues volumes
-.074
.534
.042
.717
.086
.458
73
76
.256
Product $ Product Product
market
unit
SG&A
share
costs
cost
.155
.198
-.128
.226
.049
.692
77
71
91
68
.234
.268
.065
-.089
.232
.030
.042
.019
.594
.400
.056
72
76
77
70
92
68
-.111
.008
.009
.044
-.033
.146
.361
.944
.935
.717
.760
.232
70
77
77
70
90
69
•  Pearson
correla'on
•  A
prac'ce
significant
for
financial
success
if
it
is
sta's'cally
correlated
with
at
least
3
of
the
6
financial
metrics
with
a
p‐value
less
than
0.05
and
an
n
(number
of
projects)
greater
than
or
equal
to
30.
Prac'ces
directly
correlated
with
financial
outcomes
Mo'va'on
Ques#ons
Research
Methods
Analysis
and
Results
Prac#ces
Correlated
with
Financial
Outcomes
Cost
Reduc#on
Prac#ces
Business
plan
addresses
full
lifecycle
costs
and
impact
Sub‐teams
have
an
understanding
of
subsystem
cost
targets,
and
review
progress
toward
cost
reduc'on
goals
Con#nuous
Improvement
Prac#ces
Demonstrate
year‐on‐year
improvements
in
outcomes
from
con'nuous
improvement
efforts
Knowledge
and
Informa#on
Sharing
Prac#ces
Share
informa'on
across
func'onal
boundaries
Create
representa'ons
of
product
and
process
knowledge
to
facilitate
communica'on
and
knowledge
sharing
Prac'ces
directly
correlated
with
opera'onal
outcomes
(Gordon
et.
al.
2009)
Mo'va'on
Ques#ons
Research
Methods
Analysis
and
Results
Prac#ces
Correlated
with
Opera#onal
Metrics
(Gordon
et
al
2009)
Project
Scoping
Prac#ces
Project
teams
have
a
clear
view
of
its
scope
and
scale
from
the
start
resul'ng
in
small
number
of
disrup'ons
Concept
development
teams
have
necessary
informa'on
to
make
tradeoffs
between
product
performance
and
factors
such
as
cost,
'me
to
market,
and
project
risk.
Project
Execu#on
Prac#ces
Use
skills
database
to
compose
project
teams
before
kick‐off
Nurture
a
strong
project
culture
Ins'll
a
clear
sense
of
project
requirements,
features,
and
characteris'cs
in
their
project
teams
Track
skill
levels
in
order
to
minimize
the
chance
of
overloading
cri'cal
personnel
and
minimize
disrup'ons
from
other
projects
Team
leaders
have
the
responsibility
for
reviewing
the
performance
of
other
team
members
Priori'ze
project
performance
over
func'onal
performance
Customer
Needs
Prac#ces
Periodically
test
and
validate
end‐user
preferences
throughout
the
development
process
Carry
out
ethnographic
studies
and
product
use
labs
in
order
to
understand
customer
needs
The
two
sets
of
direct
prac'ces
are
different
Mo'va'on
Ques#ons
Research
Methods
Analysis
and
Results
Prac#ce
Categories
Correlated
with
Prac#ce
Categories
Correlated
with
Financial
Outcomes
Opera#onal
Outcomes
(Gordon
et
al
2009)
Cost
reduc'on
Project
scoping
Con'nuous
improvement
Project
execu'on
Knowledge
and
informa'on
sharing
Focus
on
customer
needs
•  None
of
the
5
prac'ces
directly
correlated
with
financial
outcomes
are
the
same
as
the
10
prac'ces
directly
correlated
with
opera'onal
outcomes
Summary
Mo'va'on
Ques#ons
Research
Methods
Analysis
and
Results
•  PD
prac'ces
which
influence
financial
outcomes
are
largely
focused
on
cost
reduc'on.
•  PD
prac'ces
which
affect
opera'onal
outcomes
are
largely
focused
on
project
scoping,
disciplined
execu'on
and
maintaining
customer
focus
throughout
the
project.
Comparison
of
Prac'ces
Prac#ces
Correlated
with
Financial
Metrics
Prac#ces
Correlated
with
Opera#onal
Metrics
(Gordon
et
al
2009)
Cost
Reduc#on
Prac#ces
Business
plan
addresses
full
lifecycle
costs
and
impact
Project
Scoping
Prac#ces
Project
teams
have
a
clear
view
of
its
scope
and
scale
from
the
start
resul'ng
in
small
number
of
disrup'ons
Sub‐teams
have
an
understanding
of
subsystem
cost
targets,
and
review
progress
toward
cost
reduc'on
goals
Concept
development
teams
have
necessary
informa'on
to
make
tradeoffs
between
product
performance
and
factors
such
as
cost,
'me
to
market,
and
project
risk.
Project
Execu#on
Prac#ces
Use
skills
database
to
compose
project
teams
before
kick‐off
Con#nuous
Improvement
Prac#ces
Demonstrate
year‐on‐year
improvements
in
outcomes
from
con'nuous
improvement
efforts
Knowledge
and
Informa#on
Sharing
Prac#ces
Share
informa'on
across
func'onal
boundaries
Nurture
a
strong
project
culture
Ins'll
a
clear
sense
of
project
requirements,
features,
and
characteris'cs
in
their
project
teams
Create
representa'ons
of
product
and
process
knowledge
to
facilitate
communica'on
and
knowledge
sharing
Track
skill
levels
in
order
to
minimize
the
chance
of
overloading
cri'cal
personnel
and
minimize
disrup'ons
from
other
projects
Team
leaders
have
the
responsibility
for
reviewing
the
performance
of
other
team
members
Priori'ze
project
performance
over
func'onal
performance
Customer
Needs
Prac#ces
Periodically
test
and
validate
end‐user
preferences
throughout
the
development
process
Carry
out
ethnographic
studies
and
product
use
labs
in
order
to
understand
customer
needs
The
two
sets
of
direct
prac'ces
are
different
but
correlated
Mo'va'on
Prac#ces
Correlated
with
Financial
Metrics
Cost
reduc'on
Con'nuous
improvement
Knowledge
and
informa'on
sharing
Ques#ons
Research
Methods
Analysis
and
Results
Prac#ces
Correlated
with
Opera#onal
Metrics
(Gordon
et
al
2009)
Project
scoping
Project
execu'on
Focus
on
customer
needs
•  None
of
the
5
financial
prac'ces
and
the
10
opera'onal
prac'ces
are
the
same
•  All
financial
prac'ces
are
sta's'cally
correlated*
with
at
least
7
of
the
10
opera'onal
prac'ces
*p‐value
less
than
0.05
and
an
n
(number
of
projects)
greater
than
or
equal
to
30