Automotive manufacturers and suppliers often combine overarching, classic engineering methods with agile development. The COVID-19 pandemic has further complicated the development of consumer products. The Fellow role at McKinsey is a specialed consulting position. We'll email you when new articles are published on this topic. 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. Furthermore, future revenues and costs are planned, targeted, and tracked in the same way as development efforts and product costs that happen before the SOP due to a lack of experience with update and release cycles for software, for example, and the underlying life cycle revenues and costs. Systems engineering is about breaking large, complex projects down into smaller, more manageable pieces and orchestrating the interfaces between them. In our experience, the most effective product managers look to orient new product development around a consumer-first focus, connect different functions, and facilitate an agile process (Exhibit 2). However, in the 21st century the Three Horizons model has a fatal flaw that risks making companies lag behind competitors or even putting them out of business. If you would like information about this content we will be happy to work with you. 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). 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. It assumes that breakthrough innovations will take years to develop. The consumer-goods industry can learn from the evolution of product management in the technology industry and empower product managers to play this critical role. Product managers in the consumer-goods industry tend to fit a more traditional profile, with a focus on project management and tactical execution. Armed with such models and a baseline of productivity levels for similar projects, a company can enter the current specification and develop higher-integrity plans for new products. Measure your organizations product management maturity across five individual dimensions and four organizational dimensions compared with peers and best-in-class software companies. Never miss an insight. This in turn will allow them to provide agile teams with high-level inputs and boundary conditions. Our work in product development includes developing, defining, and implementing strategies that . This emphasis on building brand equity marked a critical juncture in reinvigorating the companys approach to product development. Typically, little data consistency exists across systems, and stakeholders base their planning and steering on different versions of data. Find out how we work on site with clients to help them achieve long-term improvement and measurable, bottom-line results. Sidebar About the authors Today's customers demand new capabilities in their vehicles. Modern, complex product development uses improved top-down planning in sync with a bottom-up agile planning and development approach. For something so fundamentally important to a companys success, product development is notoriously tricky to manage. Nevertheless, the work reveals a number of intriguing and potentially counterintuitive findings. Going forward, OEMs need to adopt data-enabled engineering and virtual-engineering capabilities to understand the value drivers of automotive customers in todays new ecosystem, which includes autonomous driving and data services. And, on our short-term measure, companies that use these metrics perform better than the minority that dont. All of these scenarios have a significant impact on product revenue, profitability, and ROI. 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. More than 40 percent of consumers also say they will use connectivity services more in the future, and about the same number are willing to pay for connected services. Commercial change. We'll email you when new articles are published on this topic. This approach features a harmonized systems landscape and a single end-to-end data backbone along the entire process of product development and life cycle management that connects all relevant steering KPIs. By interacting with all partners in the product-development process, the product manager helps to spur collaboration and knowledge sharing. Creating a logical and physical architecture that combines functional and physical elements typically starts with a functional system view based on system requirements. A study by McKinsey and Co., published in the Harvard Business Review found that "Companies . 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. For incumbents, there are four ways to counter rapid disruption: The Three Horizons model is still very useful as a shorthand for prioritizing innovation initiatives. product management leadership development model. 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. They also want to integrate digital services into an automotive ecosystem that goes far beyond the conventional car to a smartphone-like experience. A fifth of those projects cost over 50 percent more than originally expected. 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. Indeed, the average relative-profit growth of the companies that did use this metric was 12.9 percentage points higher than those that did not (Exhibit 2). Earn badges to share on LinkedIn and your resume. Organizations must closely examine the product development cycle as an important part of optimizing a product to perform in a fluid, changing market. Cleansheet analyzes a products underlying cost structure to help organizations establish cost transparency, set target costs, and capture savings. Companies can use waterfall practices to define the overall vehicle and domain architecture. The variable with the most significant negative correlation with short-term financial performance was budget adherence. For example, some organizations defined Horizon 1 as new features that could be delivered in the short term of three to 12 months, Horizon 2 as business model extensions that will be ready 24 to 36 months out, and Horizon 3 as creating new disruptive products or business models 36 to 72 months out. 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. Beyond product-related improvements, this transformation should propel productivity and efficiency advances due to predictive maintenance or defect detection enhancements. Critically, top management must actively drive this change. It requires more sophisticated software, including a software abstraction layer, Ethernet usage, and connectivity at scale. For example, Google buying Android. Something went wrong. The Product Management Academy leverages a field-and-forum approach and adult learning techniques to build skills for product managers from diverse backgrounds. Technology will see a consolidation toward domain-centered archetypes (fourth-generation architectures) and zone- or vehicle-centered archetypes (fifth-generation architectures). Finally, OEMs and suppliers should pursue software and hardware development target costing, including for the needed resources and associated costs. Traditional tech product managers focused primarily on execution and were evaluated by the on-time delivery of engineering projects. 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. The company drew on its tradition of standout design to guide product development. Spurred into action by the finding, the company took steps to reduce the complexity of its design and prioritize the scope of the effort, resulting in a project that met the customers minimum requirements and could be delivered on time. Freeing teams from strict budgetary limits may lead to product designs that perform better in the market. Product Development & Procurement (PDP) Academy We take a blended approach to learning, combining assessments with online courses, classroom training, coaching, and group work to create targeted learning journeys for different cohorts. McKinsey suggested that to remain competitive in the long run, a company allocate its research and development dollars and resources across all three horizons. Consumer-goods companies face a unique set of challenges. Training at scale includes change management to support the overall transformation. Enter the modern product manager. When we looked at profit-growth stability, however, a different picture emerged. In our analysis, we considered a company to be using a metric if the metric was cited by at least one-third of participants in the diagnostic interview phase. This requires the introduction of a holistic systems-engineering approach combined with an agile organization and agile ways of working. Engineering intuition tends to be linear, while the cumulative effect of increasing performance, features, and quality is highly nonlinear. This time-based definition made sense in the 20th century when new disruptive ideas took years to research, engineer, and deliver. When they reevaluated the plan using analytic models, they found that the project would actually take three or four times as much effort. It was more of a behavioral interview. 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. We based the work on ten years of data collected through the McKinsey Product Development Fingerprint, a proprietary product-development diagnostic tool. The fingerprinting approach has now been applied to more than 500 projects at around 130 organizations. Players shift the steering scope from SOP to life cycle management to enable design for upgradability and to enhance the lifetime of the product. OEMs have an opportunity to redefine their performance regarding R&D hardware and software costs. The company also expects to improve its margins by 20 to 25 percent. A total-cost-of-ownership approach, including considerations of. Resource Cleansheet applies an environmental lens, calculating the environmental impact of the entire product or service lifecycle. Industry structure. 0 5 Want to comment? By Mike Gordon, Marek Kowski, and Sander Smits, Taking the measure of product development. Automotive manufacturers are moving away from a traditional product development steering approach focused on direct material cost optimization targeting the SOP. This architecture consists of a big-data stack in the backend, broad OTA capabilities, and a protected mode in the vehicle stack for in-vehicle simulations. Thus, they systematically underestimate the effort and cost required today versus future revenues or costs over the vehicles life cycle. For product-development leaders, our analysis offers some important insights. An empowered product manager enables an organization to amplify its innovation efforts. 2 This approach requires a top-down definition of general requirements with a strong focus on customer expectations and experience. A global team of analysts from five Sourcing Centers, located in best-cost sourcing hot spot locations, help provide our clients implementation-level support in global sourcing diagnostics; country and category prioritization; supplier identification and evaluation; supplier bidding, negotiation and selection; and global sourcing organization design. These conversations helped the team align on product-redesign choices that not only met consumer needs, but also achieved cost targets. expansion of the product range), fit in perfectly with Horizon 1. One global consumer-goods company had lost its position as a market leader because of a lack of innovation, a recently failed launch of a critical product, and decreasing margins in an increasingly competitive market. Incumbents now face a new competitor that makes their existing product line, infrastructure, or business model obsolete. Expanding product complexity in the form of more control units, more software, and complex distribution functionality makes it difficult to attain high product maturity levels across product development processes. Please email us at: Making product development as digital as tomorrows products, Jeremy Hope and Robin Frasier, Who needs budgets?. That puts these product-related metrics among the most commonly used across our sample. Subscribed to {PRACTICE_NAME} email alerts. 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. Please email us at: World Economic Forum: A preview of Davos 2023, Author Talks: The worlds longest study of adult development finds the key to happy living, The executives guide to new-business building. McKinsey & Company. Built in a modular fashion, this program can be tailored to offer personalized learning journeys across different inflexion points in a product-oriented career. In part, thats because R&D activities require companies to juggle so many dimensions. By looking at the business opportunities via various dimensions, a company has a good chance to grow. 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. The new service will enable spend transparency, spend and cost analytics, and value-capture management. Last, it is important to evaluate these programs by tracking KPIs that measure both participation and effectiveness. Developing a set of models, then, relies on an array of advanced analytics, machine learning, and artificial-intelligence techniques to predict the complexity and required development effort and schedule in a reliable way. This research is at an early stage. An initial round of ethnographic research provided fodder for speculative product concepts that could be tested with consumers. As shown in Exhibit 1, OEMs and suppliers need to manage several game changers and shift their mindset to be competitive in future automotive-product development: Automotive manufacturers and suppliers are moving from a strong hardware focus to a functional one, and many are changing their operating models to a systems-based development approach. 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. 3. Requirements for change include conducting constant reviews, adjusting objectives as necessary, and tracking target achievements. 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. The core of the steering approach should be the total product business case based on the TCO, including any costs that arise during the initial product development phase (for example, R&D costs, capital expenditures, and product and factory or production costs). Led teams of up to eight consultants in growth strategy, marketing & sales, and technical product . 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. This role combines the orchestration of an agile scrum master, the insights of a data scientist, and the consumer centricity of a design lead. are all secondary to speed of deployment and asymmetry. Rewiring car electronics and software architecture for the Roaring 2020s, McKinsey, August 4, 2021. The modern product manager emerged from this evolution as a central role. One possible explanation for this finding is that some organizations are sacrificing long-term performance in the pursuit of short-term objectives, for example by working hard to get the next product into the market without sufficient attention to the development of a broad portfolio, or to the technologies and strategies that will underpin future product generations (Exhibit 1). Introducing the next generation of automotive electrical and electronics architecture requires a comprehensive business case that looks beyond the vehicle start of production (SOP) and initial bill of materials. After reading it, . Please email us at: McKinseys new weekly newsletter, featuring must-read content on a range of topics, every Friday. 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. In our experience, the primary skills of a modern product manager are often dispersed across a number of talented individuals. S2P enables clients to realize the full potential of procurement savings in profit and loss by linking category-sourcing strategies to procurement operationsputting the optimal processes, organization, and digital procurement tools in place that enable simple, efficient, and compliant third-party spend. Overview Overview 9.2k Reviews 257 Jobs 16k Salaries 4.7k Interviews 2.6k Benefits 88 Photos. And because they can put the right number of the right people on their projects at the right time, they also enjoy R&D-productivity improvements of 20 to 40 percent. McKinsey_Website_Accessibility@mckinsey.com. And traditional methods often fail to account for other external factors, like the programming and development styles adopted by the development team, multisite development, and the impact of challenges the team is facing for the first time. And their estimates automatically incorporate the effects of the everyday delays and disruptions that development teams must face. I applied through college or university. Many organizations will rapidly test new products and ideas to meet changing market demands, but this complex operating environment increases the urgent need for a sophisticated product-management function. The model described innovation occurring on three time horizons: Each horizon requires different focus, management, tools, and goals. We helped a high-tech company elevate the skills and impact of its 300-person product organization through a three-month capability building program that encompassed learning forums, online modules, Furthermore, the strong focus on material costs can lead to a high number of variants in the product portfolio configuration. Across industries, innovative ideas and enabling technologies are increasingly likely to come from outside the organization. The use of this type of metric was strongly associated with both relative-profit growth and profit-growth stability. These models can even identify the productivity impact of changes to working methods. This is extremely difficult for large companies or government agencies as it is as much a culture and process problem as a technology problem. The product manager has emerged as a crucial force to steer this process and balance these lenses. It collects and aggregates user feedback, supports the R&D department in analyzing feedback, and disseminates conclusions to the relevant development teams. We strive to provide individuals with disabilities equal access to our website. Thats important, because widespread knowledge of a metric indicates that the company is using that indicator actively as part of its performance-management processes. Companies that measure their effort to identify and exploit external innovation are more likely to get better at it. These rapid Horizon 3 deliverables emphasize disruption, asymmetry and most importantly speed, over any other characteristic. The consumer-goods industry in many ways defined the notion of a product that addresses a specific consumer need and creates value. To understand how quickly Horizon 3 products can come to market, consider some examples. 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.