When a company has a world-class reputation both for R&D and for manufacturing, how is it that the same company can come seriously unstuck when it comes to getting a new product onto the market? Unlikely as it seems, it happens all the time, often with high-profile and long-term consequences.
For example, consider the launch of the Mercedes-Benz A Class, Daimler-Benz’s first vehicle for the small car market, and widely acclaimed as a major step forward in automotive engineering. When the car rolled over during tests in Sweden, it was withdrawn for re-engineering amid safety fears; worse still, 3000 cars that had already been sold had to be recalled. The impact on Daimler-Benz’s profits was estimated at £100 million, with the same amount again spent on re-engineering.
Psion, meanwhile, is one of British technology’s more conspicuous success stories of recent years. When it launched the Series 5 Palmtop, however, there just weren’t enough computers available to meet demand. Further manufacturing facilities were hastily brought on stream, but it is estimated that the delay reduced the company’s half-year operating profits by 50% or £3.5 million, with a corresponding 25% drop in the share price.
The problem
Examples like these show that even top-flight companies do not always reap the expected value from new product launches. Companies repeatedly fail to get products to market in accordance with their own schedules—a failure that can have long-term financial repercussions when you consider the electronics industry rule of thumb: ‘Six months late to market means a 33% loss of lifecycle profit’. When the products do go live, unforeseen problems (such as those examined below) prevent them from selling as projected. At worst, the companies can be left liable for product failures.
At PA Consulting Group, we have developed a practical remedy to these problems in the form of a set of pragmatic disciplines under the heading ‘transition to manufacture’. This in itself is indicative of the nature of the problems that we have typically uncovered while working for major clients.
Companies often do not appreciate the major changes in organisation, responsibilities and processes that have to take place in the transitional period between a prototype build and volume manufacture. Once the prototype has proved the design, delivery responsibilities are often changed abruptly with no recognition of the transition issues.
This discontinuity can be caused by a whole series of factors, ranging from weaknesses during initial design and planning through to failure to adapt the product design to environmental or technological change. The major pitfalls can be categorised as shown in Fig. 1.
Figure 1: There’s many a slip: what can go wrong in the crucial transition phase
Collectively, these pitfalls can mean increased time and cost in the transition phase, and potential failure of the product as a whole. However, they are all avoidable, once companies recognise and address them. Rolls-Royce Motor Cars is an example of a major success story in this area. The company realised early in the lifecycle that there were obstacles to delivering a new product, the Silver Seraph, to the requisite quality within project time and cost constraints. PA put together a multidisciplinary team to help Rolls-Royce review the project and then support the all-important transition from prototype to manufacture. The result was a much shorter product lead-time, compared with earlier Rolls-Royce projects, and a launch so successful that it startled even industry pundits.
What to do?
For companies to begin achieving successes like these, ‘transition management’ urgently needs to be recognised as a discipline in its own right.
Most companies have two quite different environments and management styles for product development and for manufacturing. One is a ‘project’ environment, the other a ‘process’ environment: people work differently and need to be managed differently in these two environments. What some companies fail to appreciate is that a third discipline is needed to address the transition between these two environments.
But the characteristics and skills of a transition manager are different from those of either a project manager or a line manager. Once teams with transition management skills are established, striking gains become possible.
When pharmaceutical equipment specialist Baker Norton faced problems in implementing its patented design for a revolutionary dosing inhaler, PA helped to attack the problem head on. A team was tasked specifically with designing a production facility to match the requirements of the product, and transferring the product into volume manufacture. The resultant technology earned Baker Norton $78 million, plus an annual volume/revenue related fee when it granted Glaxo-Wellcome exclusive rights.
The essential conditions for successful transition demand that the company focus on three critical organisational features:
- foresight: anticipating changing product and market conditions, through management of knowledge
- co-operation: creating the right conditions for transition through management of complexity
- flexibility: handling risk and responding to change through management of uncertainty.
Time compression
A key aspect of transition to manufacture is how businesses can become more focused on cutting time to market. Many organisations are fixated on controlling costs during R&D and prototyping, but in practice time usually has a far greater impact on the total value generated over the product lifecycle. Therefore, extra investment, if required to bring a project back on schedule or to resolve high technical risk issues, can pay back many times over.
This sort of thinking could have benefited Unilever when it launched Persil Power, a new soap powder with an ‘accelerator’ containing manganese. After the product was launched, it emerged that the product could damage materials at high temperatures, which caused grave damage to the brand’s sales and reputation.
Since it was reputed that the development time was quite tight, it is possible that applying such an approach would have uncovered the risk in advance. Most retailers withdrew the product, and Unilever embarked on a damage limitation programme, together with an overhaul of the internal procedures and practices that had allowed the product to get to market. The overall cost was estimated at more than £200 million.
Extended gateways
In the early stages of a project, success criteria at gateways are often mainly technical. By adding manufacture and market-facing goals to the picture, the gateway system becomes a powerful framework for quantifying whether a project is still going to deliver something that is attractive to the market and viable from the manufacturing viewpoint.
Extended gateways might have saved Lucas upwards of £500 million in sales per annum: this company proceeded with development of its mechanical ABS braking system even after competitor Bosch launched a microchip version, the advent of which helped slash Lucas’s market share from 35% to 5%.
The fractal organisation
At PA, we encourage managers to think in terms of integrated project teams working in what we call a ‘fractal’ organisation structure.
The aim is that the multidisciplinary nature of the team should be duplicated at all levels, from the project team, through the management teams, right up to the senior management steering group. Once this cross-functional way of working pervades the hierarchy, decision making becomes much more effective and teams achieve a greater level of productivity.
Faced with past failures, many organisations do not set their expectations high enough when it comes to transition to manufacture. But again that products can be launched on time—products that fully meet market requirements. We have shown that it really is possible to realise the full lifecycle value of a product. Achieving all this and the consequent commercial gains is a challenge, but we believe that with the transition to manufacture framework, any company can achieve it.
