“High infant mortality among projects is inevitable”

“The gate system is intended to ensure that the right home-work has been done”

Stage-Gate® management of New Product Development

About seventy per cent of R&D work can be classified as new product development (NPD). The term is also used in marketing, and indeed sometimes a new product is entirely a marketing concept, with trivial technical input, such as a new flavour or colour. Marketing has an essential input even when most of the expenditure on a project is for technical work, as will be seen.

As R&D projects strive to proceed from mere ideas through stages to success as revenue earning products or processes in the business, most fall by the way. Typically when twenty ideas start as projects with budgets, only one will survive through to implementation. Most fail as accumulated information makes it clear that there are technical, marketing, financial or strategic problems that render them unviable, or at any rate less attractive than other projects. High infant mortality among projects is inevitable because of the nature of R&D, and if very high completion rates are achieved, management should investigate to see whether the R&D work is too unadventurous. Even so, much failure can be due to weaknesses in managing the process. Sometimes money is spent to develop a product only to discover that manufacturing cannot make it, or marketing cannot sell it, or the company does not wish to move in that direction. Projects can be hard to kill because of the commitment of their adherents long after facts are available that indicate that the money should be committed elsewhere. Sometimes managers attempt to pick winners at too early a stage, when it would be better to spend a little on a number of projects at first, to find out more about them.

The stagegate system of NPD project management provides go/kill decisions at about five gates, at each of which a project must apply for further funding. At the first gate an idea seeks funding for an initial few days of work, and has to meet only the simple criteria that it appears to be technically feasible, it appears to have market feasibility, and it is in line with company strategy. A financial appraisal is not required at this gate. The most critical gate is that allowing a project through to development, because development is the most expensive of the stages, but has a high failure rate. What is needed at this gate is a full business plan, to which marketing, production, finance and strategy have all contributed. Here formal discounted cashflow estimates of project benefit are required (see chapter 18), and plans must be available in appropriate detail for subsequent testing, production and marketing if the project should pass through development successfully. The requirements to be met at each gate, and the criteria for passing, are set out in advance. Gate committees include representatives of all company functions. It is at the gates that managers of other functions are enabled to take part in R&D decision making, and the most senior managers should attend major gates such as the one leading to development.

It can be seen that the gate system is intended to ensure that the right homework has been done before commitments are made, and to introduce an appropriate element of parallel working among the company functions. It should also achieve buy-in for the projects selected. An important function of gate committees is to check that not only has the required work been done, but that it has been done with sufficient quality.

Management of the R&D portfolio

In the Stage-Gate® system projects are considered in isolation, or at best in comparison with each other. A view of the whole group of R&D investments is also required, to appraise whether there is a high probability of generating enough successful new products in the short to medium term, whether the long term is being appropriately catered for as well, and whether the total activity is fostering a coherent and synergistic technical capability. Senior managers are well used to handling commercial risks, and should give considerable thought to their R&D portfolio.

R&D portfolio management is a subject which is still under development. Some of the factors to assess are the maturity of the technology the company uses, the maturity of the industry, technological competitiveness in each area in which the company operates, and the strategic needs of each part of the business. Project risks need to be estimated - it is usually sufficient to classify risks as small, medium and high, rather as company shares are classified. One useful tool is to classify the technologies which the company uses into:

• pacing technologies, which have the potential to change the basis of competition
• key technologies, which are critical to present success and may be proprietary
• base technologies, which may be essential but offer no competitive edge because they are widely available.