1. Sidebar About the authors Today's customers demand new capabilities in their vehicles. Automotive OEMs are undergoing an essential transformation from experience-based engineering toward data-driven, virtual engineering. These conversations helped the team align on product-redesign choices that not only met consumer needs, but also achieved cost targets. Planners tend to assume that the issues that befell their previous project would be cured and that no new issues would crop up. Last, companies will have to rethink innovation and collaboration in remote-working team structures. Built in a modular fashion, this program can be tailored to offer personalized learning journeys across different inflexion points in a product-oriented career. Designs and leads major operational transformations for basic materials clients; brings extensive expertise in procurement. If companies understand the complexity involved in a new project, they can estimate the effort and resources required to complete it (Exhibit 1). This success will shift the business model away from one-time sales and toward vehicle life cycle revenue streams and new forms of monetization, such as pay-per-use or subscription-based models. We also wanted to look at the relationship between product-development metrics and profitability over the longer term. McKinseys Product Academy offers actionable content from leading-edge practitioners for anyone interested in learning more about product. They should optimize project assumptions (including levels of reuse, which technical concepts to use, and the amount of outsourcing) to prioritize R&D resources for the most important projects. 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. It is important to note, however, that while this strategy will generate additional revenues, it will also create additional costs. Successful product development requires teams to engage with experts across disciplines while aligning four critical development lensesbusiness, design, consumer, and technical (Exhibit 1). 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. Technology will see a consolidation toward domain-centered archetypes (fourth-generation architectures) and zone- or vehicle-centered archetypes (fifth-generation architectures). Accelerate your career with Harvard ManageMentor. Consumer beliefs and preferences will continue to evolve rapidly, forcing companies to redouble their efforts to embed the voice of the consumer throughout the product-development process. When first articulated by Baghai, Coley, and White in 2000, inThe Alchemy of Growth, the Three Horizons model was a breakthrough. Leads McKinseys global product development and procurement work and serves clients in materials, automotive and machinery sectors A career within our Operations Practice offers the opportunity to work with the biggest companies in the world, on projects that transform their core business and build resilience for the future. A modern product manager acts as a catalyst and objective arbiter of competing interests and perspectives in the product-development process to facilitate both designing the right thing and designing the thing right.1McKinsey proprietary market research; S&P Capital IQ, spglobal.com. Our dataset comprises 42 companies, for which detailed data on product-development metrics and financial performance was available. Following McKinsey's acquisition of Orpheus, a recognized innovator in digital procurement, we are pleased to launch Orpheus, a McKinsey company. 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. A suitable reference system architecture is the key to successful systems engineering. Automotive OEMs and suppliers need to adapt quickly to maintain their R&D competitiveness in areas including time to market, cost, quality, and new-feature rollouts. We based the work on ten years of data collected through the McKinsey Product Development Fingerprint, a proprietary product-development diagnostic tool. 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. McKinsey Study Supports Balanced Product Portfolio. Organizations that apply analytics and predictive tools to their product-development and project-planning processes see a dramatic reduction in schedule slippage. Because established companies tend to move slowly and must invest resources in existing products, this means that unlike in the 20th century, attacking disruptors now have the advantage. One consumer-goods maker sought to enter a new product segment while maintaining its unique brand position in the market. Across industries, innovative ideas and enabling technologies are increasingly likely to come from outside the organization. Rewiring car electronics and software architecture for the Roaring 2020s, McKinsey_Website_Accessibility@mckinsey.com, end-to-end product development steering and controlling based. In this role, you will be a core member of the McKinsey consulting team with responsibilities that range from shaping product vision and strategic designs to managing and transforming agile product and . The consumer-goods industry in many ways defined the notion of a product that addresses a specific consumer need and creates value. But for practical reasons, the only useful factors are ones easily measured, consistently gathered, and known early enough to drive budget and planning decisions. 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. Please email us at: Four levers can address this industry-wide challenge. The second root cause is overestimating the productivity of the development team. 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. HBR Learnings online leadership training helps you hone your skills with courses like Innovation and Creativity. Training at scale includes change management to support the overall transformation. In our experience, companies face the following common pitfalls: Lack of well-defined goals. It's All About Customer Value If you beat competitors at the customer value game, your products will win. The delivery organization links closely to systems engineering, reflecting the system architecture featured along the different system levels. The transformation will need to happen along three dimensions: technology, commercial structure, and commercial change. For companies, that means lower costs and lower risksa powerful combination of benefits to have in a highly competitive environment. Recognizing that dramatic action was needed to get back on track, the company embarked on a six-week sprint led by a specially appointed product leader. Doing that is harder than it sounds. Thats no longer true in the 21st century and leadership hasnt gotten the memo. Delays, and the extra resources needed to counter them, mean higher costs too. Organizations must closely examine the product development cycle as an important part of optimizing a product to perform in a fluid, changing market. 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. Each department or function brings its own perspective on the problem at hand, and competing lenses can either enhance or derail the innovation process. Often, a large amount of work is finished before other stakeholders have a chance to weigh in, causing misalignments, delays, and rework. Moving from a conventional car to an automotive ecosystema kind of smartphone on wheelsrequires changes to the vehicles electronics and software architecture. Our Centers of Competence bring expertise in cost engineering, category knowledge, and benchmarking that deliver faster and higher impact with our best-in-class procurement and product-development tools. Product development and innovation in the consumer-goods industry has never been easy. Theres a riptide cutting through automotive-product development, and its forcing OEMs and suppliers to reoptimize their product development processes and R&D operating models. Something went wrong. That led us to wonder about the relationships between what companies track in product development and how they perform. We'll email you when new articles are published on this topic. The modern product-manager role is rooted in the voice of the consumer and elevates that perspective throughout the process to ensure that product development is guided by these insights. Likewise, the line organization reflects competencies and module ownership to optimally support the delivery organization and safeguard component and system communality. These rapid Horizon 3 deliverables emphasize disruption, asymmetry and most importantly speed, over any other characteristic. Per Year (Employer est. These challenges require automotive manufacturers and suppliers to shift their focus in product development capabilities, processes, and operating models from mechanical engineering toward electrical and electronics, software, and data engineering. Until recently, even companies that understood and sought to address these issues didnt have effective tools for doing so. The McKinsey Growth Pyramid takes this one step further and posits that companies should further develop their growth strategies based on four choices; operational skills, privileged assets, growth opportunities and special relationships. Agile methodologies in hardware development and concept sprints have recently gained momentum as effective tools for steering the innovation process because they promote an iterative, build-to-learn mentality. The Product Strategy Playbook from McKinsey Alum - Free PPT Templates PRODUCT STRATEGY THE BIG PICTURE ON PRODUCT STRATEGY 1. Bringing automotive-product development into the 21st century is a difficult but necessary step if OEMs and suppliers want to remain competitive in the face of new architecture and software-centered challenges ahead. By themselves, metrics arent a solution to product-development challenges, but the key performance indicators (KPIs) companies use do show where management is focusing its attention. For something so fundamentally important to a companys success, product development is notoriously tricky to manage. We are continuously seeking the best talent at all levels and for all types of roles, and are particularly keen to talk to experienced professionals looking for their next challenge. 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. They assume that specifications will not change and that resources will be available when needed. The scope of the product manager is expanding rapidly, driven by changes in how software is developedthe growing role of data in product decisions, the evolution of product development practices and execution pod, and the consumerization of B2B software, with an elevated role for design. To estimate the correlation between each organizations KPIs and its overall financial performance, we created a new metric of our own, taking the companys profit growth for the year after its participation in the Fingerprint and subtracting the average profit growth for companies in its sector. Weve spent more than a decade investigating the root causes of R&D scheduling and budget challenges. 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. This enables the reuse of software and individual purchasing of hardware and software, as well as the integration of OEM-developed software modules. Serviceability, maintainability, completeness, scale, etc. Tier-one suppliers should prepare for software-defined vehicles by building up software capabilities, developing new business models for software, and creating new collaboration models with suppliersfor example, working in joint agile teams. 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). It also influences requirement changes and cocreates the vehicle with technical R&D teams to ensure the product accurately reflects CX elements. Then there are the indirect costs. 1 By designing agile processes that incorporate source to pay, we help to reduce leakage and to sustain performance to meet future needs. After SOP, the team drives CX upgrade opportunities and product life cycle management. 0 5 Want to comment? $50K They play a variety of roles, using a broad base of knowledge to make trade-offs, and convene cross-functional teams to align diverse functions. The average overrun is around 25 percent of the originally planned schedule. A total-cost-of-ownership approach, including considerations of. Traditionally, OEMs incorporated engineering capabilities based on the collective experience of their engineers and experts with only limited data on customer behavior and product performance in the field. The mindset change to the agile model becomes core to the entire organization and all communications. 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. 1 The variable with the most significant negative correlation with short-term financial performance was budget adherence. Arjun Balaji is a partner in McKinseys Bengaluru office, Raghavan Janardhanan is a partner in the Chennai office, Shannon Johnston is a specialist in the Toronto office, and Noshir Kaka is a senior partner in the Mumbai office.