Product development optimization involves continuously adjusting many variables to maximize the effectiveness of your overall product development effort and the value of each product development project. Product development is complicated, with over a dozen important major aspects and many more details to balance. An understanding of the major aspects and incorporating the right measures are needed to ensure optimization at all times under changing conditions. This article describes major variables to consider.

Product Development Optimization Variables

Of the many factors to balance, there are a few fundamental priorities that apply to all new product development projects:

• It must be the “right” product for the intended customer(s)
• Product quality needs to be adequate
• Efficient development with available resources
• Minimize complexity
• Manufacturing cost (for physical products)

Optimizing just these five presents significant challenges. Depending on your situation, development speed and development cost might be critical to balance as well. Since all new product situations are different, development speed and cost are moving targets where optimization priority can vary. Also, situations can change in the middle of project lifecycles, such that optimization can suddenly have a different meaning.

Other factors involved in optimization are team skills, leadership effectiveness, resource management, portfolio prioritization, methodology, and culture. These aspects affect multiple development projects, where the previously mentioned are more specific to single projects. All of these factors are touched on briefly to highlight major product development optimization challenges, with some tips for success.

The Right Product

Challenges here vary greatly, depending on the customer situation. The simplest is a single customer or a small number of customers with very clear and straightforward needs, where satisfying customers with the right product should be easy. When their needs aren’t clear or straightforward, determining the right product becomes more difficult.

The most complex situations involve a wide range of potential customers with many different needs, and determining the best product requires a lot of learning. Methodology can make a big difference. A waterfall approach takes significant time up front to learn and define requirements, with the typical scenario being setbacks due to new information mid-project, replanning, and reworking each time. An agile approach is a better fit, but requires ability that few teams developing physical products have mastered.

Adequate Quality

Product quality is the variable that shouldn’t be very flexible. Even inexpensive throw-away products need a minimum quality threshold to satisfy consumers which should be clearly defined. “Adequate” is the key word in all cases, with a minimum threshold definition that’s well understood early in development.

Efficient Development

Product development efficiency has much opportunity but very little focus. Lack of universally relevant standard measures makes it difficult to determine useful metrics, especially near-term measures that help teams increase efficiency as they go.

Adopting Lean practices can help greatly with the mindset of eliminating waste, but not every “Lean” organization is necessarily efficient. It’s important to recognize and acknowledge inefficiencies before attempting solutions. Typical culprits:

• Unclear or constantly changing business priorities
• Unclear or constantly changing project requirements
• Inefficient meetings
• Context switching
• Decision-making bottlenecks
• Communication (many potential issues)
• Bureaucracy

Optimizing efficiency generally means to identify inefficiencies and minimize the contributing factors. There are a few situations where compromising efficiency is beneficial, one being for very fast development speed. When time-to-market is critical, inefficient spending on resources is sometimes a smart approach.

Development Speed

The first thing we often hear when working with a new client is that they want faster overall development. When we probe into it, improvements usually can’t be measured right away because they don’t know their current speed. Few companies have that data. Resources must be allocated for that purpose and all projects are different, making criteria for gauging improvement difficult. With an understanding of delay costs, resources might be justified to manage and analyze relevant data.

Product development cost of delay can be estimated by the sum of three major factors:

1. Profit loss due to a smaller income window
2. Cost of resources engaged on the project
3. Opportunity cost due to unavailable resources

An exception to the first factor is a contract development project, where there might be penalties or other consequences for late delivery rather than a market window. Otherwise, all products sold into a competitive market have a limited window for profitability and the longer before launch, the shorter the window. Sometimes being too early to market is detrimental, but those cases aren’t typical. Sales and profit forecasts in the ballpark of reality are good enough to estimate daily cost of delay. Daily figures are desirable because the sum of daily delay costs can be quite high, creating a sense of urgency when realized.

Cost of resources is the most straightforward delay cost to estimate if you know the burdened cost of labor for the team engaged on the project. Just this figure alone can be thousands or tens of thousands of dollars per day, depending on team size.

The least straightforward to estimate is opportunity cost. With good portfolio management practices all opportunities in the pipeline should have an estimated business value to use as the basis for delay cost. Viable opportunities in the pipeline have cost of delay incurring before the projects even start. Portfolio prioritization is important for staffing the most valuable projects as soon as possible.

With total delay costs typically being tens of thousands of dollars per day (they can be much higher and not often lower than a few thousand per day), product development optimization with emphasis on speed is important. Increasing efficiency by eliminating time-wasting activity can help significantly.

Minimize Complexity

The best product solutions are as simple as can be, while highly satisfying customers. Simplicity helps reduce development time and cost. Project leaders should drive a project culture that minimizes both product complexity and project complexity.

Manufacturing Cost

When profit margins are tight, engineers and supply chain folks can put major time and effort into squeezing out product cost. Though cost targets are the reality of developing manufactured products, it’s important not to overlook other optimization factors, especially development efficiency and delay costs. Good target costing and design-to-cost practices can help make setting and hitting targets more efficient.

Development Cost

This optimization factor generally doesn’t need much attention because of the static nature of resource cost in most companies. Cost of people tends to be fixed based on current team size and predetermined hiring needs. Cost of development materials and equipment is driven largely by prototyping strategy. The key to optimization is efficient spending, which is the main aspect of efficient development mentioned earlier. Agile prototyping best practices can help with optimization.

The main tradeoff to consider is development cost vs. development speed. When cost of delay is very high, it justifies higher development spending to the point of diminishing return. Preston Smith and Don Reinertsen explain this in the first chapter of their book Developing Products in Half the Time (Wiley).

Team Skills

A common challenge is imbalance on a team, with more experienced and skilled people carrying too much of the load compared to other team members. These gaps can exist for long periods due to lack of visibility and priority. With support for skills development, technical skills tend to be the priority with soft skills often being overlooked.

Leadership and management ability can make a big impact even with individual contributors not in a leadership role. For example, with leadership development team members might take more initiative, build confidence and undertake new responsibilities. Project management training can enable delegation of details so more experienced managers can focus on higher-level priorities.

Resource Management and Portfolio Prioritization

These two factors are grouped together because they’re closely related. Starting with portfolio prioritization because it enables better resource management, it’s simply clear 1-to-N prioritization of all projects in work and next in the queue, including adequate communication of the priorities. There are several ways to go about it considered as best practices, which is beyond the scope of this article. With any approach used, prioritization is based on business value and the process can be very simple.

Companies that haven’t adopted good portfolio management practices typically have one of two painful symptoms:

• Too many top priorities
• No sense of priority until there’s a crisis

With too many high priorities, available resources don’t really have the capacity to handle them all simultaneously, resulting in overall slower development with inefficiency due to context switching.

No sense of priority until a crisis often means there’s always at least one crisis and team members are in perpetual fire fighting mode. Context switching in these cases can impede progress considerably on new product development projects.

With clear 1-to-N prioritization, resource management can be straightforward with a team commitment based approach. Working from top down with the priorities, active projects are those that have adequate team commitment and the remaining projects are in the queue until resources are available. Progress can be made on projects in the queue if team members have some capacity, but they shouldn’t be considered active until adequately staffed.

Methodology

There’s a growing trend toward an agile way-of-working for hardware-based development for good reason. The vast majority of product development situations require agility due to changing circumstances throughout development. A good systematic approach enables teams to adapt to new information efficiently and speed up overall development with focus on delivering what’s most valuable.

For software development, it took nearly 20 years since the Agile Manifesto for an agile way-of-working to become more preferred than a waterfall/sequential approach. Today, with software developers having much agile experience there are problems with effectiveness is many companies. They’re the types of organizational and people problems that exist regardless of methods used, but it’s easy for some to fault the methodology because of poor implementation or misconceptions.

Developers of physical products face additional challenges because of concerns including manufacturability, cost management, supply chain, lead times, prototyping, team complexity and more. These challenges make agile adoption and effectiveness more difficult, yet efficient agility is very much needed.

A mindset that an agile approach for hardware needs to be a hybrid of sequential and agile is a good starting point. With infinite hybrid variations possible, leveraging a good framework such as MAHD can help but there are key roles that are essential to establish first regardless of methodology. All teams need an effective product owner who communicates priorities from the customer and business perspective to the team, and a proficient project leader who drives execution aligned with those priorities. It doesn’t matter what these critical roles are called or if your teams are using a waterfall approach, effectiveness in these roles is important for any methodology to work well.

Culture

Awareness about the differences between company culture, organizational culture (orgs within the company) and project culture can help the shape the latter for the benefit of each product development project. Every different team and every different project has unique dynamics and the opportunity for project leaders to form a healthy culture for success.

Key aspects of a healthy project culture are open and honest communication, a high level of trust, constructive debate, commitment, and accountability for achieving agreed-upon results. It’s easier said than done except for well-established teams that already have a great culture, yet entirely possible to achieve even in a short time with leadership focus.

Effective Leadership

Addressing this most important factor last, it’s big topic with aspects only summarized from the perspective of helping to optimize product development.

First, with executive understanding of the product development optimization factors described here and others relevant to your business, leadership is needed to drive continuous optimization as a front-and-center priority. With much of the effort being product-specific, the key leadership roles of product owner and project leader must have the same awareness, and focus on the optimization factors within their influence.

Commercial success with any new product relies heavily on those same two roles and it can be overwhelming for them to lead just the technical aspects. With many details to lead and manage, key leaders might not have much capacity for higher-level optimization concerns. Strong technical and sub-team leadership helps people in key roles to be focused on the bigger picture.

Three important aspects that can help with effective leadership of day-to-day details:

1. Manageable team size – enable leaders to be successful by not overwhelming them with too many people to directly lead.
2. Manageable work items – enable team success by leading the breakdown of immediate work into small enough pieces so the team can commit to predictable outcomes.
3. Leadership development – support leaders at all levels with training, coaching, and any resources that help to strengthen their effectiveness.

Summary

Optimizing for your unique product development situation might not be straightforward with so many factors to consider. Unless other priorities are obvious, focus on efficient development is a good place to start. Which contributing inefficiency factors are most problematic? Solving a few or even one major efficiency problem will help to reduce costs and speed up development. Look for opportunities where they make sense to establish metrics for ongoing improvement.

Supporting leadership development is always worthwhile. With objectives specific to product development optimization, leaders can develop abilities to help drive optimization at all times and adapt as situations change.

About the Author

Gary Hinkle is founder and principal consultant at Auxilium, a company dedicated since 2002 to helping product development organizations develop leaders, improve ways-of-working, build stronger cultures, and increase overall product development performance. You can contact Gary directly here.