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We were excited to have Dr. John Hogan join us to identify common value leaks and show how you can seal them by incorporating "value gates" into your development process. He shared some excellent real-world examples of how firms have used this approach to substantially improve new product success.
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Copyright © 2012 by LeveragePoint Innovations Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means —
electronic, mechanical, photocopying, recording, or otherwise — without the permission of LeveragePoint Innovations Inc. This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
Incorporating Value In Your Stage Gate Process
Monthly Webinar Series – February 27, 2013
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Sponsored by LeveragePoint the Software Solution for Value-based Pricing
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Today’s Presenter Incorporating Value In Your Stage Gate Process
Dr. John Hogan is co-author of The Strategy and
Tactics of Pricing and is a recognized thought leader and
speaker on the topic of strategic pricing and value-based
marketing strategies. As founder of Value Management
Advisors, he works with clients in a range of industries
including technology, healthcare, and manufacturing.
Previously, John was a Partner at Monitor Group, a global
management consulting firm, and managed corporate
pricing strategies for General Motors.
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Agenda
• The Room for Improvement in New Product Development
• Using Voice of the Customer to Improve Decision Making
• Building a Value-Based Development Process
• Key Takeaways
• Q & A
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© John E. Hogan 2013
A Value-based Approach to Growth
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Value Selling & Negotiation
Value-based Pricing
Value-based Marketing
Value-based Development
The Value Disciplines
“Build profitability
into new products
before launch”
“Target segments
based on value, not
demographics”
“Establish a value story
and force customers to
acknowledge it”
“Maximize profits by
aligning value and
price”
Our Focus Today
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© John E. Hogan 2013
There is Room for Improvement in NPD Processes
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A 2013 PDMA benchmarking study found that NPD processes are successful less
than 25% of the time. A key cause is the ineffective use of the right data
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20
40
60
80
100
% of new products that hitrevenue targets
Our development process isdata driven
2012
2010
76% “Failure”
Rate
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© John E. Hogan 2013
Can a Value-based Approach Improve Development Outcomes?
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Scoping Gat
e 1 Business
Case
Gat
e 2 Develop. Gat
e 3
Testing & Validation
Gat
e 4 Launch
The Stage-Gate Process
Stage = + Data Analytics
Gate = Outputs Criteria
+
The Four Leverage Points of the Stage-Gate Process
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© John E. Hogan 2013
Customer Value Data Enhances the Stage-Gate Process
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Since the inception of the Stage-Gate Process in the Nineties, Voice of the
Customer Research has been the main source of customer data
Data
Applicable
Stages
Limitations
VOC Customer Value
• Qualitative / Quantitative
• Focus on attitudes,
preference & usage
• Qualitative / Quantitative
• Focus on business models /
value drivers / economics
• Better in the early stages
(Ideation and to a lesser
degree development)
• Applicable to all stages, but
especially helpful for
business case, development
and validation
• Offers little guidance for
pricing, business case
and market launch
• Helpful, but not sufficient
for ideation
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© John E. Hogan 2013
Improving Analytics Leads to Better Decisions
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Feature 1 Feature 2 Feature 3
Economic Value
Cost
too High
Cost
Marginal
Cost
Acceptable
Cost
Customer Value data enables us to understand the profit implications
of development decisions
• Identifies the profit
potential for potential
features
• Improves other choices
• Product versions
• Market price
• Volume forecasts
Feature Prioritization Analysis
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© John E. Hogan 2013
Value Gates Improve Product Outcomes
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Qualitative Value Analysis
• Articulate customer business
models
• Identify target value drivers
• Develop initial “value story”
Quantitative Value Analysis
• Develop initial value model
• Identify key value drivers
• Set a value-based price
• Volume forecast
Scoping Gat
e 1
Gat
e 2 Develop. Gat
e 3
Testing & Validation
Gat
e 4 Launch
Quantified Value Modeling
• Refined value models and
business case
• Value features identified
• Product versions designed
Launch Preparations
• Value messaging
• Discount structure
• Launch price
Business Case
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© John E. Hogan 2013
Building a Value-based Development Process
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Situation: Comm Co, a $1B maker of
communications systems, faced disruptive market changes caused by new, less expensive technologies
Company was built through acquisition leading to inconsistent development and pricing processes
Competition was eroding margins and new product success rates – leading to tighter development budgets
The management team believed that the future health of company was at risk
Objective: Align the commercial process to create and capture customers
value more effectively
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© John E. Hogan 2013
The First Step was to Diagnose the Commercial Process
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ProductManagement
Marke ngSales/ChannelManagement
MarketRequirementDefini on
BusinessCase
ProductRequirementDefini on
OfferingDevelopment
MarketComm.
PriceSe ng
AccountPlanning
Nego a on Contrac ng
Process(welldefine dandeffec ve) 3 2 2 1 1 0 4 3 1
DecisionFramework(alignedwithstrategy) 1 2 1 3 1 3 2 2 1
Tools(managershaveneededdecisiontools) 2 2 3 3 2 1 3 1 2
Data(appropriateandaccuratedataavailable)
4 3 2 1 1 2 1 1 0
Organiza onalEnablers
Incen ves(alignedwithstrategy) 3 2 2 1 1 0 4 3 1
DecisionRights(clearlydefinedandfollowed) 1 2 1 3 1 3 2 2 1
Skills(decision-makershavenecessaryskills) 2 2 3 3 2 1 3 1 2
Resources(appropriatetosupportdecisions)
4 3 2 1 1 2 1 1 0
Diagnostic Output
Upstream: • Products overdesigned for market
• Ad hoc pricing did not reflect
market conditions
• Conflicting guidance given by
senior decision makers
• Product variations not managed
strategically
Down stream: • Uncontrolled discounting
• Limited understanding of customer
value
• Lack of effective value messaging
to customers
• Unclear ownership of pricing
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© John E. Hogan 2013
Development Redesign Focused on Tools, Training, and Output
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Value Quantification
Competitive Price Analysis
Feature Prioritization
Version Design
Value Creation Map
Value Messaging
Price Setting Discounting
Competitive Pricing
Value Selling
Scoping Gat
e 1 Business
Case
Gat
e 2 Develop. Gat
e 3
Testing & Validation
Gat
e 4 Launch
Value Driver Analysis
Market
Reqmnts
Doc.
Solution
Reqmnts
Doc.
Financial
Analysis
Opportunity
Brief
Sales &
Market
Plan
Product
Readiness
Doc.
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© John E. Hogan 2013
Product and Pricing Review Group
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Existing decision board was
divided and ineffective:
• Too many non-stakeholders
• Conflicting agendas
• Different market views
Solution required real change
• Limited membership to senior
stakeholders
• Conducted training on new
process and value-based
approach
• Agreed on set of strategic
questions for PM’s to answer
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© John E. Hogan 2013
Results
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Improved time to market by minimizing
“reworks” caused by lack of alignment between PM’s and decision board
Margin erosion turned around and started to improve
Better alignment of the leadership team as the new pricing / product council focused on strategy and policy rather than tactical product and pricing decisions
Project manager was promoted shortly after project concluded
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© John E. Hogan 2013
Some Key Learnings
Customer value provides a powerful metric for improving the
commercial process
Value Management tools are essential to scale the process changes
and ensure consistency
Migrating to a value-based approach is effective. But don’t
underestimate the degree of change required
Upstream and downstream changes must work together to deliver
maximum results
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Our Next Webinar – March 2013
• Harry Macdivitt ,
Director, Axia Value Solutions
• “Best Practices for Capturing Value”
• March 27, 2013 – 11am EST
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Thanks for Watching!
www.leveragepoint.com
(617) 252-2876
John E. Hogan, PhD
jhogan@valuemanagement
advisors.com
www.ValueImperative.com
