Metrics thermostat⋆

Abstract

The explosion of information and information technology has led many firms to evolve a dispersed product development process with people and organizations spread throughout the world. To coordinate such dispersed processes a critical role of managers is to establish and foster a culture that implicitly rewards and motivates product development teams to perform against a set of strategic metrics such as customer satisfaction, time to market, defect reduction, or platform reuse. We focus on a practical method to fine‐tune a firm's relative emphasis on these metrics. In particular, we seek to advise a firm how to modify their emphasis on each metric in order to improve profits. We use a thermostat analogy based on an adaptive control feedback mechanism in which we estimate the incremental improvements in priorities that will increase profits. Iterations seek to maximize profits even if the environment is changing. In developing the metric thermostat we recognize that there are hundreds of detailed actions, such as the use of the house of quality and the use of robust design, among which the product development team must choose. We also recognize that team members will act in their own best interests to choose the actions that maximize their own implicit rewards as determined by the metrics. Management need not observe or dictate these detailed actions, but rather can control the process by establishing implicit weights on the metrics. The thermostat works by changing those implicit weights. We define the problem, introduce the adaptive control mechanism, modify “agency” theory to deal with incremental changes about an operating point, and derive methods that are practical and robust in light of the data that firms have available. Our methods include statistical estimation and internal surveys. The mathematics identify the critical few parameters that need be determined and highlight how to estimate them. Both the measures and the estimation are illustrated in an initial application to a large office‐equipment firm with $20 billion in revenue. The metrics thermostat suggests that this firm has about the right emphasis on time‐to‐market, but has overshot on platform reuse and has lost its focus on customer satisfaction. We describe how the firm reacted to the recommendations and changed its organization.

Platform‐Driven Development of Product Families: Linking Theory with Practice

“…The real benefits of platforms and product family development therefore remain unknown to the companies involved. This is particularly worrisome since data collected by Hauser [6] at one firm over a five-year period showed the platform-based development approach to be negatively correlated with profitability. The companies involved in the study do acknowledge risks as well as opportunities when developing product families.…”

“…On top of the fixed investments in developing platforms, platforms may also result in the over-design of low-end variants in a firm's product family to enable subsystem sharing with high-end products [9]. Data collected by Hauser [6] at one firm over a five-year period further showed the platform-based development approach to be negatively correlated with profitability. Meyer and Lehnerd [15] address the risk related to the balance between commonality and distinctiveness.…”

“…A clear gap in literature however still exists when it comes to discussing possible limitations of the platform concept and the problems and risks related to implementing and managing product families and their successive platforms. Studies [6,9] have recently started e.g. to draw attention upon the significant costs associated with product platform development.…”

The Effects of Environmental Turbulence on New Product Development Strategy Planning

“…Extant research has suggested that firms that integrate their NPD strategy into overall corporate strategy and create a culture of innovativeness will enhance NPD performance, especially in turbulent environments [29,40]. Firms can increase the performance of their NPD program by focusing on strategic planning activities, which share responsibility for NPD strategy across departments.…”

Methods for Cost Management during Product Development: A Review and Comparison of Different Literatures

“…Several studies used numerical simulation for investigating the impact of modular design on costs (Ben-Arieh, Easton, & Choubey, 2009;Bhandare & Allada, 2009) or on sales revenues (Kang, Hong, & Huh, 2012). A few case studies have developed approaches for modular designs and tried these out in real companies (Cao, Luo, Kwong, & Tang, 2014;Hauser, 2001;Krishnan, Singh, & Tirupati, 1999;Luo, Kwong, Tang, Deng, & Gong, 2011;Moore, Louviere, & Verma, 1999;Muffatto, 1999).…”