Choosing the Right Measurements for Product Development – Lean Accounting for NPD Blog#3

Choosing the Right Measurements for New Product Development

Lean Accounting for NPD Blog#3

Those of you familiar with Lean Accounting will know and love the Linkage Chart; the Performance Measurement Linkage Chart. Many of you have created one for your company or organization. You started from the company’s strategic objectives and linked your performance measurements for the value stream and the processes/cells to the business strategy. All the measurements drive strategic goals and yet are simple, practical, and appropriate for each level of the business.

We have a similar linkage chart for New Product Development (NPD). The starting point is the strategic goal of maximizing the lifetime profitability of the value streams or the individual design projects. From this we derive the 4 key measurements that drive the lifetime profitability.

The outcome of the linkage chart is the four measurements we must be vigilant about:

  • Size of the queue of design tasks.
  • Actual value outcomes vs customer value needs.
  • Actual expected product cost vs the Target Costs.
  • The cost and capacity of the people doing the design and development .

We must measure and control the queues because nothing delays a projects like badly controlled queues of work. Well …. maybe stage gates and design reviews create lengthy reviews also…… but back to queues. We must have simple, visual measurements for monitoring and controlling the queues of development tasks.

At the beginning of the design process we spend a lot of time and effort to understand the voice of the customer (VOC). From this – and a little Kano analysis perhaps – we can calculate the value created for the customer by the new products and the services we are designing. Using QFD (quality function deployment) we can translate the customers’ value-creating needs into the features required to fulfill those needs. From this we can understand the value created by each of our design and process features. Throughout the development process we must keep track of how well we are achieving this value.

Also at the QFD stage we calculate the Target Cost for the product. This is the product cost we must achieve in order to make our lifetime profitability goals a reality. During the design process we must keep track of how our design decisions lead to the achievement of the Target Costs.

The cost of the development process is also important. If we have to spend more in order to achieve on-time launch, customer value, and target costs – then we need to understand this and make intelligent decisions related to the costs of development and the outcomes of the work.

Speaking of which …… in blog #4 we will look at how we can make fast and effective decisions by balancing the (often) divergent needs of these four primary measurements.