Idea Transcript
Scorecards For Project Selection: Gates 1 & 3 The Seven Forces Profiling Model Please use in presentation mode (full screen) in order to see charts properly
RG Cooper && Associates RG Cooper Associates Consultants Inc. www.bobcooper.ca www.bobcooper.ca
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The Seven Forces Model A Scorecard System for Making the Right Investment Decisions Background Scorecards are used at gate review meetings to help make Go/Kill decisions on proposed development projects. The premise is that often qualitative factors, gut feel and intuition are more important predictors of success and profitability than are precisely calculated financial numbers (which at best are usually not too precise and accurate!). And there is much research evidence to support this premise, especially for more uncertain and less well-defined projects, such as in the case of bold innovations. In research undertaken on various evaluation techniques, scorecards fare the best in terms of ‘effectiveness’, ‘efficiency’ and ‘suits our management style’. Scorecards are part of a scoring model approach to project evaluation and selection – models that are based on the attributes of desirable or winning development projects. Some people refer to these as profiling models or marker models. Think of the field of cancer research, where cancer researchers have discovered that certain DNA markers can predict whether a person will get a certain type of cancer. Do such markers exist in the field of R&D – that certain markers will predict the outcomes of development projects? What are the telltale signs of a winning new-product project?1 Do you know? Surely there are some key indicators, markers, or descriptors of projects that are good predictors of success. If we knew what these predictors were, then we could develop a scorecard and use that to rate and rank projects in a much more professional, systematic and predictive way. But can new product success be predicted?
1. This section taken from: R.G. Cooper, Winning at New Products, 4th edition, Ch 8, see books on page 11; and from other writings by Cooper (see references on page 10) 2
Can New Product Success Be Predicted? Yes… New Product Success Is Predicable! For decades, people have been trying to develop such “predictive models” to pick winning racehorses, winning dogs at the dog track, winning stocks on the stock market, and so on – without much luck. But the situation is quite different for new products. Indeed, there have been some impressive research investigations that have probed the key markers or predictors of success in product innovation. The Cooper NewProd studies were some of the first research studies in this area and are reported in numerous articles and books.2 Much research has been conducted on development projects since the early 1970s into “what drives success” or the “critical success factors”.2 Unfortunately much of this research has not been widely disseminated to the management community who remain largely unaware of its existence. These research studies into critical success factors in NPD or product innovation formed the basis for scoring model approaches to project selection: “If you can explain success, then you can predict success!” Many scoring models are thus quite sophisticated in their development – they are research-based, having been constructed from a statistical analysis of data from many past projects, both winners and losers. Much of this research has been published and now is in the public domain,2 so we know what these markers are. And some firms have privately done internal investigations of their past projects and have come up with their own scoring models or scorecards for rating projects; some are now public.
2. See ch 1 in PDMA handbook, reference 4 on page 10.
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The Seven Forces Model These seven factors or “forces that drive success” are:
1. Strategic Alignment (fit with our strategy and strategic importance) 2. Product Competitive Advantage (unique customer benefits; differentiated; compelling value proposition for the customer) 3. Market Attractiveness (market size, growth, margins earned in this market, competitive intensity) 4. Leverage (leverages our core competencies and strengths – technology, operations, marketing) 5. Technical Feasibility (size of technical gap, technical complexity, technical uncertainty) 6. Potential for Reward (we can make money; good profit and return, fast payback) 7. Risk (critical assumptions, amount of uncertainty, newness of market & technology, allin cost of project versus payoff) Note that the main factors or Seven Forces remain the same from gate to gate, so you can compare scores of projects at different gates; but the details of the questions and the scales become more rigrous as you move from gate to gate as more information becomes available. We leave it to you to develop scorecards for the other gates, using the two gates (Gate 1 and Gate 3) on the next pages as a guide and for content.
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Using Scorecards at Gate Meetings In a scoring model system, at gate meetings, senior managers each rate the project on a number of criteria on Low-to-High or 0–10 scales on a scorecard. The scores from the gatekeepers at the gate review are tallied and combined, and the Project Attractiveness Score is computed: the weighted or unweighted addition of the criteria ratings. This attractiveness score is the basis for making the Go/Kill decision at gates and can also be used to rank-order projects at portfolio reviews. The next few pages show a best-practices scorecard model for Gates 1 (the idea screen) and Gate 3 (Go to Development). The factors or “forces that drive success ”, as we call them, are derived from research by the author and colleagues. The model has seven basic factors, each factor with a subset of questions. All questions are proven discriminators between good (successful) and poor (failure) projects. We leave it to you to develop the other scorecards and check-lists. Gate 1: In use at the Gate 1 idea screen meeting, projects are first reviewed by the gatekeepers against a set of Must Meet or “Knock-Out” questions to remove any obviously unsuitable projects, using a checklist projected on a screen. A consensus No on any one Must Meet criterion kills the project. Then the projects is scored by gatekeepers on the Seven Forces factors, using a scorecard and Lo-Med-High scales. The scores are then averaged across gatekeepers and added to yield the Project Attractiveness Score (PAS), but taken out of 100. Most firms seek a score of 60 or 65 out of 100 for a Go; the PAS can also be used to rank projects against each other at a portfolio review. Gate 2 is usually much the same as Gate 1, but using 0-10 scales on a scorecard. At Gates 3 and beyond: The project is first reviewed against a set of “Readiness Check” questions to ensure that all is in place for the gate review. A consensus No on any one of these Readiness Check questions may signal a decision to send the project back for more work. Next, as at Gate 1, the project is scored on the Seven Forces factors using a scorecard, but on 0-10 scales.
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Gate 1 Must Meet Criteria Display this chart on a screen and debate the answers, reaching a consensus yes or no. A consensus No on any of these signals an immediate Kill Explanation
Must Meet Criterion
Yes
No
Project is within the strategic mandate of the business Minimum acceptable market size – enough to be of interest (market size likely exceeds $XXX M) Commercially feasible – it can be done; and we probably can do it if we decide to Technically feasible – no obvious reasons why we can’t develop it, or why solution is not technically feasible (at least 50-50 chance) Project meets our business’s social, legal, safety, health, environmental and legal policies No ‘knock out’ or ‘killer variables – nothing evident that will severely damage this project (examples: new legislation, a new technology, events taking place in the Company or in the market or industry)
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Gate 1 ‘Idea Screening’ Scorecard: Print to Use Score (0,1,2)
Criteria: The Seven Forces
Low (0)
Medium (1)
High (2)
1. Strategic Alignment •Fits our strategy, aligned •Important to our strategy
Product not in alignment with or important to our business strategy; not important to do: KILL
Product aligns with our strategy fairly well; moderately important to do strategically
Product aligns well with our business strategy; very important to strategy
2. Product Competitive Advantage •Differentiated product; unique customer benefits •Compelling value proposition
Essentially same as competition, not differentiated; no compelling value proposition
Somewhat different than competition; modest value proposition; offers the customer benefits, but not unique benefits
Clearly differentiated from competitive products; offers unique customer benefits; a compelling value proposition;
3. Market Attractiveness •Market size, growth & potential •Competitive situation (how tough & intense?)
Small or no market; low growth & limited long term potential; tough & intense competition
Moderate market, modest growth, adequate long term potential, some competition
Large, growing, attractive market; good long term potential; weaker competition
4. Leverages Our Core Competencies in… •Technology •Manufacturing/operations •Marketing ,distribution, brand name & sales-force
Cannot leverage our competencies; do not have the needed technical skills & knowledge; cannot leverage our sales-force, brand name & distribution; does not fit our operations skills & facilities
Leverages our core competencies somewhat; we have most of the technical skills; somewhat leverages our salesforce, brand name & distribution; fits somewhat our operations skills & facilities
Leverages well our competencies; we have the technical skills & knowledge; can leverage our sales-force, brand name & distribution; fits well our operations skills & facilities
5. Technical Feasibility •Size of technical gap •Newness of technology •Technical complexity
Low feasibility; big technical gap (must invent new science); new technology; complex technically– many technical barriers
Quite feasible, moderate technical gap; not too difficult technically; some technical barriers, but can envision solutions
High feasibility; small technical gap; a repackage of existing technology; simple technically – few/no technical barriers
6. Potential for Reward •Size of prize •Can we make money her?
Limited potential reward; difficult to make money here; I would not invest my own money in this project: KILL
Moderate /adequate potential reward; we can make fair money here. I would invest my own money with some concern here
Huge potential reward; we can make good money here; I would invest my own money in this project
7. Risk •Uncertainty level •Newness of market & technology •Cost to do versus payoff
High uncertainties & many unknowns; new area for us (technical or market); big cost to do relative to payoff
Moderate uncertainties & some unknowns; somewhat familiar market & technology; moderate cost to do relative to pay-off
Low uncertainties & few unknowns; familiar market & technology for us; low cost to do relative to payoff
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Gate 3 Readiness Check Criteria Display this chart on a screen and agree on the answers. Task or deliverable must be in place or done, but also have quality work (data integrity). A consensus No on any of these usually signals the need for rework
Work is done & data integrity exists
Yes
No
1. VoC study done, with data integrity 2. Market analysis done, with data integrity 3. Competitive analysis done, with data integrity 4. Technical feasibility done, with data integrity 5. Operations assessment (source of supply) done, with data integrity 6. Concept tests done with users/customers, with data integrity 7. Product Definition in place – robust 8. Financial analysis done, with data integrity 9. Business Case in place, with data integrity 10. Tentative Plans through to Launch in place, quality work 11. Preliminary Launch Plan in place 12. Preliminary Operations Plan in place
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Gate 3 Go to Development Scorecard Print to Use at Gate Meeting (Also for Gates 4 & 5) Criteria: 7 Forces
0
5
Score (0-10)
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1. Strategic Alignment •Fits our strategy, aligned •Important to our strategy
Product not in alignment with or important to our business strategy; not important to do: KILL
Product aligns with our strategy fairly well; moderately important to do strategically
Product aligns well with our business strategy; very important to our strategy
2. Product Competitive Advantage •Differentiated product; unique customer benefits •Compelling value proposition •Based on customer feedback in Stage 2
Essentially same as competition, not differentiated; no compelling value proposition; negative or neutral customer feedback:
Somewhat different than competition; modest value proposition; offers the customer benefits, but not unique benefits
Clearly differentiated from competitive products; offers unique customer benefits; a compelling value proposition; based on strong customer feedback in Stage 2
3. Market Attractiveness •Market size, growth & potential •Competitive situation (how tough & intense? margins earned) •Backed by facts from Stage 2
Small or no market; low growth & limited long term potential; tough & intense competition, low margins
Moderate market, modest growth, adequate long term potential, some competition; adequate margins earned,
Large, growing, attractive market; good long term potential; weaker competition; good margins earned; supported by facts
4. Leverages Core Competencies in… •Technology •Manufacturing/operations •Marketing ,distribution, brand name & sales-force
Cannot leverage our competencies; do not have the needed technical skills & knowledge cannot leverage our sales-force, brand name & distribution; does not fit our operations skills & facilities
Leverages our core competencies somewhat; we have most of the technical skills; somewhat leverages our sales-force, brand name & distribution; fits somewhat our operations skills & facilities
Leverages well our competencies; we have the technical skills & knowledge can leverage our salesforce, brand name & distribution; fits well our operations skills & facilities
5. Technical Feasibility •Size of technical gap •Newness of technology •Technical complexity •Demonstrated technical feasibility (proof of concept)
Low feasibility; big technical gap (must invent new science); new technology; complex technically– many technical barriers; have not been able to demonstrate proof of concept
Quite feasible, moderate technical gap; not too difficult technically; some technical barriers, but can see solutions; no proof of concept yet, but close – based on work tin Stage 2, solution appears quite feasible
High feasibility; small technical gap; a repackage of existing technology; simple technically – few/no technical barriers; have been able to demonstrate proof of concept in Stage 2
6. Potential for Reward •Profitability, (NPV, IRR) •Payback Period •Productivity Index
NPV negative at risk-adjusted discount rate; IRR 5 years; Productivity Index < hurdle KILL
NPV just about zero at risk-adjusted discount rate (i.e. meets financial criterion); IRR = 20%; Payback Period about 3 years; Productivity Index = hurdle
NPV very positive at risk-adjusted discount rate; (i.e. exceeds financial criterion); IRR > 30%; Payback Period < 2 years; Productivity Index >> hurdle
7. Risk •Uncertainty level •Newness of market & technology •Validity of critical assumptions •Risk/reward ratio
Highly uncertain project, many unknowns; new market or technology for us; many critical assumptions; risk/reward (max all in cost of project/ NPV) not acceptable)
Moderate uncertainties & some unknowns; somewhat familiar market & technology; assumptions are reasonable; risk/reward (max all in cost of project/ NPV) is acceptable)
Project has few or no uncertainties & unknowns; familiar market & technology to us; few critical assumptions; risk/reward (max all in cost of project/ NPV) is very acceptable)
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References 1.
A good summary of best practices in portfolio management is in: R.G. Cooper, “Portfolio Management for Product Innovation”, Chapter 7.2 in: Project Portfolio Management: A Practical Guide to Selecting Projects, Managing Portfolios, and Maximizing Benefits, ed. By H. Levine (San Francisco: Jossey-Bass Business & Management, John Wiley & Sons Imprint), 2005. See also Portfolio book, next page..
2.
A scorecard for advanced technology (technology development) projects appears in: Cooper, R.G., “Managing technology development projects – Different than traditional development projects,” Research-Technology Management, 49, 6, Nov-Dec 2006, pp 23-31. Available on Cooper’s webpage.
3.
How to sharpen the gates and Go/Kill decisions is revealed in: R.G. Cooper, “Effective gating: Make product innovation more productive by using gates with teeth”, Marketing Management Magazine, March-April 2009, pp 12-17. Available on Cooper’s webpage.
4.
A first-class summary of the many research studies into what drives new product success and the success predictors in NPD is provided as Chapter 1 in the PDMA handbook, written by Cooper: See: Cooper, Robert G. (2013), "New Products -- What Separates the Winners from the Losers and What Drives Success," in the PDMA Handbook of New Product Development, 3rd Edition, edited by Kenneth B. Kahn, Hoboken, New Jersey: John Wiley & Sons, Inc. Chapter 1. Available on Cooper’s webpage.
5.
Project selection methods for bolder, higher-risk projects are outlined in: Cooper, R.G., “Where Are All the Breakthrough New Products? Using Portfolio Management to Boost Innovation,” ResearchTechnology Management, Vol 156, No 5, Sept-Oct 2013, pp 25-32. Available on Cooper’s webpage
Webpage www.bobcooper.ca
See also books next page. 10
References – Books: see www.amazon.com
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