Stewart Coulter
Nirav Sheth

Consultants

Stephen Doig
Rohan Hoare

Associate principals

Matt Nall
Practice information specialist
McKinsey & Co.

Edited by Amy Higgins

In the rush to e-commerce, companies first used the World Wide Web's communications power to improve procurement, marketing, advertising, and sales. Webenabling these activities did not necessarily offer the greatest longterm value but did promise immediate impact on the bottom line. The first Web adopters, however, overlooked a significant competitive advantage: Adapting product development to the Web.

Today, a range of on-line approaches are in the works to improve product development processes across a variety of industries. These approaches, generally grouped as e-product development (e-PD), let designers exploit the Internet's communication speed and global reach. E-PD is rapidly evolving from simple email sharing of design iterations between team members to realtime collaboration between geographically separated design teams and Web-based communication with suppliers and customers. As bandwidth and computer-processing power increase, and electronic communications standards emerge, even greater value from e-PD will be realized.

In the short term, the Web offers enormous potential for creating value considering as much as 80% of a product's final cost and time-to-market is determined during the design process. Across industries from automotive to software, companies are using e-PD to drive down the cost and time involved in new-product development — by more than half for some activities. Early adopters benefit from this but will realize a more lasting advantage in the long term. E-PD makes it possible to integrate the voice of the customer into all product design and development phases, boosting market acceptance of new products beyond the 50% success rate generally experienced today. Furthermore, companies eventually can create entirely new lines of business and revenue streams from this customer information.

Beyond the cost and time savings e-PD offers through faster communication, it can help lessen transaction costs and increase the scope of collaboration. And, designers can leverage the skills, capacities, and cost structures of global markets.

Tools for e-PD
E-PD tools can be grouped into four categories of increasing complexity.

CAD tools have moved from merely documenting the design to actually assisting the design process, and Web-based CAD tools let designers link designs directly with purchasing departments and suppliers. Engineers have access to external libraries of components and parts, eliminating time spent detailing components. For example, Parametric Technologies integrates sourcing sites such as Inpart.com into its design environment to improve access. The tools also work directly with a company's request-for-quote and bidding processes, thereby trimming transaction costs. Ultimately, Web-based CAD tools should help e-PD teams focus on designing just what is new in a product while using as many existing parts or subassemblies as possible for the rest of the design.

Parametric search and specification systems help recover the estimated 6 hours/week engineers typically spend searching for components that fit their needs. These systems, essentially highly specialized Web search engines, let engineers quickly search for components — be it a sensor or an electric motor —from many vendors using the design's input specifications. Many companies already use this technique in one form or another. For example, GlobalSpec.com offers a parametric search process that works from a component's specifications. Such search tools offer access to several alternatives and make locating common parts easier.

Design exchanges match a company's design needs with the best available talent around the globe. One type, a public design exchange, allows a product developer to post a project or specific design need and specialist companies or freelance engineers offer their expertise on the project. Use of these exchanges is somewhat complicated by security concerns, but some pioneers are beginning to take advantage of them. For example, HelloBrain, an intellectual capital-based design exchange, lists Altera, Synopsis, and Intel, among its clients.

The other type, a private design exchange, is used by designers to share knowledge and information in a more secure fashion within the company or with trusted suppliers. These exchanges can cut software development cost and time by more than half when compared to traditional approaches. Some companies use public exchanges to "cast a wide net" and then transact more sensitive activities on a proprietary network.

Integrated collaboration environments (ICEs) are the next evolutionary step for e-PD tools. Browser-based ICEs let geographically distributed product-development teams and suppliers work efficiently together without being physically collocated. They combine the strengths of web-based CAD tools with the integrative capabilities of search engines and design exchanges. ICEs are used throughout development, from generating an initial concept to manufacturing and marketing a final product.

Early adopters are beginning to take advantage of the entire spectrum of e-PD tools. For example, Moen reduced its new faucet introduction time by 33% using collaborative design tools and technologies currently available. The danger faced by Moen and other early adopters is assuming these successes will serve as a competitive advantage over the long term.

Listening to the user
Cost and time savings realized by Web-based product development will be tremendous. But this alone will not differentiate one company from another — these reductions depend on information transparency and communication speed, and those benefits soon will be available to all competitors. To be truly distinctive, products must be better and more attractive to the marketplace. E-PD can accomplish this by tapping into the customer base throughout the development process. E-PD tools in market research, sometimes called "e-voice of the customer" (e-VOC), let product developers measure customers' reaction throughout the design process, and even monitor the product as it is being used.

Traditional concept-development tools, such as focus groups and conjoint analyses (attribute trade-off studies that rank customers' preferences for various features), are typically used only for large projects due to their resource and scale requirements. E-VOC tools let companies capture massive quantities of customer data quickly and inexpensively. For example, activebuyersguide.com uses conjoint questioning techniques to direct shoppers to the most appropriate consumer goods, giving designers timely feedback from potential buyers. The challenge is asking the right questions of the right people to capture the most valuable information.

E-VOC is also used to more easily differentiate purchasers from users, and gather information from one or both. This is particularly useful for business-to-business applications where the purchaser is rarely the user. For example, one large medical devices company plans to use the Web to make major product revisions more accurate by collecting data from technicians and physicians who are actually using a first-generation medical instrument. This data would then be integrated into a common Web-based repository of information for the company's product development teams.

Potential customers can use EVOC tools to try out "virtual" products during development, and then react on-line to appearance, functions, layout, and features. Volvo, for instance, has used online conjoint analysis so potential customers could test features and layouts of a virtual 3D truck cab interior and rank their preferences. Research shows that products as tactile as a bicycle pump can be developed with on-line consumer input and virtual prototypes. In this case, the manufacturer created a variety of both physical and virtual prototypes examined by panels of potential consumers. A correlation between customer responses to the virtual prototype and responses to actual products confirmed the predictive power of virtual prototyping, while reducing costs and time spent for physical prototyping.

Fine-tuning the design
At the end of the development cycle, e-VOC helps companies make products easier to use. For example, when Agilent created a new logic analyzer, designers asked potential customers to "test drive" a prototype over the Web. They examined users' actual keystrokes to see how customers would use the product, then adjusted the design accordingly. The resulting product was judged much easier to use than competing models for common product uses.

Tedious gathering of postlaunch feedback had been handled by contacting customers by phone or mail. But with e-PD, some companies continuously gain information on how customers are actually using their products, even to the point of monitoring failure modes. For example, large machinery manufacturers such as Case New Holland, Cummins, and Pratt & Whitney have integrated sensors into their products to summarize performance and warn of repairs.

Another benefit is that e-PD lowers a customer's total cost of product ownership. Makers of capitalintensive equipment capture data from Web-based products, analyze it, and sell the information to customers to cut downtime, plan maintenance schedules, and boost capacity. A maker of jet engines, for example, is Web-enabling its next generation of products so the company can download data after each flight, then provide airlines with immediate information and expert advice on potential problems. The customer's flight capacity and schedule adherence increases as nearly real-time analysis distinguishes between needs for routine maintenance and problems that require immediate attention.

Likewise, agricultural and earthmoving equipment makers, such as Caterpillar and Valtra, expect data about tractor usage patterns to prove valuable not just for servicing but also for after-market attachments that would increase tractor use.

In another realm, vendors of specialized search engines may find the data they collect on their customers' failed searches provide better insights on unmet market needs. Knowing what users want but can't find tells companies how existing products are missing the mark, and where profitable products could be introduced.

Organizing for e-PD
Historically, product development was vertically integrated with manufacturing and final assembly: Product ideas, designs, components, subsystems, and tooling were developed in-house. Vertical integration helped keep transaction costs down, sped development cycles, coordinated activities, and protected trade secrets. This approach worked well as long as product life cycles were comparatively long and communication methods were relatively slow.

In today's instant-communication era, however, the benefits of vertical integration have been diluted. Meanwhile the disadvantages, such as gaps to best-in-class skills in some segments of the business, are more glaring in a world of abundant specialist providers. For example, on-line freelance engineering talent lets smaller companies reap many benefits of large, integrated product-development networks without paying the full cost. In short, companies must reevaluate skills, resources, and the way they conduct product development to take full advantage of ePD's benefits.