Reference no: EM132590763

Your Assignment

· You are an outside consulting organization who has been retained by the CEO to fix the problems and make sure the mandate is driven throughout the organization.  identifying what strategic initiatives and changes you will recommend and the tactics to implement those strategies and changes.

New Product Development Process Improvement Case Study

Background:        

Horizon Giftables, Inc. is a 35-year-old consumer products company that manufactures and distributes home accessory products and décor items through independent sales representatives and individual franchise's. Horizon Giftables Inc., (HGI) has experienced a slow but steady ten-year decline in sales revenues, market share, and profits at the same time new competitors have entered their market space and experienced growth. For the first 25-years, HGI experienced consistent double-digit growth in both sales and profits. So the slow but steady decline has been masked to some extent by HGI's past success. The U.S. market is mature but the international market is filled with opportunities if you have the right product mix portfolio which needs to include local market driven products and price points that fit the spending capabilities of the specific demographic. While the North American markets have declined, growth in HGI's European markets has been strong and promising and the Asian and Latino markets represent future growth opportunities. 

Organizational Structure:

HGI's organizational structure consists of the CEO, CFO, Vice President of North American Sales and Marketing, Vice President of International Sales and Marketing, Vice President of R&D and Product Development, Vice President of Human Resources, Vice President of Strategy and New Business Opportunities, and Vice President of Operations. Although this senior management team functions in the capacity of the Executive Committee responsible for the development and implementation of the strategic direction of the company that will lead to sustainable growth in sales and profits, they are not a cohesive and collaborate team.

The New Product Development Process:

HGI's strategic growth depends on replacing 40% of its product portfolio each year to keep the various product lines fresh and exciting for the field sales force. If you do not motivate your independent sales forces with exciting products that are priced appropriately, then your sales force will not be motivated to sell the full line of product offerings. They will focus on what they can sell and ignore the more difficult to move items, even though there might be new items offered in the product line that have a higher margin. 

The new product development process is a liner process that is functionally controlled as it moves through the various phases of the product development pipeline. 

1. The research part of the R&D function will experiment with different concepts and materials. This is a purely innovative process with a combination of market research, new concepts, out-of-box thinking and long-range experimentation. During this stage, if a concepts warrants further investigation based on its potential attractiveness, then the concept is handed over to the development part of the R&D function.

2. The development exploration part of the R&D function will further develop the concept by identifying the various materials that might be used in the product, the feasibility of the product design, the development of concept models, the rough economic analysis, the potential market opportunity, and potential sourcing suppliers. If the concepts are deemed feasible at this stage, it is handed over to the advanced development group.

3. The advanced development group, which is part of the R&D organization, will develop prototype models, identify commercialization issues, develop a rough business plan, identify any capital equipment necessary to produce the product and start to work with the product-marketing group to determine if this product concept is viable.

4. The product-marketing group functions as the product manager for the product concept that has moved through R&D to this stage in their development. They report to the Vice President of R&D and Product Development and come under the product development wing of this organization. The product manager is the person who is responsible to take the product concept to the next stage of development and to determine whether it is a product that will be commercialize or a product concept that is not viable for the marketplace. At this stage, the product manager will develop a detailed business plan, select the design features and benefits critical to the market, establish the price points, start the development of the marketing and promotional materials, and produced more realistic samples for testing and validation. However, the product manager is forced to work with the sourcing managers to acquire the necessary vendors that will be used to produce the validation samples and input their costs (sourcing group) into the project pricing strategy.

5. The sourcing managers, who work for the Vice President of Operations, have the sole responsibility to select suppliers, set raw material prices, and have samples produced for validation testing by quality. Product managers are not allowed to talk with vendors and vendors are not allowed to talk with product managers. All communications must flow through the sourcing managers.

6. The next critical stage in the process is sample testing and validation. Sample testing is driven by the sourcing managers who have the responsibility to select the suppliers and work with them to develop the necessary samples for testing. The sourcing managers are also responsible for negotiating the price for the various raw material components. This price will be given to the product managers for inclusion into the business plan. The samples will be given to the quality department for validation testing. During this stage, the finance department reviews the business plan and approves or disapproves the product concept based on forecasted margin contributions. There are critical margin guidelines that must be met for a product to be commercialized. During this phase, the production material planners will get involved to make sure the bill of materials is constructed appropriately and the forecasting and material acquisition process is started.

7. The final step in the new product development process is the production phase.  During the production phase, the marketing and promotional materials are proofed and ordered. The purchasing manager orders the necessary raw materials, Manufacturing validates the manufacturing processes and equipment with pilot runs of the product. Quality tests and validates the new product produced during pilot productions. The distribution organizations gears up to handle the incoming finished goods inventory and prepares a distribution plan for managing and shipping the inventory throughout the world.

Issues

• Silo behavior
• Dysfunctional politics
• Poor communications between the various functions/departments
• Long term employees who have not continued to develop their skill levels and who resist change
• Process rigidity
• Senior management turnover
• Declining sales
• Declining profits
• Declining market share
• Lack of collaboration and teamwork
• No sense of shared responsibility or ownership
• Overlapping roles and responsibilities
• Procedures not being followed
• Cross-functional hostility
• A culture of blame
• Missing deadlines and commitments as the operating norm
• Senior managers in conflict
• Decision based on personal agendas
• Two year development cycle is unacceptable
• Current new product development process is broken
• Vacillating vision and strategic direction
• Email is used as a weapon for discrediting other functions
• Lack of leadership
• Unmotivated and frustrated staff
• Past changes have not worked
• Past recommendations for improvement have not been implemented
• Little upfront field input into the development process
• Little upfront operations input into the development process
• Competency Gap with some of the staff
• Blatant and open conflict between individuals and groups
• Unprofessional behavior on demonstrated by a few staff members
• Last minute changes to the product that causes a lot of delays and extra expenses
• Lack of process discipline and structure

A Summary of the Critical Issues

• Lack of leadership
• Lack of quality and innovation in the development of new products
• Time to market is too long
• Cost to develop new products is too high
• Competency gap among key staff members
• Dysfunctional operating culture

Burning Platform Mandate from the CEO

• Reduce the time to market from two years to 12 months
• Reduce the cost associated with the new product development process by 30%
• Improve the quality of the product planning process
• Improve the quality of the products being developed by eliminated waste, duplication of effort, and rework in the design process
• Improve organizational communications between all individuals, departments, and functions
• Meet customer needs and expectations
• Increase asset utilization
• Improve teamwork and collaboration

Bottom Line Goals

• Increase sales
• Increase profits
• Increase market share
• Reduce costs
• Improve organizational effectiveness and synergy

Action that have already been taken

• With the exception of the CEO and Vice President of Human Resources, all other executives have been terminated and new senior executive hired during the past 18 months.The same problems still exist.
• Cost reductions have been institute through a series of downsizings and cutbacks - This has resulted in only lessen the impact of decreasing profits and provided only temporary margin relief.
• New products have been introduced but interference from senior managers, politics, lack of strong and transformation leadership, and quality and deliver issues have failed to reenergize the field sales force.
• A few new employees with critical skills have been hired (skill mix enhancements) but have failed to resolve the talent crisis as a result of downsizing and the competency level of some long term employees.
• Cultural mind set shifts have been tried by the new executives.They tried to break the cultural mind set but instead, the existing culture broke the new management.

Relationship Problems

• The VP of R&D and the VP of Operations do not get along and engage in open hostility and conflict towards one another.This behavior has polarized their staffs and has prevented the development of a cooperative and collaborative approach to product development.
• The VP of North American Sales tends to ignore the rest of the organization and tries to focus on turning around the poor sales performance in his regions.He does not exhibit a high level of collaboration and finds himself and his organization being blamed by the other executives for the company's problems.
• The VP of Human Resources has not been able to reign in the egos and unprofessional behavior of the other executives resulting in a perpetuation of the current dysfunctional culture.Actually, the VP of Human Resources used to report directly to the CEO but was structurally reassigned to report to the CFO about two years ago thereby reducing his power and influence base.
• The sourcing managers and product managers demonstrated open and dysfunctional conflict towards each other and engage in blaming through email wars.
• The field sales force is not given a strong enough voice into the new product development process until the very end of the process and by that time their input can cause a lot of last minute changes and bruised egos.
• The CFO drives margins to the point of stopping certain developing activities after large investments have been made.There does not seem to be a good grasp of the potential positive impact that lower margins and higher volumes can have on the bottom line.Instead, high margins are demanded even though they might have a negative impact on sales volume.
• The VP of Strategy and New Business Opportunities has not been able to develop the necessary strategies to address the current issues.There appears to be reluctance on the part of the senior management team to embrace any strategies that don't fit the current business model.For example, this organization and its senior executives have been very slow to leverage the power of the internet as an alternative sales channel.Other innovative strategies have not been well received because they represent different ways of doing business and the management team finds it difficult to change the business paradigm.All the executives have been hired from the same industry that uses an independent sales force and very similar go to market strategies.
• The VP of R&D tends not to trust the competency level of his staff members and as a consequence becomes involved in the micro details of developing new products.This tends to frustrate his staff members and other individuals working in the product development process.
• The VP of Operations tends to drive and not lead and focuses on transactional activities versus transformational actions.
• It is not uncommon for an executive to request changes in the development of a product that will result in wasting a lot of time and money that has already been invested in the product.On occasions, last minute decisions to go in a new direction and introduce a new development priority cause a lack of focus, over commitment, blame, and waste of resources.
• The CEO (your client) has a very strong field sales expertise and lacks strength in the areas of operations and product development.Consequentially, the CEO has not been able to manage the conflicts and organizational dysfunction between the members of her senior management team.