Here is a brief excerpt from an article from The McKinsey Quarterly, published by McKinsey & Company and written by Ananth Narayanan, Asutosh Padhi, and Jim Williams, in which they explain how leading companies combine insights about customers, competitors, and costs to develop more innovative and cost-effective products. To read the complete article, check out other resources, register to receive free email alerts, and obtain information about this extraordinary firm, please click here.
Source: Operations Practice
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A rising tide of prosperity in developing economies is reshaping the nature of competition among global product makers, offering both the promise of new markets and the perils of having to face nimble, innovative, and highly ambitious rivals. In fact, the speed of newcomers (unencumbered by legacy issues) makes still more problematic an insidious challenge large manufacturers everywhere face when they try to innovate: insular thinking and functional disconnectedness that, if unchecked, can gum up product-development processes, drive up costs, and distract companies from paying attention to competitors—and, ultimately, customers.
Recognizing the challenges of the new environment, a few product makers in industries as varied as appliances, automotive, consumer packaged goods, high tech, and medical devices are taking a different approach. By encouraging more focused collaboration among multiple functional groups (notably marketing and sales, operations, engineering/R&D, and procurement), these leaders are combining deep insights about customers, competitors, and supply bases to strip out costs and amplify what customers truly value. The results—including better products, happier customers, higher margins, and, ultimately, a stronger ability to innovate—should serve these organizations well in years to come.
In this article, we’ll look at three such companies. Their experiences offer insights for any product maker hoping to improve its competitiveness.
[Here is the first of three case studies provided in the article.]
Case 1: Appliance maker
The challenge
Senior executives at a large, low-cost manufacturer of appliances and white goods were concerned about the sluggish performance of the company’s household fan business. It had long been among the top leading players in the company’s home country—an emerging market—but was now losing domestic share in two important, and fiercely competitive, product categories.
The company’s leaders suspected that a stagnant product portfolio was partly to blame; they had been focusing a considerable amount of attention on operations and had neglected to revisit fan designs for a couple of years. Meanwhile, an innovative upstart, also from an emerging market, had begun competing with the manufacturer, both at home and in developed markets. The threat served as a wake-up call: establishing a stronger platform for growth, the executives realized, would require the company to step up its product-development capabilities while maintaining—or even improving upon—its low-cost edge.
Focus on the customer
The company started by conducting focus groups and ethnographic research aimed at identifying unmet needs among middle-income (and aspiring middle-income) families in emerging markets. As these approaches started generating concepts for new products, the company ran surveys that forced consumers to choose between various product features and price points and then used conjoint analysis to discern how much customers were willing to pay for various options.
Its results were intriguing. For example, the ethnographers observed that middle-class aspirants in urban areas hated how dirty the blades of typical ceiling fans became after prolonged use. Conjoint analysis showed that some of these consumers would pay a premium for models that were easier to clean.
Similarly, the work identified profitable niches for fans with built-in, rechargeable batteries (to be used in case of power outages), as well as portable models for families that wanted one fan to serve several purposes—say, venting cooking odors in the kitchen and personal use elsewhere in the house. The company began actively pursuing these and other designs, including concepts tailored for consumers in developed countries.
Study the competition
Next, the executives brought together a group of designers, purchasers, marketers, product engineers, and others to conduct a series of product teardowns involving the company’s—and the competitor’s—fans. By seeing how different models stacked up, the executives hoped to spark fresh thinking in the team that would improve the new designs and also to help determine whether competing products had unexpected cost or technological advantages.
The exercise helped the company to meet both its goals. Purchasers and product engineers, for instance, believed that it was already striking the right balance between quality and price in its materials and components. Yet the teardown showed that as compared with competitors, the company was “overbuilding” its products significantly and that identical—or even better—product performance was possible at a lower cost if the team was willing to rethink its design approaches.
Some of the resulting design changes were quite straightforward and even, in retrospect, obvious. Yet the team acknowledged that the new ideas didn’t click until the teardown, when the evidence was spread out on the table for discussion. By modifying the cover of one type of household fan, for example, the team made it unnecessary to include an internal bracket assembly that had supported the original cover—a savings of 7 percent per unit. This change, like most cost-saving opportunities the team identified, was invisible to customers and didn’t matter to them (for an example of one model, see diagram).
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To read the complete article, please click here.
Ananth Narayanan is a principal in McKinsey’s Chennai office, Asutosh Padhi is a director in the Chicago office, and Jim Williams is a consultant in the Seattle office.
The authors wish to acknowledge the contributions of Dave Fedewa, Shivanshu Gupta, Vivek Khemka, Amresh Kumar, and Ashish Tuteja to the development of this article.