NPD Management Corner

The Emerging NPD Resource Model

The sourcing of New Product Development (NPD) efforts is heading for a change, a transformation that will be enabled purely by business necessity. It will happen and we can either prepare and embrace it or be left to play catch-up, wondering why the signs of change were ignored.

Reflect on the progression of the FAB model over the last 15 years. During this period there has been a significant reduction in captive FAB ownership and a much greater use of an outsourcing model for the fabrication of silicon devices. Today there are far less capacity utilization issues, more competitive technology development and a greater ability to “shop around” for pricing. In the old captive FAB model some new product projects would actually be approved to “fill the FAB”, a financially ridiculous reason that was commonly used to justify weak margin product development efforts.

Now let’s take a look at the classic chip design model in use today. By and large the design resources for new products are “owned” and need to be kept busy to justify their fixed costs. This means there is a motivation to move forward on a project to utilize resources, even when the biz case may be questionable. How many of us have worked on new products that were production ready and lacked expected revenue? Was the project easier to justify because of underutilized resources that were in need of a project? Sure! Just like the old FAB model, the concept of utilizing a design team for a questionable new product based on filling resource capacity is just as crazy.

What really are the motivations for captive (business unit owned) new product teams to become more effective at what they do? There are really not any; the incentive for truly making a positive change is nearly non-existent. We expect NPD efficiency improvements by demanding them and pleading with the team to get better. However, things stay just about the same for months and even years. There really is no incentive because the current resource model does not provide one, and never will.

The two primary enablers of mediocre new product efficiency are forced utilization and the lack of incentives for improvement. Let’s look back again at the FAB model of today. Utilization has become far less of an issue because the FAB is a broadly shared resource. Similarly the efficiency and quality of FABs has improved because of the competitive pressures brought about by having multiple sources to choose from. The truth is that competition stimulates excellence.

Although IP reuse is in its infancy, it is a quiet catalyst of a new way of handling product development. Similar to the outsourced FAB model, there will be a migration towards increasingly outsourced chip development efforts. This transformation will be driven by businesses demands for cycle time and product success improvements that the current captive resource model is in fact unable to provide.

Businesses demand superior new product efforts. I predict this requirement will be increasingly satisfied through a growing ability to “shop around” to find development teams whose very survival rests on “being the best”. The next generation NPD model will be one of decreasing captive resources and more utilization of internal sourcing pools and greater outsourcing. This will be good for business and excellent for efficiency. Be ready!