Drive to Obsolescence Needs a Brake
Think that speeding innovations to market is the key to profitable competitiveness? Not so fast . . . .
Where Japanese companies once took pride and profit in their rapid new product rate, Sony Chairman Akio Morita and the country’s influential Ministry of International Trade and Industry now complain that their industries have become a little too innovative. Too many new products are being launched in too little time.
This “product churning” has meant that every six months an ever-so-slightly new and improved portable radio or VCR hits the shelves. Last year’s hit is this year’s discard. Indeed, some consumer electronics companies generate more styles of cordless phones in 12 months than Baskin-Robbins has flavors of ice cream.
Call it “The New Planned Obsolescence.” Instead of building products that are designed to break down over time, the Japanese speed junkies introduce products at rates that swiftly obsolesce the previous generation. It’s extinction by speed, not by decay.
But this relentless push for accelerated product cycle times, Morita and the Ministry of International Trade and Industry proclaim, is simultaneously exhausting consumers and corroding profit margins. The ideology of rapid introduction/obsolescence has begun to undermine productivity.
However, precisely at the moment that Japanese industry is re-evaluating its rapid innovation cycles, many American companies are embracing “speed to market” as the new gospel for competitiveness. Today, management gurus such as Tom Peters and consulting firms such as the Boston Consulting Group swear that “speed is king.”
Companies such as Hewlett-Packard, Motorola, Xerox and Procter & Gamble swear that the faster they get to market, the more share and profit they can win.
While it’s true that it shouldn’t take a GM or a Ford five years to create a new car and that Intel or Motorola shouldn’t require 18 months to craft a new microchip, the emerging reality is that a lot of companies seem to care far more about “going faster” than in understanding what direction they’re heading. What they will discover is that their perceived “need for speed” will drive them smack into a brick wall.
What’s it really worth to Sony to introduce a pink Walkman in six months instead of nine months? How valuable to Unilever is it to be able to roll out a new soap every year instead of every two years? What’s the real competitive value to Ford of slashing its auto development cycle from 3.5 years to 2.5 years?
“Most people are pursuing speed with absolutely no understanding of the economic basis behind it,” asserts Donald G. Reinersten, a Redondo Beach consultant specializing in reducing the innovation cycle.
“You’ll see people pursuing rapid development with no clue to whether it’s worth $20,000 or $2 million to the company.
“Ask any two people in the organization what speed to market is worth, and I guarantee you will get answers that vary by two orders of magnitude. Why? Because they’re approaching the answer from radically different perspectives. That’s the rule, not the exception.”
Reinersten has a unique place in the history of cycle time reduction. While at McKinsey & Co. a decade ago, he wrote a seminal magazine article on new product development that attempted to quantify the benefits of cycle time reduction. Focusing on companies in the competitive computer disc drive business, Reinersten demonstrated that it was foolish to emphasize the cost of new product development at the expense of time.
“To optimize product cost as a way of optimizing overall productivity was not the right parameter,” he recalls. “Speed--for that particular product segment--offered better leverage.”
Indeed, he wrote, “Six months of delay can reduce a product’s life cycle profits by 33%.” This figure has evolved to become a mantra to managers who argue that it’s safer to be obsessively early than fashionably late. “It does seem that this figure left the rest of the article,” Reinersten acknowledges, “separated itself from all the analysis and is now living a new life on its own.”
Reinersten doesn’t recant those numbers, but says it has been misapplied. “It’s sad,” he says, “but the thing most people don’t understand is the thing we identified 10 years ago: that speed in a development cycle is purchased at a certain price. You really need to know what it’s worth to you.”
More important, you need to know what it’s worth to your customers. Do people really want to see a new Walkman every nine months? Do number crunchers really want software upgrades for the electronic spreadsheets every six months? Do consumers want to see Procter & Gamble launch a new detergent every year?
Clearly, a company’s customers should determine the rate of appropriate innovation, not one’s processes.
Many of Japan’s smartest companies now wonder if they’re paying too much of a price to go too fast. American companies would be smart to slow down and think before they invest to speed up and innovate.
