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Maxims of Hi-Tech: Discipline in development leads to long-term sustainable competitive advantage.

Posted on: 20-Aug-2007

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How to get a full generation ahead of your competition
Six months . . . that’s all it takes. If you can bring new products to market in two years, while your competitors do it in two-and-a-half, in ten years you will be a full generation ahead of them. It is the 10-2 principle. In ten years, they will have clocked four generations, while you have clocked five. All it takes is a systematic six month advantage. Better yet, accomplishing this puts competitors in a perpetual catch-up mode. A 10-2 strategy takes discipline, as you must systematically and consistently develop new products. But how do you do this? 
One of the most difficult things to do in the business of high technology is successfully bringing new products to market. On the one hand, there are all the issues of comprehending what the customer will really buy. On the other, are all the issues of the creative process of marketeers, researchers, and developers coming up with the ideas that make new products possible. In the middle are all the issues of aligning these disparate groups with customer needs. Worse, how do you manage creativity? It is the classic problem of herding cats. Yet this is what makes the business of hi-tech so interesting and challenging at the same time. It is exactly what the best do on a regular basis. Doing it right means becoming one of the largest companies with the highest long-term shareholder returns, so the stakes are high. If you look closer, you’ll see that the best companies have well disciplined processes for bringing new products to market.
KLA-Tencor is a great example of this. They grew into a power player status and stock market darling by systematically bringing new products to market. Discipline was at the core of this success. Back when time-to-market was first becoming a business fad, KenSchroeder saw longer and deeper than the management consultants who were preaching these ideas. Consultants preach, executives execute, which is why the latter gets paid so much. Time to market is important, but Ken saw the 10-2 strategy hidden in it. So while so many were focusing on how they got to market faster, Ken worked on figuring out what it was that caused development cycle times to be so inconsistent. He found two key drivers of inconsistency and both were management related: change control and clean-up.
Change control is the process of controlling how much change you attempt to implement in a new product generation. By controlling change, you dramatically increase the probability of success because all single changes have a specific probability for success. New product introductions have multiple changes, so the success probabilities from each single change multiply. For example, if you have two and each has a success probability of 80%, the probability for success of the overall project drops to 64% – Three? Then it’s only 51%. Four? Then only 41% and so on. It’s never quite as simple as this, because when any single change starts to fail, the tendency is to throw more resources at it, eventually making it a success. But in the process, development costs rise and time is lost. Hence, inconsistency in development times results. Another factor is Change Lock-Down, which is the point that you do not allow any more changes as you finish off a product. Because it is the nature of customers and developers to be like kids in a candy store, when it comes to change, it is a primary job of management to control change. Otherwise, you lose at the 10-2 game, as it becomes 10-3 or 10-4.  
Clean-up is an area that Ken feels most companies fail at and even he’s found himself in the middle of it. Clean-up is what happens when the product is introduced and design defects emerge that were either not caught, ignored, or swept under the carpet in an attempt to meet introduction schedules. If you allow it to happen, you’re only cheating yourself. The reason is that the moment clean-up becomes an issue, development resources must be diverted from working on the next project in the 10-2 strategy to working on cleaning-up the last project. As this happens, the next project is delayed. You lose at 10-2 again. Worse, in this case your reputation suffers because the customer is right in the middle of this clean-up process. Your garbage has been dumped on them, which would anger anyone. Just look at what happened to several foundries at the 130 and 90nm nodes, when they failed to comprehend the need for DFM (Design For Manufacturing). Their customers’ product coming off the lines had poor yields and everyone got involved in cleaning up the mess. So the objective must be to eliminate all clean-up. Only discipline in development can make this possible. You have to set strict goal posts, with solid metrics for deciding when the design can go to the next step.
Another way to cheat yourself in the 10-2 strategy is by restricting change to only the evolutionary development of a product. It is a principle of leadership in hi-tech that you must start revolutions in your company. If you don’t, someone else will at a start-up. The LTX Teradyne saga provides a good example of this. The linear market was developing and Teradyne refused to act on it. So Graham Miller left to start a very feisty start-up. So feisty that legend has it that the company’s name stands for “Left Teradyne Xmas” and its first product, the MTS 77 meant “Make Teradyne Suffer in 77.” They did indeed made Teradyne suffer in 1977 and for several years later. But in order to control change, they enforced evolutionary change. They kept extending the MTS 77 further and further until it could go no further. Ironically, as Teradyne kept trying to come back with new generations of product, LTX developed an ad campaign calling them a dinosaur. LTX thought they were ahead, but they were not. They should have been looking in the mirror, because in the process of extending the MTS 77, LTX had lost the ability to bring revolutionary new products to market. The MTS 77 was the true dinosaur. Teradyne’s A500 would clean their clock ten years after the MTS 77’s introduction, as LTX stumbled to replace the MTS 77 with its introduction of the Synchomaster. LTX never recovered its leadership role.  
From the book: Maxims of Hi-Tech
Rules of Engagement for a Fast Changing Environment . . .
or how to thrive in what is the extreme sport of business
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About weQuest:
weQuest's are written by G Dan Hutcheson, his career spans more than thirty years, in which he became a well-known as a visionary for helping companies make businesses out of technology. This includes hundreds of successful programs involving product development, positioning, and launch in Semiconductor, Technology, Medicine, Energy, Business, High Tech, Enviorntment, Electronics, healthcare and Business devisions.

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