At Pivot International, in our collaborative work with clients worldwide, we’ve found that most companies aim to fully utilize their product-development resources. Industry surveys show the average product-development manager attempts to maintain resource utilization above 98%. The logic goes, projects take longer when teams aren’t working 100% of the time, and an organization running on as close to 100% capacity as possible will be faster and more efficient than one that is allocating less of its resources.
This logic is deceptive and dangerous. The speed, efficiency, and output of product development are reduced when teams attempt to operate on all cylinders—no matter how high-performing they may be. While this may sound counterintuitive, it’s essential to understand, or your company won’t be able to achieve its potential growth. Pivot’s sophisticated understanding of optimally allocating and managing resources — both tangible and intangible — is one of the many areas of expertise that have made us a proven supply chain, product development, and manufacturing partner to companies worldwide.
High utilization of resources have insidious side effects which can remain easily invisible for three reasons:
1. They confuse product development with manufacturing.
Companies tend to be more familiar with highly repetitive manufacturing processes where things behave predictably as resource utilization increases. Five percent more work takes five percent longer to complete.
But unlike manufacturing processes, product development processes are highly variable and non-linear. As resource utilization increases, delays lengthen dramatically. When you add 5% more work, completing this work may take 100% longer. Many product-development teams don’t understand this and wind up overcommitted. This leads to underperformance, wasted resources, and a host of other costly problems. Ironically, these are the very problems their high resource utilization is intended to prevent.
2. They fail to factor in how queues impact economic performance.
High utilization of resources almost always leads to project queues. When partially completed work is waiting in line for capacity to become available, project duration is extended. Queues also delay the feedback that product development teams need for making timely changes to a product. Last, they impede the agility companies need to adapt to rapidly shifting demand curves and market opportunities.
It’s not that product development teams don’t know they’re creating queues; it’s that they fail to factor in the economic cost associated with them. Team must weigh queue costs against the costs of underutilized capacity to strike a balance between both.
3. They don’t account for the invisibility of work-in-process inventory.
In manufacturing, queues are composed of physical objects. When inventory doubles, it’s obvious. This is not the case with product development, where inventory is made up of many intangibles like design documentation, CAD instructions for creating 3D printed prototypes, test procedures and results, and so forth. In an engineering process, when inventory doubles, there are no tangibles to track. And since R&D inventory has to be carried at zero value to ensure accounting integrity, financial statements rarely reflect excessive inventory.
For these reasons, it’s important to buffer capacity for highly variable processes, although this is easier said than done. Despite their exposure to management studies on the dangers of high resource utilization, many product development teams insist on wringing out every last drop of capacity. Project managers can be particularly vulnerable in this regard. Putting the following safeguards in place can help to offset this tendency.
Safeguard 1: Adjust management-control systems.
In Pivot’s work with medtech companies, this might involve taking steps to align the product-testing division’s objectives with those of the discovery division. The company could, for example, reward product testing for prompt responses (measuring test-time from initiation to completion) rather than resource utilization.
Safeguard 2: Strategically increase capacity.
You can significantly reduce waiting time by adding extra resources to aspects of product development where utilization rates are 70% or more. If the medtech company did this in product testing, it could accelerate the availability of feedback. If testing can be conducted using augmented or virtual reality, capacity costs can typically be significantly reduced. (The role of digital technologies in increasing cost-effectiveness and driving growth is one of several reasons why Pivot has made such an extensive investment in these innovations.)
Safeguard 3: Limit the number of active projects.
If the medtech company couldn’t increase product testing’s capacity, an alternate approach would be to decrease the utilization rate by cutting back the number of active projects exploring adjacent market opportunities. Knowing when and where to apply the brakes to your product-development pipeline helps you tighten your focus and clarify your priorities.
If your business is looking for a proven partner for helping you bring an innovation to market, Pivot brings nearly fifty years of experience, product development expertise that spans more than fourteen industries, and 200,000 square feet of manufacturing capability. Our one-source model delivers a seamless end-to-end product development process backed by multiple IEC and ISO certifications, FDA registration, UL listing, and CSA approval. We’d love the opportunity to earn your business and help your company realize its maximum growth potential. Contact us today for a no-cost consultation.