New Product Development Portfolio in the Semiconductor Industry

Situation Analysis:

The business and financial leadership of the largest division at a major semiconductor company wanted to optimize their billion-dollar-plus annual investment in New Product Development (NPD) activities. The division’s development cycles are inherently long and costly, as products are complex and demands for accuracy are extremely high across definition, development, and manufacturing. Meanwhile, these functions span multiple domains of expertise and, typically, multiple teams and sites. Further, fresh IP is critical to product functionality and inter-operability/adherence to standards, so even “simple” products are likely to require a combination of state-of-the-art IP from both internal and external providers.

There are a host of tradeoffs that have to be made—not only to develop a superior product, but also to get it to market quickly—and at an affordable price. These include:

  • Which features to include in an environment where additional functionality adds significant value but comes at the expense of longer time to market and higher unit cost;
  • How to optimize “performance” given that speed, power consumption, form factor, and price are all critical customer requirements; and
  • Deciding how many, and which, product variations to offer when additional SKUs can allow significant tuning of products to distinct market segments but come at a high cost in both NPD and operations complexity.

In this environment, getting NPD right for even a single product represents a significant challenge. At the portfolio level, dozens of products and improvement programs are involved and decision options include adding new products, improving existing ones, or investing in capabilities that may broadly enhance functionality or performance. And, there is the very human element of dealing with internal champions with deep and genuine commitment to the innovations they are shepherding. Nevertheless, division leaders were convinced that there had to be a better way—a methodology that could deliver consistent, high-quality investment alternatives and evaluations across the NPD portfolio. This would be the lynchpin that would support an allocation of resources capable of producing a significantly stronger product offering—and better financial results—without additional investment.

Discovery & Solutions:

SDG teamed with the organization’s business, technical, and financial experts to design, pilot, and launch a new portfolio-value management (PVM) system. In the first phase, the team mapped the entirety of the division’s NPD investments across products (e.g., SoCs, ASICs), functionalities (e.g., graphics), and activities (e.g., core IP, die design, firmware development, marketing support). It then tested alternative frameworks for thinking about (a) where value was realized in the market (segments v. products v. customers), (b) what constituted individual NPD programs, and (c) what might be “buy-ups” or “buy-downs” associated with investment opportunities.

Further, the team piloted the new framework across more than 10 distinct investment alternatives for two critical NPD programs, demonstrating the model could drive innovative NPD alternatives and deliver transparent and compelling decision recommendations. Less than three month from the start of the project, division leadership was convinced that the new methodology should be rolled out across more than a dozen product lines, dozens of programs, and over $1-billion of annual spend.

Results & Impact:

Over the ensuing two months, a joint team comprising SDG consultants, company staff trained by SDG in DQ methodologies, and a diverse group of company subject-matter experts proceeded to apply the new methodology across more than two dozen significant investment units, each with multiple funding alternatives (some with as many as six distinct program strategy alternatives). SDG also supported the organization in applying a rigorous quality-assurance process to ensure consistency in definitions and data reliability. It then developed a custom portfolio analysis system which computed optimal investment choices (based on financial returns) for any conceivable level of investment. Lastly, SDG supported the organization in trading off short-term and long-term objectives and developing an optimal portfolio funding strategy.

In the end, the company achieved significantly better alignment and commitment on how to invest their entire NPD budget—a strategy for investment that will deliver several billion dollars in additional revenue within a three-year planning horizon, as well as a reusable methodology and system to repeat optimization on an annual basis.