Lean Product Planning: How to Repeat the Path of Tesla and Not Become Yo-Mobile

Evolution of markets, blue and red oceans

In 2005, the book "Blue Ocean Strategy" by Chang Kim and René Mauborgne was published, who divided the markets into blue and red oceans. The authors offer the following view on the formation of markets and new niches. Any niche or market is born as a specific company's search for a new business model. When a company finds such a business model, it finds itself in a state of virtual lack of competition and can get a large margin by taking advantage of its monopoly position. But since the markets are mostly free and there are many companies operating in them, the innovative business model is quickly copied by competitors, and over time, the company's advantage is leveled, the margin of products falls. The market thus "heats up" and "turns red". At the same time, most of the existing markets are red, and the new blue oceans are rapidly turning red.

Over time, other actors in the market, copying the business model, begin to offer alternative products, including competing in price. This situation is indicated on the graph by the dash-dotted curve.

To launch a new generation of the product (t+1), the company is already forced to reduce the price of the product and work with the cost of the product in order to maintain margins, for example, using Target costing methods, cost-based development, and Kaizen costing methods, methods of optimizing the cost of an already produced product through the development of the technological process, working with suppliers and increasing efficiency.

Working in two states requires fundamentally different approaches and is characterized by different problems.

In the blue market, the speed of product entry into the market, that is, the task of "being the first", and the organization of activities to create a product through the principle of "making mistakes quickly" are critically important.

In a blushing market, it is critically important to manage the cost of the product and be able to distinguish yourself well from competitors in terms of Unique Selling Points.

For the first situation (Blue Ocean), the Lean Startup and Lean Portfolio Management methods have proven themselves well, allowing you to find and form new product niches through organized product experiments.

For the second situation (Red Ocean), the Target costing and Quality Function Deployment methods, which will be discussed later.

Here the reader may wonder: "Why work in the red markets at all, if you can master the launch of corporate startups well and always be in experimental mode?"

Unfortunately, in the real world, in which there are investors, the dynamics of corporate development of companies, people age and change, and investments require return and depreciation, this approach does not always work. Imagine a startup, let's say, a company that was the first to come up with interactive attractions, and the first to offer such a product on the market. For several years, the company has been developing this area: hiring people, working on the customer base, developing suppliers, gaining know-how, borrowing money on the market, and maybe even going public. And now competitors have "run" into the market, who offer cool alternative products, and even at a large discount. Take the position of the owner of such a company. He is faced with a choice: to give up everything and look for a new niche or to rebuild business processes in order to protect his market position and ensure the operational efficiency of the company, while maintaining the fulfillment of his obligations. In general, not everyone will dare to take a risky step.

At the same time, such a transition is often painful, since working in startup mode, with meritocracy and in constant experimentation, it turns out to be difficult to ground activities on structured mature business processes. This requires both the development of new skills by the team and a completely different culture, both communicative and active.

At such moments, the company has a request for a working method that has proven its viability and allows:

• Structure the market niche in which the company operates and determine the boundaries between market segments.

• Collect and process the "Voice of the Customer", that is, consumer requirements, determining which of them are not satisfied and ranking them by importance.

• Interpret the Voice of Customer in terms of Product Requirements. Prioritize these requirements, taking into account their subjective value to the client and their mutual influences.

• Translate Product Requirements into System and Subsystem Requirements in order to translate Customer's subjective verbalization into specific technical parameters that product developers and engineers can work with.

• Decompose system requirements into component requirements and determine the best way to build and manufacture components.

• At the same time, manage the cost of the product in order to give the Client the maximum value for his money and qualitatively win the competition.

• And not lose parameterization when moving from Voice of Customer to Component and Technology Requirements to verify that the developed product is exactly what the Customer requested.

All these criteria are fully met by the Hinshitsu Kino Tenkai or Quality Function Deployment method, which has been actively developing all over the world since the 60s and has gone through several evolutionary stages, and which has developed a huge base of successful Use cases and methodologies. Today, this method is widely used by companies such as General Motors, AT&T, ICI Chemical and Polymers, Procter and Gamble, BASF, ITT, Rank Xerox, Jaguar, Renault and many others.

The invention of the method and the essence

The first documented use case of the method dates back to 1966, when Kiyotaka Oshiumi at Bridgestone Tire applied it to determine customer requirements and how each element of the product and technology affects customer satisfaction. Later, Yoji Akao and Shigeru Mizuno refined the method to improve product design and published the book QFD: Quality Function Deployment: A Company Wide Quality Approach in 1978. Where the method got its name.

In Japanese, the name of the method looks like this:

Where is:

Hinshitsu — quality, characteristics, attributes.

Kino is a function, a mechanism of action.

Tenkai — deployment, development, evolution.

The name does not really reflect the essence of the method, so the author suggests calling it Lean Product Planning.

Starting from the late 70s, the method began its victorious march around the world, first becoming super popular in its ancestor Japan, where the first QFD institute was formed, and then became widely known around the world.

Initially, QFD was developed as a way to define, quantify, structure and somehow relate to the subjective requirements that the client is able to formulate for the product. And this is a real problem, because in everyday life, product consumers are not able to take a systematic look at their consumer experience and do not really know what they really need. This means that they are not able to verbalize the request, they simply do not have the necessary thesaurus. But it is not enough to somehow collect and describe this request, it is important to translate it into the language of engineers in order to create an opportunity for them to develop product functions.

The Japanese genius is that they said: "Let's make a correlation matrix and see how the conditional "Fast car" correlates with the requirements for the engine and weight of the car in the context of the entire product." This is how the main tool of the House of Quality (HOQ) method was invented. Modern

1. First, it is proposed to relate the client's requirements to the requirements for the product design, that is, to answer the question: what functions should the product have in order to satisfy the client?

2. At the second stage, relate the design requirements to the requirements for the characteristics of individual components in order to formulate a development task for a specific engineer or programmer.

3. At the third stage, the characteristics of the components to the parameters of the process in which such components are obtained, that is, to formulate the task for the development of production technology.

4. In the fourth step, process parameters should be classified as quality control parameters in order to formulate the parameters and their characteristics to ensure that the process output is exactly what the customer wanted.

Looking ahead, I would like to note that the classic Comprehensive QFD is currently used less and less, since for a product such as a car or an airplane, correlation matrices can have a size of 15000 by 15000 and it becomes difficult to work with such an array of data.

Other criticisms of the Comprehensive QFD method include low flexibility and a huge amount of transaction costs associated with control and verification during the transition from stage to stage of deploying a function, which can greatly slow down projects. But a way has been invented to elegantly avoid this. More on this at the end of the article.

Evolution of the method

In the 80s, the American automotive industry found itself in an unenviable position. The products it could produce were significantly more expensive than Japanese competitors, had significantly worse quality and efficiency, and, as a result, were less popular than Japanese cars in the parent market. What can we say about the prospects for exports.

Two phenomena were born, the first was the phenomenon of dying Detroit and the second was the phenomenon of Toyota, which in just 30 years went from a manufacturer of sewing machines and licensed Willys to the first car manufacturer in the village.

This course of things did not suit both the American government and automakers, who began to look for a solution to this problem.
It lay on the surface - to spy on what the competitor was doing. At the same time, the issue was so serious that the federal government actively invested in borrowing the methodology of value creation, that is, in the transfer of management practices, namely in the training of specialists, the creation of independent regulatory institutions and associations, the holding of seminars, symposia and forums.

This is how QFD came to the United States. First in the context of the development of the American knowledge of quality management, and later it was formed as a separate institution QFD (already in the 90s).

The first companies to implement QFD in the United States were representatives of the Big Three: FORD, GM and Chrysler in 1983. This required a complete restructuring of the methods of working with the cooperation of the manufacturer and the introduction of new methods among suppliers. The method has proven itself well and has spread to Xerox, Hewlett-Packard, Kodak Digital Equipment, Eaton Controls, Texas Instruments, and even the U.S. Army. After that, it began to spread across industries, including construction, machinery manufacturing, equipment, papermaking, electrical engineering, chemistry, tourism, insurance, and medicine.

A brief chronology of the key events that determined the development of the method:

Stage 1: Establishment of QFD in Japan (1966-1994).

1966 Oshiumi - Pioneered the method at Bridgestone Tire.

1972 Akao - First publication describing the application of the "hinshitsu tenkai" method.

1972 Nishimura, Suzuki - Application of quality tables based on early versions of QFDs at the Mitsubishi Kobe shipyard.

1972 Ishihara — первая версия QFD (business process function deployment).

1975 JSQC - Applied the method to the computer industry.

1975 Mizuno, Akao - The first book on the QFD method, translated into English only in 1994.

1987 Akao - First study on the use of QFD in Japan.

1987 JSA is a book by Cases, translated into English and German.

1990-1994 JUSE - Released the first draft of the QFD manual.

Phase 2: Implementation of QFD in the United States (1983-1988).

1983 Akao - introduction of QFD in the United States. Akao publishes the article "Quality Progress".

1983 Akao - Conducts a seminar on the QFD method in Chicago.

1984-1991 King, Clausing, Sullivan – held many presentations, seminars, trainings on the use of the QFD method.

1985 Sillivan, McHugh formed a permanent project to implement QFD.

1986 Sullivan - Published the Quality Progress series.

1986-1990 GOAL/QPC Akao – Conducted a series of lectures on the QFD method in the United States.

1988 Hauser, Clausing - published a series of publications on the QFD method.

Stage 3: QFD in other countries (1987 and later).

1987 Germany — the first case of the method.

1988 Sweden - Linkoping University Method Publications.

1994 China - Akao gave a series of lectures.

(по данным Abu-Assab S.: Integration of preference analysis methods into Quality Function Deployment. Technische Univeritat, Cottbus 2011.)

Description of the modern Blitz QFD method

Now there are at least three significant QFD institutions in the world: in Japan, the United States and Germany. An annual conference on QFD is held (in fact, due to COVID, it has not been held since 2020, but the organizers promise to restore this practice), and the method is actively developing.

The frontier of knowledge is the Japanese Comprehensive QFD, the so-called "German" QFD, the American "BLITZ QFD" and the ISO 16355-1:2021 standard, which consists of 9 parts, and the authors promise to publish 2 more parts this year or next.

I suggest taking a closer look at Blitz QFD, an easy-to-use and lightweight framework for creating value in a product, process, and program. The method is universal and is used to create and upgrade hardware products, as well as services, software and almost any products without limitation. The method can be integrated into the Lean Portfolio Management and Lean Startup process, and is well friendly with Agile and system engineering methods, QMS.

The general scheme of the method is shown in the diagram below.

The method divides the entire value stream into several stages:

• Setting the goal of the project. It consists in answering the question: what does the success of the project mean to us? It is drawn up in the form of a table of goals, where specific theses on goals from the project sponsor, key stakeholders and the team are entered.

• Definition of Client:
  • Customer segmentation. ABC/XYZ analysis methods and other marketing methods are used. As a result, a list of key customer segments is determined.
  • Description of the client's request "what the client is trying to do". As a result, a model of the client's process is prepared in the form of a table or diagram.

1. Food gemba. The stage consists of the following sub-stages:
   • Gemb's preparation – consideration of the client's process at the seminar, building a hypothesis about the key stages and possible problems of the process. A list of "where to look" is being prepared during the hike to Gemba. Templates for reports on the hike to Gemba are being developed. The team briefs on the process of going to Gemba.
   • A trip to Gemba is a direct consideration of the client's process at the moment of value creation. Questioning the client on the list of Gemba questions and filling out the minutes of the visit.
   • Summarizing Gemb's results – debriefing the team, forming a list of key theses and insights. The output is a list of theses.
2. Formation of a "Voice of the Client" (table), which collects the main theses, specific verbal forms (what exactly the client said), research results and data obtained from the processing of trips to Gemba.
3. Generalization in the form of an affinity diagram — the output is a diagram with a list of the client's problems and requests. The individual elements of the customer process are defined.
4. A hierarchical diagram with an analyzed and statistically processed structure of the client's needs found.
5. Implementation of the Analytic hierarchy process to prioritize customer needs, which results in a list of the customer's most valuable needs.
6. Compilation of a Maximum value table to link the received list of customer needs and specific tasks that can be defined in the and transmitted to the development team.
7. Continuation of further deployment of the quality function with a set of recommended tools (7MP tools, FMEA, HoQ, Kansei engineering, Project Management tools, including the network diagram method, 6 sigma methods: DMAIC, DMADV, etc.).

Blitz QFD is a statistical and analytical method that requires literally 3 simple statistical tools (which means that it is subject to digitalization and fully meets the concept of Data Driven Decision making), that is, none:

At the same time, the method uses visual tools that are easy to reproduce on a wall, flipchart or interactive whiteboard, for example, Miro. Blitz QFD itself limits the narrative that the development team works with only to requests that are really important to the client.

In addition, it is possible to make an end-to-end trace of literally every word or stamp on the client's side with each product element and requirement, and even assign a significance factor for prioritization. The product team has a powerful answer to the question "why are we doing this?"

The method eliminates the need to write a technical specification, in fact, all artifacts are sections of the technical specification by themselves, there are no transaction costs when moving from stage to stage. At the same time, the statistical relationship of all elements allows you to move through the stages, clarifying or diving deeper into the key points of the project.
As a rule, a team trained to work with the method is able to go from setting goals to a full "Cabin of Quality" in a week.

As a conclusion

Elon Musk did not found Tesla Motors. He invested in a startup of enthusiasts inspired by the idea of an electric sports premium car. At the same time, the enthusiasts were not engineers, unlike Elon, and managed the project to create the Roadster car, as written in the book "Business from scratch. The lean startup method: we made based on Lotus, using more or less suitable components "off the shelf", which we could reach just to bring the product to the client faster. This approach was the reason for an insane number of product alterations right "on wheels", and this, in turn, led to exceeding the planned budget several times and increasing the cost of the product from $85,000 to $200,000 with an initial selling price of about $100,000 (which is twice as expensive as the same Lotus). And, of course, a number of delays in the delivery of the first cars to customers. When it became clear that the project was going to hell, Elon Musk got rid of the founder and then CEO Martin Eberhart quite harshly, closed the Roadster program as soon as the contract with Lotus on the Take or Pay condition ended, and began to bring the Model S to the market in assault mode. using the QFD method), and seems to be commercially successful.

In one of the interviews, Musk admitted that making the Tesla Roadster according to the model through MVP was a big mistake and almost ruined the company.

Well, the conclusion here is simple: if you have a technically complex product that requires functional and geometric integration, certification and is also sold on the blushing market, you should at least know about the Lean Product Planning method.