One of the authors of the highly influential 2006 article “The New Practice of Global Product Development” has updated it with new insights. He warns that global product development can be inefficient and loaded with hidden costs if not carefully managed.
A 2006 article in the MIT Sloan Management Review entitled “The New Practice of Global Product Development” rocked American manufacturing upon publication. The article extolled the potential benefits of widely dispersed product development, based on the rise of skilled labor pools and a digital approach to product development.
Recently one of the authors of the report, Steven D. Eppinger, the General Motors Leaders for Manufacturing Professor of Management Science at the MIT Sloan School of Management, updated the article with new comments based on both hindsight and new research.
We highly recommend you read the article from the source at the MIT Sloan Management Review website. What follows are key quotes from Eppinger’s updates.
On the basic idea of global product development:
“The key message in the article is still valid and highly relevant today. Global product development (GPD) is not the only way to do business, but it is one of the organizational choices companies can make. … In recent years, companies’ drives for internal efficiency along with expansion into new global markets have accelerated the trend toward adoption of GPD.”
On coordination inefficiencies:
“In my subsequent research, I have found that it is actually very hard to keep processes efficient as you distribute them. Imagine a highly focused, co-located local process that you have made as lean and efficient as possible. When you disrupt that process and distribute it globally, it becomes less lean. … I believe that we have underestimated the coordination cost penalties involved in distributing processes globally.
“However, [my new research] also suggests a solution to the problem of coordination inefficiency. … The key is to deeply understand the structure of the product development process. … If you maximize the communication within each site, you can get a lot of efficiency within local pockets. … In other words, look not only at the modularity of the product or system that you’re creating but also at the modularity of the product development process itself.”
On outsourcing as a trap:
“Essentially, the outsourcing trap is a dynamic that starts with outsourcing for good reasons. The problem can be that, over time, your business becomes more and more dependent on that supplier. Eventually, you may find you cannot do without that supplier. And, if the activity the supplier is doing reflects a critical technical capability that may in fact be a core capability of your business, all of a sudden you realize that you have outsourced the core.
“To avoid the outsourcing trap, you need to understand the core technical capabilities and technical needs of your business—not just today, but in the future. ”
“… Before outsourcing, ask: In 15 years, where would we be if we don’t keep that capability in-house?”
On new trends:
“Two current trends in GPD come to mind. One is what we would call “reverse offshoring.” Reverse offshoring involves businesses that are based in medium-cost or low-cost locations but are putting some jobs in the U.S. and other relatively expensive locations.
“Now we are also seeing another kind of reverse offshoring, in which businesses based in the West had moved some engineering and other white-collar jobs to countries such as India and China. However, as wages in India and China for certain kinds of engineering specialties are increasing, they are now realizing that there are many underemployed engineers here in the West whose capabilities aren’t being fully utilized. As a result, we are seeing some repatriation of jobs and some reversing of that initial offshoring trend.” §
