QFD for Strategic Business Positioning and Business Development

QFD as integrating framework for differentiated business positioning, business development and related product definition — A business case from The Netherlands

B. Visnjicki, PhD, QFD Black Belt®, Executive Director Coddel, BV, associate at Qanbridge, BV

Tj .Gorter, MSc Executive Director Qanbridge BV Glenn Mazur, QFD Red Belt®,

President, Japan Business Consultants, Ltd. Executive Director, QFD Institute

Keywords: Modern QFD, Strategic positioning, Business Development, Strategic Grid, VOC

Summary The common practice of QFD takes product development to a high level of sophistication and competitive impact by discovering real customer needs and deploying differentiating functionalities into the product design that will fully satisfy chosen customers. Strategic positioning of a business is the responsibility of top management, a process that would benefit greatly from the QFD logic and that can be much better integrated with product development. In this paper QFD applied to strategic positioning and business development is presented as an effective handshake between business and product development. The integration of QFD thinking in strategy development is instrumental in defining a strongly differentiating position of a company in its competitive arena.

1. Introduction Why are some companies capable of bringing to the market innovative and profitable products and services whilst others, even with high investments in new product development work hard but fail? Recent investigations show that there is no direct relation between investments in R&D and successful innovation. Success factors mentioned instead are unique combination of talent, knowledge, teamwork structure, tools and processes. In our view, important as these factors certainly are, what really sets the successful innovators apart is their tight and transparent cooperation between business development, marketing and sales, R&D, production and sometimes purchasing in defining the key target customer clusters for growth, related new differentiating propositions and the way these departments jointly develop, test, produce and launch them.

Despite its small size, The Netherlands is strong in research and development. It scores high on the scientific citation index and harbors top industrial players as Philips, ASML, DSM, AKZO Nobel, Shell and a host of medium and small technology driven companies. Unfortunately, as also shown by the OESO Innovation Scoreboards, the scientific and technological strength of too many of these companies is not translated into new winning products in the market. Why? There are multiple reasons why of course, ranging from entrepreneurial mind set, lack of critical mass to funding issues. A critical aspect that will be elaborated in this paper is the extent to which they are able to use their strong technology to come up with propositions that really hit the bull’s eye of important customer needs. These include unfulfilled manifest, expressed needs and hidden, unexpressed needs, as well as current dissatisfiers. Some of those companies, large and small, are strong in defining their future business position and role in the industry by combining in-‐depth customer understanding with their vast technology potential. However, the majority of technology-‐driven companies is guided too heavily by the narrow lanes of their past business, extended with their view on technological opportunities, often within their own technology domain. As a result, developed products do not hit the sweet spot of the customers’ top priority needs, latent or manifest. As a result the return on innovation investment is too low, profit margins suffer, cost cutting is required, innovation budgets are lowered and the trap of ending up with a portfolio of commodities in the price fighting arena goes wide open. Interestingly, many of those organizations apply professional methodologies in innovation and process control, in The Netherlands especially in the domain of Six Sigma. Those methods bring structure and strong discipline in the development and production floor, they create professional organisation of the downstream parts of the business processes. Where those companies fail is that they lack a similar systematic approach in the upstream part of the business processes: the multidisciplinary business definition, differentiating positioning and related innovation processes, all based on customer insights beyond the obvious and a tight multi-‐disciplinary effort all the way from business intelligence to feed fact based strategy, concept development to after sales service in the market. In this article the importance of QFD also in the business processes preceding and guiding product development teams and processes will be presented. Modern QFD methodology, when its logic and tools applied for a strategic positioning and business development, leads to key insights in opportunities for truly important and differentiating value creation for customers. Next to that, the methodology serves as a strong tool in establishing a solid, well-‐integrated input from all functional disciplines. It serves as a platform for a joint understanding by all departments, at several hierarchical levels, of the newly chosen business position, the underlying reasons and the role of each of these departments in the detailed planning and execution of the resulting business development and innovation efforts. Applied QFD for strategic business positioning and business development will be presented in a case of business development and innovation project of one midsize high-‐tech company from the Netherlands that is a global leader in its domain. Because of the confidentiality agreement still valid there will be no recognizable references to the company nor the business and markets they are in. Several new products developed from this project have been introduced successfully this year in the European market.

2. A brief look in history: QFD’s development path and its pioneers [1] Dr.Yoji Akao cites the rapid growth of the Japanese automobile industry in the 1960s as a driving force behind the development of QFD[2]. With all the new product development drives in the Japanese auto industry, people there recognized the need for design quality and that existing quality control process charts confirmed quality only after manufacturing had begun. Dr. Akao's work with Kiyotaka Oshiumi of Bridgestone led to “Hinshitsu Tenkai” or "Quality Deployment," which was taken to various companies

with little public attention. The approach was later modified in 1972 at the Kobe Shipyards of Mitsubishi Heavy Industry to systematically relate customer needs to functions and the quality or substitute quality characteristics. The first book on the topic, Quality Function Deployment by Akao and Mizuno, was published by JUSE Press in 1978.[3] The introduction of QFD in US started in 1983, when the first article on QFD by Kogure and Akao appeared in Quality Progress magazine published by the American Society for Quality Control (now ASQ).[4] From that moment onwards, things spread quickly. Don Clausing, a Xerox employee at that time, first learned about QFD 1984, during a two-‐week trip to Fuji-‐Xerox Corporation, a Xerox partner in Japan. Clausing had already become interested in the Robust Design methods of Dr. Genichi Taguchi, who was a consultant to Fuji-‐Xerox. During his stay in Japan, Clausing met another consultant to Fuji-‐Xerox, Dr. Makabe of the Tokyo Institute of Technology. Clausing would play an instrumental role in spreading Makabe’s approach to QFD to the USA. In 1984, Larry Sullivan of Ford Motor Company organized an internal company seminar at which Clausing was invited to present QFD. Sullivan immediately grasped the importance of the QFD concept for Ford and began promoting it internally. Clausing continued to promote QFD, Taguchi's methods, and Stuart Pugh's concept-‐selection process at conferences and seminars. When Clausing joined the faculty at MIT, he developed a semester-‐length graduate course that unified these methods along with other concepts into a system for product development that eventually became called "Total Quality Development." Many of his students, already working as senior managers and engineers at large U.S. companies, returned to their jobs and spread his concepts within their companies. The spreading of QFD then took the fast lane by become a quality assurance parameter for suppliers to large companies. Larry Sullivan founded the Ford Supplier Institute. This was a Ford Motor Company organization aimed at steering Ford's suppliers to improve the quality of the components they developed for Ford. Sullivan and others at Ford gained a detailed understanding of QFD by working with Dr. Shigeru Mizuno and Mr. Akashi Fukahara from Japan, at which the coauthor, Mazur, provide onsite translation. Eventually Ford came to require its suppliers to use QFD as part of their development process, and the Ford Supplier Institute provided training in QFD appropriate for automotive suppliers. The Ford Supplier Institute eventually became an independent nonprofit organization, the American Supplier Institute (ASI). ASI became a major training and consulting organization for QFD and has trained thousands of people in the subject. At the invitation of Bob King, Akao came to Massachusetts and conducted a workshop on QFD in Japanese with simultaneous translation into English. Akao conducted a second workshop in June 1986, also under the auspices of GOAL/QPC. For this second workshop, GOAL/QPC had the coauthor, Mazur, translate a series of papers on QFD, including several case studies. This translation was later published in book form [5] Eventually this collection of QFD papers became what remains the standard advanced book on QFD. In 1987, GOAL/QPC published the first full-‐length book on QFD in the United States: Better Designs in Half the Time, by Bob King[6] In June 1987, Bernie Avishai, associate editor of Harvard Business Review, asked Don Clausing to write an article on QFD. Clausing felt that the paper should be given a marketing perspective, and he invited John Hauser to coauthor it. Hauser had become intrigued with QFD after learning about it from a visit to Ford. The article, published in the May–June 1988 issue of the Harvard Business Review, has become one of the publication's most frequently requested reprints. That article probably increased QFD's popularity in the United States more than any other single publication or event. In early 90s Honeywell (at that time AlliedSignal) adapted QFD approach. Early examples at that time included Toyota Motors' QFD processes.

In 1993 the QFD Institute was sanctioned by Dr. Yoji Akao QFD’s co-‐founder, to research and develop state-‐of-‐the-‐art methods, tools, and training. Today, the QFD institute presents a pivoting point to inspire strong interest for QFD around the world generating ever-‐new applications, developing new advanced tools and supporting companies in various application domains of QFD. It is the only dedicated QFD education and advanced research organization in the world. Based on this, it has developed several new QFD tools and methods that reduce the complexity of initiating and sustaining QFD implementation. These new tools and methods are applicable to any industry type, including hardware, software, service, and healthcare, and are core to their QFD Green Belt®, QFD Black Belt®, and QFD Master Black Belt® courses. The QFD Institute is the U.S. representative to the International Council for QFD which has held international QFD Symposiums to this day in the U.S., Japan, Sweden, Germany, Australia, Brazil, Turkey, and China.

3. Looking forward: QFD as a framework for defining a business that makes a difference The main application of QFD is in product development. Companies use QFD as a basis for multidisciplinary product development, in order to come up with products that hit specific customers in the core of their needs, needs they were sometimes unaware of. There is no better way to differentiate a product and create strong customer preference. QFD however, can have an equally strong impact on the quality of strategic business positioning. In this complex domain, the mental framework and logic of QFD adds great value. The same way QFD takes product development to a much higher level of sophistication and competitive impact, QFD can be instrumental in defining a strongly differentiating position of a company in it’s competitive arena, addressing customer needs other companies failed to identify or properly translate into attractive value propositions. Defining new strategic business positioning is all about doing different things than rivals do and/or doing things differently, with superior impact on customer needs at competitive cost levels or better. Without differentiation in its offerings, in an open market, any company risks drifting into a price war arena. There, only a superior, lower cost supply chain can save the margins. Key and starting point in this whole game of smart differentiation is a superior understanding of (future) customer needs. The logic of QFD in competitive positioning is equal to that of QFD applied in product development, where Voice of the Customer is a powerful tool to discover manifest and latent customer needs, the starting point for product differentiation. In the very same way, at the level of the company, applied QFD has a focus on discovery of new attractive markets. It searches for specific customer groups’ unmet needs (existing ones or new ones creates by changes in the environment of the customer), in order to find new business opportunities. These business opportunities are defined as new customer clusters –functionalities combinations. By defining and serving those new customer cluster–functionalities combinations well, a company obtains a new and differentiating role in industry. A good example is the way Apple redefined its business by adding music on the move at an excellent quality level and unequalled user-‐friendliness to its portfolio with the launch of the iPod in October 2001. The slogan that accompanied the launch of the iPod 1, “1,000 songs in your pocket”, at that time was an unparalleled capacity, and says it all. Earlier, in 1982 Philips and Sony made a similarly large step in that domain when they changed the music industry with their launch of the audio CD. Whilst some observers claimed another “technology push” by Philips, this company in fact had carefully mapped a great new business domain of customer groups with a high (latent) need for music-‐on-‐the-‐move, direct track access, no loss of quality over time, easy handling media and so forth: latent customer needs that Philips understood

really well and that were leading in the concept design. Already in the early 80s, within Philips, QFD was used extensively in a strong co-‐operation between the Consumer Electronics division. Corporate Strategic Planning, Corporate Innovation and Total Quality Management [8]. As indicated above, QFD at the level of company positioning and strategy definition has many similarities with the application of QFD in product development because the same logic applies. The Voice of the Customer (VOC) at a business development level is more a “Voice of the Market” and is used to gather relevant business information for the new business positioning. Strategy and business development obviously looks broader than product development. A company embedding QFD in its strategy development performs a first level VOC by carefully scanning the future arena for new developments that might impact the business and therefore the needs of its customers. It scans across domains like technological developments, market trends, demographic changes, political and regulatory development, raw materials availability and many others to find out how the customers business will change and what, as a result, will be future qualifiers for the own company to be in business and what will be differentiators that will enable the company to gain customers’ preference. The key for strategic business positioning remains the intimate understanding of customers’ (future) needs. At business development level this is done via a number of iterations, going from a broad need analysis to a first rough clustering of customers with similar needs, to a sharper need analysis, to a sharper customer clustering and so forth. Usually the key value creating insights of the “Voice of the Market” are first gathered in an overall positioning, the Strategic Intent. This describes the future role of a company in the industry in terms of What (value offering), For Whom (target customers) and How (the specific business formula and underlying profit model). No nice marketing slogans, but a “technical” description of a unique role in the industry for internal use. This Strategic Intent is then acid tested on the aspects of competitive differentiation and the defensibility of this differentiation. The Strategic Intent is an important waypoint further down the timeline. However, this rough position is nowhere near the precise, more tangible business definition required to actually steer business development. Business development needs much better described market segments, analysis of segment attractiveness, defined priorities in the market attack, a clear sequence over time on what segments to conquer first, what segments two years later and so on. In other words, to sharpen the strategy the future playing field of the company must be defined in much more detail. The way to do this is by defining the so-‐called Strategic Grid. The Strategic Grid is the core element in any strategic business positioning process. The Strategic Grid is matrix that combines the future Customer Clusters (in the rows) with the future Value proposition (Functionality Clusters) the company will offer (in the columns). The Strategic Grid describes the (future) playing field in a precise way. It serves as a frame of reference, not only for product and process innovation, but also for day-‐to-‐day commercial decisions. The Strategic Grid forms the industrial signature of the company. This particular matrix is the business DNA of the company. Determining the Strategic Grid takes a good mix of imagination, creative thinking and solid analysis. Once defined, it is the presentation of how a company perceives and understands its customers, their needs and the value propositions that are unique ways of fully fulfilling these needs, gaining a strong customer preference.

4. Project example: applied QFD for strategic business positioning, business development and product development Application of QFD in strategic business positioning and business development is presented here through a case of one of our projects. Our customer, a Dutch mid size high-‐tech company applied QFD in all three development domains: strategic business positioning, business development and new product development. The Project was run for two years and main results were:

• Clear, precise, on the customer group level, business position for next 3 years • Product development project focused on top priority customer needs targeting the highest

profit level of the business. • Complex product design with complete set of requirements. • Definition of the sub-‐modules, next generation product development projects, with clear targets

in the market and differentiating value proposition. • Full understanding on all organization level: why, what and for whom this project is important • Full support of the management team • Effective communication and fast decision processes • Introduction of the QFD as the leading methodology and set of tools for the systematic,

multidimensional development approach on business and product level.

In order to start the strategy and business development with a realistic view on the starting point, an analysis was made by the strategy team of the companies’ current position in the international markets and its position, role and profit share in the industry chain. This led to important insights for the strategy development, a host of house-‐in-‐order actions and identification of some “low hanging fruit” in the market. As a next step, QFD tools and logic were introduced to the strategy team in the early phase of the market attractiveness investigation by applying VOC focusing on scanning for new needs that would provide the handles for building new differentiation in the market. VOC at the level of business development (earlier referred to as “Voice-‐of-‐the-‐Market”) we called “VOC first round”. Interviews are carried out throughout the industry chain by a team consisting of marketing, business development and product development team members. An alternative approach is to “walk around” the organization and its customers to look for unmet future opportunities. The main focus was on discovering unaddressed and hidden customer needs by looking at them from many angles: customers themselves, consultants, installers, software companies and so on. New “need pockets” were then analyzed with respect to proper market segmentation, segment size and value, the company’s relative strength to come up with unique solutions, best suited business models, attractiveness level of the segments, qualifiers, differentiators, risks etc. Interviews started explorative, and changed to a more validating character (checking hypothesis). In the first round, many product-‐related verbatims also were collected and stored into the customer database. Interview structure :

Figure 1: Structure and sequence of the conducted interview

In total 29 interviews were conducted with local and international customers resulting in 1200 customer verbatim. Example of the consolidated information regarding market trends and requirements for the two most important market segments is presented in the table below.

Table 1: Part of the summary table of the consolidated statements regarding market trends and requirements.

As a next step, the customer needs were analyzed and cluster with respect to satisfaction level, unmet needs and future differentiators of a specific customer group related to two market segments (see table below).

Table 2 Satisfaction level, unmet needs and future differentiators from different customer groups regarding our business and others

The insights delivered by the “Voice of the Market” analysis eventually led to two important pillars of the company’s strategy. Pillar one was the grouping of customers with coherent needs into customer clusters that could be specifically approached. Pillar two was the definition of key functional value propositions, each important to a broad group of customers, fulfilling needs that hitherto had not are only partly been addressed by the company and its rivals. Those two dimensions together formed the (future) Strategic Grid, the playing field of the company. Not just a description of product market combinations, but a fresh way of looking a customer needs and clusters and the definition of new unique future value offerings, the signature of the future identity of the company.

Figure 2: Strategic grid

Once the Strategic Grid was defined, the next iterations for refinement started and the product development projects were defined. QFD tools as the business objectives and goals table, business goals-‐market segment matrix and project goals tables were applied for the project definitions, now with relevant business development information already included. All defined projects were mapped and prioritized with the selected criteria. When the top priority projects were selected, QFD for business development made an elegant handshake with QFD for product definition. The figure below describes the process flow: from the current business position and strategic grids, to the new project definition for the realsition of the new strategic business position is presented.

Figure 3: Process flow: from the current business position and strategic grids, to the new project

definition for the realisation of the new strategic business position

QFD in product development With value offerings on a functional level well defined, the hand-‐over to the stage of product development domain started with the deeper understanding of the targeted customer’s needs. The process of VOC focused on the product development, what we called “VOC second round”, was conducted further with a multidisciplinary team consisting of a project manager, the responsible marketing manager, a product development manager, a product requirement engineer and the R&D manager. At this level the broad range of sources from interviews with customers, potential customers, customers of the customers, other players in the chain, customer complaint records, meeting reports from earlier meetings are used to add information to the first round database focusing on the technical characteristics. After conducting the VOC second round, a cascade of QFD common tools and matrices start `with Customer Needs Affinity diagram (CN AD). The process flow is presented in the Figure below.

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Figure 4: Process flow: from the VOC to the DPT and AtS table

The first link back to the generic market information gathered in the VOC first round was integrated in the Design Planning table (DPT). Customer needs were assigned and additionally prioritized based on the level of satisfaction current solution in the market is offering to the selected customers. Five different types / levels of the importance of the customer needs were linked to: satisfier, dissatisfier, differentiator, unaddressed need and not relevant. The high values, corresponding to the biggest business opportunity were given to the dissatisfiers and unaddressed needs and the low values were given to the needs already satisfied with differentiating propositions. In the figure below, modified DPT is presented.

Prod

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Figure 5: Modified Design Planning Table

The loop of current business – strategic business position – business development and market opportunities – product development and design is closed with the Potential Business Value Creation where the product design features are linked to the value to customer and value to business. The linking table between strategic business position and product design is the so-‐called Alignment to Strategy table. In this table all major business aspects impacted by the new product design are weighted. The criteria used is defined in three domains:

Figure 6: Alignment to strategy table (AtS)

1. Added value to the customer in functional domain of: • accessibility • availability • controllability • quality • reliability • safety • scalability • serviceability

2. Alignment to current business: • fit with current business model • fit with current network: • fit with current customer base • fit to current operations • fit with current core competencies

3. Technical feasibility • Competitive advantage • Technical Challenge • Synergy with other business units • Fit to current product portfolio

The Product Design Document was officially handed over to the requirements engineers and mechanical and software engineers when the Alignment to Strategy (AtS) table was accepted by the management team. After this project, QFD became a mandatory approach for all development projects in this company. Further project steps, like the Market Attack, are not described in this article.

Conclusions Many medium and small technology driven companies in the Netherlands are putting lots of effort into adapting professional methodologies in innovation and process control especially in the domain of Six Sigma. Those methods bring structure and strong discipline on the development and production floor. However, they almost totally lack a systematic approach in the upstream part of the business processes. QFD applied on the level of strategic business positioning and business development creates multidisciplinary business definition, differentiating positioning and related innovation processes. In this way technical creativity and new product development capabilities are enablers in for the realization of the future business model and further positioning in the market. About the Authors: Biba Visnjicki started her professional career at “Stark” company in Serbia as a product and business developer. In 1998 she become regional Managing Director of Mobile Oil for the former Yugoslavia region. After finishing PhD studies she joined Demcom Twente B.V. as Business Development Manager focusing on advanced methodologies for business and product development practice. She received a PhD for her research on renewable energy production from biomass at the University of Twente’s Faculty of Science and Technology in the Netherlands. She received QFD Black Belt® status at the QFD Institute of America. Biba joined Qanbridge in 2008 and focuses on Fast track business development and QFD In 2008 Biba has founded Coddel, a company dedicated to real-‐life training and coaching of professionals in marketing, business development and modern QFD.(www.coddel.nl) Tjerk Gorter started his professional career at Philips Electronics, working in the field of pre-‐competitive research cooperation, optoelectronics and real-‐time software engineering. After 6 years he founded Createch, which focused on the development of decision support software. As a partner in Rijnconsult he was responsible for Industry and Technology in the group Topstructure and Strategy. He focused on strategy development for players in the chemical, technical fibers, machine building and diagnostics industry. In 1999 he joined Friesland Foods as Director Corporate Innovation and Technology, with global responsibility for innovation and technology management, Corporate Research, strategy development and business intelligence. As a member of the Innovation and Technology Committee of VNO-‐NCW he became actively involved in national innovation efforts. He has built four of the private-‐public technology programmes. In 2005, Tjerk founded Qanbridge in 2005 as a vehicle to support fast track business development, with an emphasis on companies creating technology solutions that enable the development of sustainable businesses. Tjerk is co-‐founder of PamGene a biomarker company, V-‐Square, a company specialized in the production of medical and clinical nutrition and IonTag, a starter company that has developed unparalleled IMS-‐based sensoring technology to “sniff” molecules:

explosives, narcotic, toxics, air quality. Tjerk’s current roles in Dutch innovation include: Member non-‐executive board for Food & Nutrition Delta, Member Supervisory Board Technology Foundation STW, progamme director of AMMON, the regional industry-‐led innovation program for the Eastern Netherlands. Glenn H. Mazur has been active in QFD since its inception in North America, and has worked extensively with the founders of QFD on their teaching and consulting visits from Japan. He is a leader in the application of QFD to service industries and consumer products, conducts advanced QFD research, and is the Conference Chair for the annual North American Symposium on Quality Function Deployment. Glenn is the Executive Director of the QFD Institute and International Council for QFD, retired Adjunct Lecturer on TQM at the University of Michigan College of Engineering, President of Japan Business Consultants Ltd., and is a senior member of the American Society for Quality (ASQ), and the Japanese Society for Quality Control (JSQC). He is a certified QFD Red Belt® (highest level), one of two in North America. He is a certified QFD-‐Architekt #A21907 by QFD Institut Deutschland. He is convenor of the Working Group 2 of the Technical Committee 69, Subcommittee 8 to write the international standard for QFD (ISO-‐16355). He is an academician of the International Academy for Quality. References:

1. J.P. Ficalora, L. Cohen, “What are QFD and Six Sigma?” . INFORMIT, 2009 2. Yoji Akao, “QFD: Past, Present, and Future,” paper presented at the International Symposium on

QFD (1997). 3. Shigeru Mizuno and Yoji Akao, eds., Quality Function Deployment: A Company-‐wide Quality

Approach (Tokyo: JUSE Press, 1978). 4. Masao Kogure and Yoji Akao, “Quality Function Deployment and CWQC in Japan,” Quality

Progress 16, no. 10 (1983): 25. 5. Yoji Akao, Quality Function Deployment: Integrating Customer Requirements into Product

Design, trans. by Glenn H. Mazur and Japan Business Consultants, Ltd. (Cambridge, Mass.: Productivity Press, 1990).

6. King, Better Designs. 7. QFD Institute of America http://www.qfdi.org 8. 1985-‐1991 Personal experience and knowledge, Tj. Gorter, Member of Research consortia,

technology and innovation management at PHILIPS