Creation and development of a new product is a long and expensive process that involves many risks and uncertainties. Many companies use the Stage-Gate model as a tool to manage and coordinate this chaotic process.
What is the Stage-Gate Model?
This approach emerged in the mid-20th century in the USA for making investment decisions for large projects with high uncertainty in engineering and chemical engineering. The concept then appeared and evolved in the works of Dr. R.G. Cooper , a professor of marketing at the DeGroote School of Business at McMaster University in Hamilton, Ontario, Canada.
This approach suggests moving any new product projects through several Stages, from idea to launch. While the project moves between stages, the project team undertakes the work, obtains the needed information, integrates and analyses the data and monitors progress. Then the project goes through the Gates, where the decision is made whether it is worth continuing investing in this project or it should be terminated. This principle helps to reduce risks and increase certainty in the development of projects.
Sources: Cooper 2001
What does the Stage-Gate Model consist of?
All proposed development projects enter Gate 1 for an initial screening. Here the decision is made, as to what version of Stage-Gate should be used. Depending on the complexity of the idea and the associated risks, projects can go through more or less stages.
In a typical form, the model involves 5 stages:
- Scoping: preliminary investigation and scoping of the project.
- Design: detailed investigation involving primary research (customer, market and technical) leading to a Business Case that includes product and project definition, project justification, and the proposed plan for development.
- Development: the actual detailed design and development of the new product and the design of the operations or production process required for eventual full scale production.
- Scaling Up: tests or trials in the lab, plant and marketplace to verify and validate the proposed new product, brand/marketing and production or operations plans.
- Launch and commercialization: the beginning of full scale operations or production, marketing and sales.
Each stage requires larger investment than the preceding one. Also, each stage is cross-functional: it may include tasks for marketing, R&D, production, engineering and other departments. There is no separate stage for which R&D or marketing department would be responsible.
Between the stages the product passes through the gates where the development of the idea is evaluated according to several criteria in order to decide on the future of the project. The criteria do not change much from gate to gate, however, it is assumed that efficiency increases at each stage, providing a higher level of specification and accuracy. Gates serve as quality-control checkpoints for ensuring the implementation quality of the idea, assessing investment attractiveness and approving the plan for the future development of a project.
After going through the gate, each project receives one of the four decisions: (1) GO – the project receives financing and gets further developed; (2) KILL – the project closes and investments are ceased; (3) HOLD – the project is suspended until additional results are obtained; (4) RECYCLE – the project goes back to the previous stage and undergoes certain improvements. This screening allows companies to maximize the efficiency of investment resources and focus on the most promising ideas, providing a constant flow of new products.
How is the Stage-Gate Model used?
The form in which this model is used by the company depends on the industry and specifics of production. The number of stages, input data and criteria may vary. However, the key idea is simple and remains unchanged: each project develops systematically with provision of sufficient information to understand its prospects and benefits at any point in time.
Nowadays, the Stage-Gate model is successfully used by companies such as Pepsi, Procter & Gamble, GE, Exxon. Using this tool allows achieving a faster and more successful process of introducing new products to the market, reducing errors and costs, as well as more coordinated work and cross-functional interaction both within the company and with external parties.
Moreover, Stage-Gate approach enables companies to implement open innovation, involving both internal and external stakeholders at all stages of idea development:
- identify external problems and customer needs,
- attract inventors, startups and small firms to create new solutions,
- seek help from third-party scientists in finding solutions to technological problems or acquire external innovations that have already been produced,,
- sell or out-license already commercialized products if it is more profitable, or in-license to provide immediate sources of new growth for the company.
Such a system certainly provides a favorable environment for the use and development of innovation. Stage-Gate model is considered the ‘industry standard’ and is the world’s most widely benchmarked, referenced and implemented innovation management model.
Stage-Gate model of SAP
Stage-Gate model of Philips
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- Cooper R.G. 1986. Winning at new products. Addison-Wesley Pub. Co;
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- Phillips R., Neailey K., Broughton T. 1999. A comparative study of six stage‐gate approaches to product development. Integrated Manufacturing Systems, Vol. 10 No. 5, pp. 289-297.