Stage-Gate Fundamentals

The 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 [5], a professor of marketing at the DeGroote School of Business at McMaster University in Hamilton, Ontario, Canada.

This approach suggests moving any new 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.

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 fewer stages.

In a typical form, the model involves 5 stages:

1. Scoping: preliminary investigation and scoping of the project.
2. 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.
3. 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.
4. 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.
5. Launch and commercialization: the beginning of full-scale operations or production, marketing and sales.

Each stage requires a 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 the 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.

Stage-Gate Model SAP

Moreover, the 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 criticism

For all its advantages, the Stage-Gate model has some drawbacks. It was developed more than 50 years ago, so today it lacks flexibility. If some changes are required at a later stage of project development, it not only costs more for the company, but also throws the entire project back to the previous stage, where these changes can still be implemented. In addition, due to the need to make decisions at each gate and the inability to quickly make some edits, the overall project completion time increases. In this respect, the Stage-Gate model loses out to modern flexible approaches, like Agile.

Based on our experience and research, we can say that the Stage-Gate model is more suitable for project portfolio management. In large companies hundreds of ideas appear simultaneously, so there is a need for a unified system for evaluating and comparing them. This is where the Stage-Gate model is most useful. It allows companies to analyze ideas right from the very beginning, assess their potential, cut off the improper ideas, and focus only on the most promising ones. Thus, companies can use their resources more efficiently. On the other hand, the Stage-Gate model is not the best choice for managing small projects in startups. In this case, it can only complicate and slow the process down.

Original article at SAMSONOWA & Partners

Sources:

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