By John Maculley

“If you could get all the people in an organization rowing in the same direction, you could dominate any industry, in any market, against any competition, at any time.”

This well-known quote from Patrick Lencioni’s book entitled The Five Dysfunctions of a Team: A Leadership Fable expresses the enormous potential power of teamwork when members are fully aligned. Like competitive rowing, new product development is also a team sport. For teams to execute faster, they must share clear objectives, define rules for escalation, establish critical success criteria, and strive for meaningful and measurable targets. Unfortunately, many teams collaborate without the benefit of these factors, leaving them to make decisions in an uncertain and ambiguous environment. The symptoms of such an environment are engineering redesigns, budget overruns, delayed product launches, unmotivated team members, and unhappy customers. Fortunately, a simple technique enables businesses to resolve these issues and accelerate team members’ decision-making that is hampered when ambiguity runs amuck.

Defining Decision-Making Authority

Introduced over 20 years ago and applied in multiple industries, Boundary Agreements (see Table 1) align new product development (NPD) team members, governance bodies, and strategic partners on critical success factors. Boundary Agreements represent a best-in-class philosophy. When accompanied by appropriate governance structures, Boundary Agreements set the stage for earlier cross-functional input, improved team structures, and accelerated decision-making, thereby empowering teams to be the best that they can be. The process of alignment that occurs during the establishment of a Boundary Agreement creates a virtuous cycle throughout an organization that engenders many project benefits, including fully integrated schedules, adequately resourced core teams, and faster time-to-market.

Table 1

Boundary Agreement

Boundary Agreements benefit NPD and also reveal systemic business process issues that impede successful execution. Many standard processes, such as consolidated supplier selection and business travel approvals, were implemented to resolve legacy problems generated by siloed organizational structures. As companies shift toward autonomous, self-governing, cross-functional team structures, such processes become obsolete. The introduction of Boundary Agreements forces teams to revisit and challenge these siloed processes, resulting in portfolios of continuous improvement projects that set a path for operational excellence.

The case for Boundary Agreements is quite compelling. Positive results from top companies in various industries, including medical devices and semiconductors that have implemented this product development approach are a testament to their value. Their mechanics are remarkably similar to standard project performance monitoring, introducing an additional category known as the “boundary target.”

 Establishing Multiple Outcomes

When instructing companies on creating Boundary Agreements, we often employ analogies entirely different from the client’s current industry to convey the concept by removing internal biases. We consider an automotive analogy for this article.

The project objective is simple: develop and launch a profitable new vehicle that customers will purchase. There are typically two acceptable outcomes for most projects. Each development plan prioritizes scope, schedule, and budget differently to achieve success that can be measured on a spectrum—from extraordinarily successful to acceptably successful. Boundary Agreements introduce a third potential outcome that is not necessarily ideal but is still acceptable to the business, thereby expanding the success spectrum. In this hypothetical example, teams are encouraged to shoot for the stars and create “a new Ferrari” (see Exhibit 2). Given the complexity of the engineering involved, teams will emphasize scope over schedule and budget. They can deliver a new Ferrari that will be profitable and that customers will purchase, but it will take more time and a larger budget. Project sponsors will want the Ferrari, but with a faster time-to-market and at a reduced budget. Teams then perform scope trade-offs to accommodate the new schedule and budget constraints by establishing what are called “team targets.”

Exhibit 2

Hypothetical Project Outcomes

Team targets are incredibly aggressive, loaded with risk, and have less than a 50% chance of success. To mitigate the situation, teams devise a second, more rational plan. Let us call this “the Honda.” This alternative outcome is less desirable to project sponsors, given its reduced scope, but the schedule and budget are acceptable. In this case, the Honda is known as the business target and has a higher chance of success—typically 85%. A third alternative introduced by Boundary Agreements is to deliver the minimally viable product that still fulfills the project objectives. We call this option “the Chevy.” This alternative is not necessarily desired by the project sponsors or the NPD team, but it meets the business requirements.

 Getting Leadership Out of the Way

You might be asking why we would introduce a third outcome. This approach allows project sponsors and business leaders to step away from the project and foster team innovation. Boundary Agreements facilitate a contract between the team, the project sponsors, and the business using the three outcomes to establish escalation rules and bonus opportunities. The rules are clear—business leaders and project sponsors agree to empower teams to make trade-off decisions between the three options—as long as teams agree that they will escalate the project to the attention of governance body members if boundary target breaches occur. NPD teams are then incentivized, using a graduated bonus scale, to deliver the Ferrari. If the team delivers the Ferrari, they receive the full bonus, delivery of the Honda provides 50% of the bonus, and the Chevy provides 10%.

We have discovered that by empowering teams to autonomously make decisions and incentivizing them appropriately, they will often exceed expectations by finding novel ways to solve problems. Boundary Agreements create an environment in which innovation flourishes and team members become fully engaged. This approach to product development eliminates functional silos, reduces governance layers, and streamlines execution. The contract forged between the major stakeholders becomes a catalyst for driving innovation and building organizational trust.

Accelerating Decision-Making

A large medical technology company had an internal mantra of “collaboration through escalation” prior to implementing Boundary Agreements. Simple decisions could take weeks or, in some cases, months to make as they were escalated through a complex matrix of functional leadership, steering committees, and governance bodies. In many cases, teams were unsure who was actually responsible for the decision. One example involving supplier selection resulted in so many competing decision-making escalations that the project was delayed by six months. Boundary Agreements resolve these issues by defining decision-making authority using target variances.

In the case of supplier selection, a date of selection would be agreed upon and documented in a Boundary Agreement, including a boundary target date establishing the outer threshold by which the decision must be made. The NPD team would then be authorized to make the best decision for the project while maintaining other parameters for project success, such as launch date and profit margin. When the project plan is initially approved, the decision-making variance might be three months, encouraging the team to work through the selection process without the need for escalation. As the project proceeds through the development cycle, the variance tightens to ensure a timely decision is made and project execution is not impeded. NPD teams operating under this model can quickly evaluate supplier options, investigate short-term and long-term supply chain ramifications, factor costs into their financial models, and ultimately make an informed decision without the need for leadership intervention.

If we consider this scenario occurring multiple times over the product development lifecycle, the impact on time-to-market becomes game-changing. Industry-laggards can quickly become industry-leaders by merely implementing properly structured Boundary Agreements. Learn more about the power of Boundary Agreements and how your company can implement them from Dave Breda’s insight on getting development teams right. 

About the Author

John Maculley is a principal with Accel Management Group. In this role, he helps clients grow their companies and improves their operational efficiencies by designing and implementing customer-driven innovation and product development frameworks. Maculley brings more than 20 years of high-tech industry experience, enabling him to deliver innovative methods to improve time-to-market, reduce costs, advance performance, and increase revenue.