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Reducing complexity in R&D group after acquisitions leads to significant savings

R&D turnaround effort improves efficiency and reduces spending by 20 percent.

Challenge

A mid-sized consumer electronics company found itself with duplicative products in its broad portfolio of high-end audio and entertainment equipment following a spate of acquisitions. The onset of the economic downturn and the pullback in consumer spending led management to conclude that dramatic and immediate action was needed to shore up profitability and extract the value of the acquisitions as quickly as possible.

The company called on McKinsey to help restructure its fragmented and overlapping product portfolio as well as improve the productivity of the combined R&D function in order to maintain brand differentiation.

Discovery

Working directly with the CEO, CTO, and the brand presidents, the team set about  analyzing the product portfolio. The McKinsey team focused on helping the client use the fastest levers for cash generation. A feature vs. price analysis revealed many opportunities to eliminate similar models once the teams compared the cost of R&D and cost to produce each model with its importance to customers.

A key finding was that costs and complexity of R&D could be significantly reduced if the company rationalized, i.e. increased commonality of platforms at the component level for the next generation devices. Senior management accepted this approach and directed the R&D teams to implement it in new products.

A separate initiative established a framework to guide future R&D investments (spend/resources/projects) and forecast relative impact on profitability (e.g., margin per product).

Impact

The product portfolio analysis and R&D turnaround efforts enabled the client to exit several product lines, reduce R&D spend by 20 percent, and rationalize new product introductions.

The move to common components also allowed the company to reduce and consolidate its R&D engineering staff and reorganize personnel from a brand-centric structure to a project-based R&D pool, ensuring higher productivity and efficiency in product design, test and roll-out.

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