A Stage Gate Model for manufacturing SMEs

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A Stage Gate Model

for manufacturing SMEs

to improve the product development process

by

Tessa Huijsman 1568361

University of Groningen

Faculty of Economics and business

Master’s Thesis

Technology and Operations Management

23 June 2014

Supervisors Prof. ir. dr. J. Slomp

Dr. V. Wiegel

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Abstract

The Stage Gate Model (SGM) of Cooper is used as a roadmap for product development and is mainly used in Large companies. The Model provides structure to the product development process. Research showed that Small Medium Enterprises (SMEs) in the manufacturing industry need more structure in the product development process and current SGM is not focused on SMEs. By means of an explorative case study a SGM for SMEs is investigated.

Interviews with experts in the field of Stage Gate Model used by Large companies are done to gather information of the Stage Gate Model in practice. This research showed that the SGMs used in Large companies has the same characteristics as the SGM of Cooper and that the SGM is very useful in the Product development process of Large Companies. Thereafter five production managers of manufacturing SMEs are interviewed to gather information about their product development process. The interviewed SMEs do use to some extent a Stage Gate Model, however the Stage Gate Model in some of the SMEs can be improved in some way. The results show that in general the characteristics of the SGM of Cooper are similar with characteristics of the SGM used by the SMEs.

Furthermore is investigated the effect of the characteristics of Large companies and SMEs on the SGM. The characteristics of both kind of companies can have a beneficial effect on the SGM.

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Preface

This master’s thesis is my final project of the Master of Science Technology and Operations Management.

Performing a research based on practice has been a great and challenging experience to me. Visiting the several companies to conduct the interviews was very interesting. I learned a lot. First of all I want to thank the interviewees for the time they made for me and giving me useful information for my research.

Furthermore a special thanks to my supervisors, Dr. V. Wiegel and Prof. dr. J. Slomp for giving useful comments and all the support during the project.

Also I would like to thank my family and friends for the extra support during the master’s thesis project, especially Jelte and Isabel.

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1 Introduction

Product development is not only essential for multinationals; it also plays an important role for Small and Medium Enterprises (SMEs). The definition of a SME differs per researcher,

geographical location and industry (Nicholas et al., 2011). In this study, a SME is described as a company with a staff headcount less than 250 employees. This is the simple definition of SME derived of the EU legislation (Nicholas et al., 2011). SMEs are essential for the Dutch economy since 99% of the Dutch companies are SMEs (Kamer van Koophandel, Panteia, & CBS, 2014). The ability of SMEs to innovate and successfully develop new products is crucial for both the recovery and the continued development of the economy (Nicholas, Ledwith, & Perks, 2011). The Hogeschool Arnhem Nijmegen (HAN) started, with support of the Dutch government, the RAAK PAM (Product Architecture Mapping) project to investigate the strategic product

development process in fourteen SMEs. In preparation for the RAAK PAM project, several SMEs were approached and an exploratory study regarding the product development in these companies showed there is barely any structure in their product development process. For instance, all these companies are missing a formal model with certain go/no-go decision moments. The ultimate goal of the RAAK PAM project is to increase the speed and

effectiveness of product development in SMEs (RAAK PAM, 2012, p. 2). One way to achieve this goal is with the use of a so-called Stage Gate Model (SGM) as a SGM structures the product development process (Cooper, 1990). This model is highly appreciated in literature (Grönlund, Rönnberg Sjödin, & Frishammar, 2010).

The definition of Stage Gate that is commonly used in the literature is from Cooper (2008, p. 214); "A Stage-Gate® process is a conceptual and operational map for moving new product projects from idea to launch and beyond – a blueprint for managing the new product

development (NPD) process to improve effectiveness and efficiency.” The use of the Stage Gate Model in the product development process has several advantages. For instance, it gives an overview of the objectives, tasks and the different stages help to better rank projects and focus on resources (Cooper, 1990).

Cooper is recognized as one of the authorities in this field of expertise with a significant number of publications on the Stage Gate Model and product development. The Stage Gate Model has been modified multiple times during its thirty years of existence. The latest version of the Stage Gate Model shows that the model can be adjusted to the specific characteristics of a single company. It is a flexible model so the different stages and gates can easily be adjusted to the company at hand. Large companies frequently use the Stage Gate Model and they are mostly satisfied with the model. Large company is defined as a company with more than 250 employees. Literature is more focused on new product development of Large well established companies than on SMEs. The literature on design and development within SMEs is more limited (Millward and Lewis, 2005). Literature about a Stage Gate Model focused on SMEs is not known.

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2 Theoretical background

2.1 Introduction

This chapter describes all gathered information on the SGM from the literature. It will explain the SGM with all its characteristics, stages, gates and its practical application. Attention will also be paid to the misconceptions, the advantages and disadvantages of the Model will be shown. In order to test how the SGM is applied by Large companies, the characteristics of the model will be researched in this chapter. The characteristics found will also be used as a starting point when adjusting the Stage Gate Model for SMEs.

2.1.1 Product development

The SGM is based on product development. In order to understand the added value of the SGM, the importance of product development for companies is described.

Brown & Eisenhardt (1995) named Product Development among the essential processes for success, renewal and survival of organizations. Particularly for companies in either fast-paced or competitive markets.

Activities of the product development process that have a role in the success of product development are the market-oriented activities. A lack of market orientation and inadequate market assessment are consistently cited as major reasons for new product failure, particularly in industrial-product and high-technology firms (Cooper, 1990). One popular way to bring new products to the market is through the use of a Stage Gate Model (Cooper, 2008).

2.1.2 The concept of a Stage Gate Model in product development

The Stage Gate Model was developed in the mid-eighties (Cooper, 2009).The definition used for the SGM in 1990, as well in the articles after the nineties, is: “A stage-gate system is both a conceptual and an operational model for moving a new product from idea to launch. It is a blueprint for managing the new-product process to improve effectiveness and efficiency.” (Cooper, 1990, p. 44).

A Stage Gate consists of a set of information-gathering stages followed by go/ kill decision gates (Cooper, 2008). Figure 1 shows a SGM developed by Cooper for major new product

developments.

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Figure 1 Stage Gate Model for major New Product Development by Cooper (2008)

According to Cooper (2009), the stages of a SGM have different characteristics. First, each stage is designed to gather information to reduce risks and uncertainties in the project. Second, the project costs increase with each stage further in the process and in the same time unknown factors and uncertainties are decreasing so that risk is effectively managed. Third, all activities within stages are undertaken by people from different functional areas within the organisation, working together in a team. So each stage is cross-functional, no department of the firm owns any one stage. Fourth, parallel processing is a characteristic of Stage Gate because many activities are undertaken simultaneously instead of in series. Therefore, more activities take place in an

overlapping period of time. There are several advantages of parallel processing; it works time compressing to undertake different activities in different parts of the organisation concurrently. However, it makes the model complexer than a series approach (Cooper, 1990).

The gates function as a go/kill decision point. Gates are manned by gatekeepers that are mostly senior managers (Cooper, 1990). The gatekeeping group is typically multidisciplinary and

multifunctional. Many companies have difficulties with defining the gatekeeper because all senior managers would like to be involved this results in too many gatekeepers (Cooper, 2009). Cooper said; “the rule is simple; the gatekeepers are senior people in the business who own the resources required by the project leader and team to move forward.”(Cooper, 2009, p.49) Their first role is to review the quality of the inputs or deliverables in a certain stage. Second, they assess the quality of the project in an economical and business-like manner, resulting in a

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11 next gate (Cooper, 2008).

The Stage Gate Model includes several stages before the company starts the development and testing of the product. These are the pre-development stages ‘discovery’, ‘scoping’ and ‘build business case’ (see figure 1). These stages include activities that require organizational members to assess the market and develop a strong product definition before the stage of development begins (Akroyd et al., 2009). The result is a stronger market orientation because the customer becomes an integral part of the New Product Development (NPD) project (Akroyd et al., 2009). Now the most important characteristics of the Stage Gate Model have been described. Every stage and gate will be elaborated. Figure 2 will form the reference card/ overview of the description given below which is based on the model of Cooper (1990).

Figure 2 An overview of a Stage-Gate System (Cooper, 1990)

Description of the gates and stages (Cooper, 1990): Gate 1: Idea Screen

The project is conceptualized at this point. Idea Screening is the first decision to commit resources to the project. A checklist for “must meet” criteria and a scoring model for the

“should meet” criteria are used to help focus the discussion and rank projects in this early screen. These criteria include; strategic alignment, project feasibility, magnitude of the opportunity, differential advantage, synergy with the company’s core business and resources, and market attractiveness. Financial criteria are not yet included in this Idea Screen (Cooper, 1990).

Stage 1: Preliminary Assessment (Scoping)

In this stage, several inexpensive activities such as a library search, contact with key users, focus groups and even a quick concept test with a handful of potential customers are undertaken. The purpose of these activities is to determine the market size, market potential and likely market acceptance. With a preliminary assessment, the development and manufacturing feasibility and possible costs and time to execute will be determined (Cooper, 1990).

In short, this stage provides for the gathering of both market and technical insights, at low cost and in a short time. Therefore, the project can be evaluated in the next gate.

Gate 2: Second Screen

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12 new information that has been gathered in stage 1 (Cooper, 1990). With a checklist and a scoring model based on the “must meet” and the additional ”should meet” criteria (of gate 1) the go/no-go decision will be made. When the decision is go/no-go, a larger financial budget is made available for the next stage.

Stage 2: Definition (Build business case)

This is the final stage prior to the product development. In this stage, the attractiveness of the project has to be verified. The project also has to be clearly defined at this stage. Market research will take place by doing for instance competitive analysis and concept testing. The goal of this market research is to determine the needs, wants and preferences of the customers (Cooper, 1990). The technical appraisal is focused on the “do-ability” of the project. Therefore, the “wish lists” and customer needs must be translated into technically and economically feasible solutions. Finally a detailed financial analysis is conducted as an input for gate 3. This financial analysis especially involves a discounted cash flow approach, complete with a sensitivity analysis (Cooper, 1990).

Gate 3: Decision on Business Case (Go to development)

This is the last gate before the product development stage. It is therefore the last opportunity to kill the project before entering heavy spending. Once again, this gate is subjected to the set of “must meet” and “should meet” criteria. Besides that an evaluation of all the activities in stage 2 will take place. Thus includes checking that the activities were undertaken, the quality of

execution was sound and or the results were positive. An important part of the go or kill

decision is the financial analysis and definition of the project. Furthermore, the definition of the product concept, specification of a product positioning strategy and delineation of the product advantages to be delivered and; agreement on essential and desired product features, attributes and specifications must be reached for an agreement (Cooper, 1990).

Stage 3: Development

As the stage name already implies, the development of the product takes place here. Also a detailed test, marketing and operation plans are necessary in this stage. Furthermore, an updated financial analysis is prepared and legal issues are resolved (Cooper, 1990).

Gate 4: Post-development Review (Go to testing)

Gate 4 is a check on the progress and the continued attractiveness of the product and the

project. A revised financial analysis based on more accurate data is used for decision making. The test or validation plans for the testing and validation stage are approved for immediate

implementation and the detailed marketing operations plans are revised for probable future execution (Cooper, 1990).

Stage 4: Testing and Validation

The entire viability of the project is tested in this stage. This includes the product itself, the production process, customer acceptance and the economical aspects of the project. This is achieved by doing in house prototype tests, field tests with customers, pilot or trial production, marketing tests and revised financial analysis (Cooper, 1990).

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13 This final gate is the door to full commercialization. This is the last gate in the model that can be used to kill the project. The focus of decision making is on the quality of the activities

determined at the Validation stage. Financial outcomes play a key role in decision making. Finally, the operations and marketing plans are reviewed and approved for implementation in stage 5 (Cooper, 1990).

Stage 5: commercialization (Launch)

At this stage both the marketing launch plan and the operations plan are implemented.

Post launch review

At some point the new product becomes a ´regular product´ and in this stage the project and product performance are evaluated. This is a critical assessment of the project´s strengths and weaknesses, what one can learn from this project and how one can do better next project . This review marks the end of the project.

2.1.3 Advantages of using the Stage Gate Model

In this section, the advantages of the use of a Stage Gate Model in product development will be mentioned. First, the model puts discipline into a process of product innovation that is ad hoc and seriously deficient in too many companies (Cooper, 1990). Second, the process is visible and relatively simple. Third, it provides a roadmap for facilitating the project. Fourth, it helps to overview the objectives and tasks. Fifth, the evaluation stages help to better rank projects and focus on resources. Sixth, a facet of the Stage Gate Model is parallel processing (Cooper, 1990). Therefore more activities take place in an elapsed period of time which yields shorter lead times. Seventh, the often deficient areas in the product innovation process as the predevelopment and market-oriented tasks get attention in the Stage Gate Model.

In short, the Stage Gate Model results in better decisions, more focus, fewer failures and faster developments (Cooper, 1990).

2.1.4 Disadvantages and misconceptions of the Stage Gate Model

The Stage Gate Model has some critics. First, the SGM has been seen as time consuming,

resulting in time wasting activities (Grönlund et al., 2010). Other disadvantages mentioned are bureaucratic procedures, no provision for focus and restriction of learning opportunities. A response to these disadvantages was the development of the next-generation SGM that is focused on speeding up and improving the efficiency of the process by incorporating a series of overlapping, fluid stages with fuzzy or conditional go decisions (Grönlund et al., 2010).

Research of Cooper (2008) showed that several mistakes in the use of the SGM. The design and operationalization of stage-gate approaches are considerably more complex (Cooper, 1990). Since, the goal of this research is to develop an adaptive Stage Gate Model for SMEs, it is important to mention the challenges and misconceptions in using the Stage Gate Model. This is because these challenges and misconceptions can be taken into account to yield more success with the development of an adaptive Stage Gate Model. The following challenges and

misconceptions mentioned by Cooper (2008) are elaborated:

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14 stages are cross-functional and therefore not dominated by a single functional area (Cooper, 2008).

2. Stage Gate is a map from point A (idea) to point B (successful new product) where the steps are not locked, but differ per project (Cooper, 2008).

3. Some people think the SGM is a linear process, however it is not. Inside stages, there is much looping, iteration and back-and-forth play as the project proceeds. Some activities are undertaken sequentially, others in parallel and others overlapping (Cooper, 2008). 4. The Stage Gate Models is not a project control mechanism. Stage Gate rather is a

playbook designed to enable project teams and team leaders to get resources for their projects by using the best possible methods to ensure success by speed by bringing them fast to the market (Cooper, 2008).

5. The Stage Gate is not a static tool but is rather a comprehensive, integrated, changing and evergreen system that builds in many best practices and methods.

6. The objective of the Stage Gate is a systematic streamlined process, not a bogged-down bureaucratic one.

7. The Stage Gate is not a data entry system. The software and data entry are tools, not the process.

8. Stage Gate is not just a Back-End or Product-Delivery Process. Three of the stages happen before the development begins, see figure 2.

9. Stage Gate is not the same as project management, because Stage Gate is a macro process – an over aching process. By contrast, project management is a micro process.

2.1.5 Type of company and the influence on new product development

Large companies and SMEs do not only differ in size, they also differ in structure, policies and management (Nicholas et al., 2011). Table 1 shows the main differences between Large

companies and SMEs, it may not apply to all Large companies and SMEs specifically but it can be used as a guide how Large companies and SMEs typically operate (Nicholas et al., 2011) Table 1 Characteristics Large companies vs SMEs (Nicholas et al., 2011)

Large companies SMEs

Hierarchical with several layers of

management Flat with few layers of management

Rigid structure and information flows Flexible structure and information flow Limited visibility top management Very visible top management

Top management far from point of delivery Top management close to point of delivery Low incidence of innovativeness High incidence of innovativeness

Slow response to environmental change Rapid response to environmental change High degree of formalization Low degree of formalization

Authority of personnel low Authority of personnel high

Good access to human and financial resources Limited access to human and financial resources

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15 SMEs have a number of significant advantages over Large companies in new product

development processes. For instance, the decision-making process in SMEs is shorter because of the fewer layers of management. Furthermore,they have greater functional integration, the resistance to change is less and the atmosphere to innovation is friendlier. However, there also disadvantages for SMEs to succeed in the development of successful new products. These include a lack of access to resources, a lack of external contacts and the domination of the personality of the SMEs owner’s or chief executives (Nicholas et al., 2011).

Small manufacturing companies have close working relationships with their customers and suppliers and as a consequence, they are often in the prime position to identify new product opportunities(Millward & Lewis, 2005).

Akgün et al. (2004) did research on the successfulness of new product development of 60 new product development projects in SME high-tech companies. They concluded that most business philosophies, models and tools are grounded in and developed for Large companies.

Furthermore is majority of the literature focused on new product development based on Large companies; the literature on development and design in SMEs is limited (Millward & Lewis, 2005).

There are differences in management culture and operational resources in SMEs and those that exist within Large companies. Therefore, it is important to evaluate the critical product

development issues within the small company context (Millward & Lewis, 2005).

2.1.6 Success of new product development in SMEs

The business strategy to product development is closely linked to the performance of a company (Cooper, 1984). Successful product development not only depends on advanced technology, it also depends on management strategy. Therefore, SMEs managerial strategy is an important consideration (Millward & Lewis, 2005). A number of factors that positively affect the success of the new product development process according to Millward & Lewis (2005);

 undertaking up-front research into suppliers and competitors, and building in the Voice of the Customer.

 sharp, early product definition in order to target differentiated, superior products  an international market-focused orientation with effective internal and external

communications

 competent, truly cross-functional project teams guided by strong project leaders

 senior management support with unhindered access to financial, personnel and political resources

 thoroughly planned and resourced development stages (including market launch) with pre-defined, tough “go” or “kill” critical-decision points in the process.

Small companies face a similar set of challenges when considering new manufacturing options, for instance the financial resources and required management skills for successful

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16  A dominant manager or owner can influence the process negatively. For instance, when

a manager has no experience or training relevant in design and development activities. So they do not know how to act.

 When focus on time and costs go ahead on other key factors.

 Failure to understand the product design. For example to give no attention to the Voice of the Customer.

2.1.7 Summary

In conclusion, the Stage Gate Model provides structure on the product development process. By dividing the product development process in different information-gathering stages followed by go/ kill decision gates. The use of the Stage Gate Model results in better decisions, more focus, fewer failures and faster developments. However the design and operationalization of stage-gate approaches are considerably complex. The model can be adjusted to the company.

Literature showed the differences between Large companies and SMEs and the influence of the characteristics of the company size on the product development process. However the product development process in Large companies is frequently investigated while the product

development process of SMEs is barely investigated. 2.2 Research Questions

As stated before, it seems that the Stage Gate Model of Cooper is used in practice by Large companies and not by SMEs. The literature focused on the product development of SMEs is limited, especially in relation with the Stage Gate Model. Different explanations can be given for the missing literature on applied SGM at SMEs. So, can it be possible that the SGM is not suitable for SMEs or maybe it is suitable but not often applied which could explain the lack of related literature. The goal of this research is to investigate or the Stage Gate Model of Cooper has to be adapted for SMEs and if so to what extent the Stage Gate Model of Cooper has to be adapted for implementation in SMEs.

Therefore the following research questions are formulated; 1. How are Stage Gate Models currently used in Large companies?

2. Which are specific characteristics of the product development process in SMEs?

3. How does the size of company (Large versus SMEs) influence the apply ability of the Stage Gate Model? Finally this will lead to an advice for the SMEs and an answer to the main research question; How can the Stage Gate Model be adjusted for a SME by tackling the weaknesses of a SME and using the strengths of a SME?

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17 model should be adapted.

Figure 3 Conceptual Model Stage Gate Model research Stage Gate Model

(Cooper, 2008)

Stage Gate Model for

SMEs

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3 Methodology

In this chapter, an explanation is given by which means the research questions will be answered. A case study is chosen to answer the research questions because case study research has been recognized as being especially useful for examining the how and why questions (Karlsson, 2009, p. 292). It is also particularly suitable for developing new theories and ideas (Voss, Tsikriktsis, Frohlich, & Voss, 2002). This explorative case research intends to develop an adapted Stage Gate Model for SMEs. In order to achieve this goal, this research is divided in two phases. The first phase consists of interviews with experts who work with the Stage Gate Model and in the second phase I will conduct interviews with five managers of SMEs to find out what the characteristics of the product development process of SMEs are.

3.2 First phase; interviews with experts

3.2.1 Choosing experts

First, an interview with the director of a consultancy, Company X,1_{and a manager engineering}

and project leader of a multinational of Company Y, took place

.

Company Y develops, produces and sells products for switching, distributing and protecting electrical energy on low and medium voltage level.2 _{Company X is a leader when it comes to supporting organizations in project}

management, product & process development and reliability engineering. Because of the limited time frame for this thesis, these two companies were chosen for gathering information to answer the sub research question. Because of the different backgrounds of the interviewees, a general perspective of the Stage Gate Model as used by Large companies can be construed.

Furthermore, the reason for choosing to interview these companies about this subject is because they have knowledge of the Stage Gate Model and its practical application. The director business management of company X has already made a presentation on the Stage Gate Model with the strengths and weaknesses of the model and Company Y has already mentioned the purpose and key activities of each stage of the Stage Gate Model they use in practice. Therefore, it would be interesting to compare the theory of the Stage Gate Model with the application of the Stage Gate Model in practice.

3.2.2 Preparing interviews with experts

To prepare for the interview with Company Y, the presentation of de manager Engineering and a project leader of company Y, will be used. In their presentation, every stage of the Stage Gate Model is explained by mentioning key activities and the purpose of every stage, key gate

considerations and the purpose of every gate of the Stage Gate Model. The information gathered of the theory of the Stage Gate Model will be compared with the presentation of the Stage Gate Model in practice. Ambiguities could be removed during the interview. Furthermore, a protocol

1_{Due to the sensitivity of the information that is provided by the interviewees, the companies have been}

anonymized. The names of the interviewees are known to the author and can be disclosed with the consent of the relevant interviewee.

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19 is written before taking the interview. This protocol is shown in Appendix 1. The core of the protocol is the set of questions used in the interview. It outlines the subjects covered during the interview, sets the questions to be asked and indicates the specific data that will be required (Karlsson, 2009, p. 302). This protocol is also be used for the interview with Company X. It provides structure during the interviews. Furthermore, the questions and subjects of the

interview are focused on the question how the Stage Gate Model is used in practice, because the goal of these interviews is to answer the second sub-question. Before visiting the companies, the case protocol is checked by my supervisors for validation.

3.2.3 Information validation and analyses of interviews with experts

The interviews are recorded. After the interviews have taken place, an overview of the gathered information is given. The protocol for these interviews helped to structure the data. Based on the results, the second sub-question; How are Stage Gate Models currently used in Large companies? is answered. During the interviews information is gathered regarding the purposes and activities of each stage and gate that the interviewees use in practice.

3.3 Second phase; interviews with SMEs

3.3.1 Choosing SMEs

After the theory and information from the field of Stage Gate Models started the second phase of the research. In this second phase, in-depth interviews were conducted with product

engineering managers of five of the fourteen SMEs that are involved in the RAAK PAM project. In consultation with my supervisors I decided which of the SMEs of the RAAK PAM project I would visit. The reason that several SMEs are chosen is because it is interesting to compare the different product innovation processes of various SMEs. However, visiting all SMEs of the RAAK PAM project was not feasible in the available time frame.

3.3.2 Preparing interviews with SMEs

The case protocol of the interviews with experts in the first phase was mostly used for preparing the interviews. However, the goal of these interviews differs from the interviews with experts. Because at this stage the purpose was to investigate the current organization of the product development process of the SME. Therefore, it was not specifically focused on the Stage Gate Model as with the interviews with experts. Therefore, the case study protocol of the interviews with experts were adapted at some points. Appendix 2 shows this protocol. Also, this adapted case study protocol was discussed with my supervisors before I visited the SMEs.

3.3.3 Information validation and analyses of interviews with SMEs

These interviews were recorded and written out. The template (Appendix 2) was used to

structure the gathered information. By gathering information of the organization of the new product development department of the SME and analyses of the data the third sub-research question is answered; Which are specific characteristics of the product development process in SMEs? 3.4 Analyses of all the gathered information

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20 Finally the main research question is answered; How can the Stage Gate Model be adjusted for a SME by tackling the weaknesses of a SME and using the strengths of a SME?

Based on these findings recommendations are done for an adjusted SGM for SMEs. 3.5 Summary

This method of explorative case research of the Stage Gate Model lead to the answer on the main research question; How can the Stage Gate Model be adjusted for a SME by tackling the weaknesses of a SME and using the strengths of a SME?

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4 The use of the Stage Gate Model by Large companies in practice

This chapter shows how the Stage Gate Model described in the theory is used in practice. The information is gathered by an interview with a manager director of a consultancy company and a manager engineering and project leader of a multinational. The interviewees have already done a presentation about the SGM they use for the participants in the RAAK PAM project. Since this project is focused on the SGM and how it is implemented. Both managers already have several years of experience with the SGM applied in Large companies. Due to their experience with the Model, they are able to elaborate on how the Model is used in practice within a Large company.. The outcome of these interviews will help answer the first research question: How are Stage Gate Models currently used in Large companies?

4.2 Background information interviewees

In order to gather information on how the SGM is used in practice at Large companies, an interview with a director (named Mister X further in this research) of a consultancy company took place. This consultancy company gives master classes for process improvement and also uses their knowledge for improving processes of different organizations. To ensure the privacy of this consultancy company in this thesis it will be revered to Company X. This company is a leader when it comes to supporting organizations in Project Management, Product & Process Development and Reliability Engineering. The director is a recognized expert in the use of Stage Gate Models because of his great experience with the Stage Gate Model applied at several multinationals.

The second interview was conducted with a Manager Engineer (Mister Y1)and a Project Leader (Mister Y2) of a multinational. In order to guarantee the privacy of this multinational, this thesis will refer at it as Company Y. Company Y builds products for the Largest energy companies in the Netherlands. Company Y uses the SGM for approximately ten years and has a lot of

experience with applying the SGM in product development projects. They adjusted the SGM of Cooper to their company’s own characteristics. Still they use all inputs, activities, deliverables and purpose of each stage and gate for their projects.

Due to extensive experiences with the SGM of both interviewees, the information given by the interviewees can be used as input for this research.

4.3 Why and when do the interviewees use the Stage Gate Model?

The Stage Gate Model is generally used by Large companies who develop products with a high complexity. In Large companies as Bosch, LSI, Philips the Stage Gate Model is applied. The bigger SMEs are ready to develop a SGM, however the demand for a SGM for Small companies with approximately 100 employees is little (Mister X).

Below is a list with reasons given for using the SGM according to the interviewees. Reasons for using a Stage Gate Model;

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22  A Stage Gate enables it to develop a ready to use product at the end from a

broad idea. The SGM provides a particular convergence (Mister X).

 Using the SGM will support the likeability that you will actually get what you asked at the beginning (Mister Y1).

 The SGM is applied to limit risks in the product development process (Mister Y1).

 The Stage Gate helps to structure and standardize the process (Mister Y1).  The Stage Gate Model helps to structure the product development process

globally (Company X).

The SGM functions as a ‘dashboard’ as said by Mister Y1. It provides an overview at every given time of the project. Since all activities and deliverables of each stage are defined, it provides a small guarantee that you actually produce what you aimed in the beginning. The Stage Gate provides you a continuously look on the Business Opportunity Calculator (BOC), the costs and the profit marge (Mister Y1). It provides structure and transparency to the product development process. The SGM makes the product development process more explicit and creates a

convergence. A convergence means, that the SGM guides a pool of product ideas to one new product that will be launched on the market. The adjusted SGM model is not only applicable for Company X office in The Netherlands but the model is also used in their organisations at other locations in the World.

4.4 Who are involved in the Stage Gate?

The SGM allocates different functions and roles to employees involved in the process. Company Y has distinguished following functions:

 Team players  Functional managers

 Decision Gate Committee (gatekeeping group)

Team players

The team players are the different employees of several disciplines (branches of knowledge), that are responsible for doing their own activities within the team. For example, for an engineer who is responsible for the design it is important to know how are all parts produced and employees of industrialisation would like to see how a product is developed. In order to create mutual understanding and to create the most optimal process, employees from different functional areas in the company are involved in the SGM such as Engineering, Manufacturing, Procurement, supply chain, Finance, Marketing are involved, except Human Resource Management (Mister Y).

Functional Managers

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23 conditions and specifications required. After a review, the activities of a Team Player must frequently be improved. That is the reason why a Quality Review Board (QRB) is appointed. Normally two weeks before a gate a QRB meeting takes place. Here the functional managers of different disciplines discuss the process and check the quality control. Are the calculations carried out? Is the validation carried out? Are all the activities that has to be done really done? The QRB checks the performance of the work packages (activities)and this board helps to prevent uncertainties during a Gate meeting (Mister Y1).

Decision Gate Committee

During the gate the Decision Gate Committee decides, based on the deliverables, or the new product development project should proceed. Appointing reviewers and carry out reviews is important for the DGC since the reviewer will look at every gate to check if the deliverables are completed. A review is has to be executed during the process. This is an important part of the SGM and has to be done well in order to make a good judgement. When no capable reviewer is appointed, it will become very hard to make a well-considered decision.

Another added value of the Stage Gate is that the Stage Gate also supports the cooperation with the supplier. The supplier delivers the various components of the new product and therefore influence the new product development. It differs at what stage the supplier will be involved in the Stage Gate, it depends on complexity of new product. For instance, a new supplier is involved earlier in the Stage Gate Model since the cooperation is new, the supplier needs extra attention to proceed well, in comparison with a supplier that has been involved for many years. The reason to involve the supplier in the SGM is because the delivery of various components can be taken into account by the development of the new product.

4.5 Description of the Stage Gate Model used by Large companies in practice Now the questions are answered; why, when the SGM is used and who are involved in the SGM, the next question is how the SGM is implemented in practice. Therefore this section describes the SGM used in practice; because of the big differences between the two interviewed companies. (Company X is a consultancy and has a more general model developed and Company Y is a multinational that developed a SGM for all their product development projects) First a description of the Stage Gate Model is given used in Company Y and in the second part the SGM used in Company X is described.

4.5.1 Stage Gate Model used by a Consultancy company

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24 developed according to the SGM. Stage 3, 4 and 5 are a matter of executing and are less

challenging than the first two phases (Mister X). Table 2 Stages mentioned by Company X (Presentation of Mister X)

Furthermore, Company X developed a V-model as guidance for documentation. This V-model mentions every milestone and deliverable at each stage. The shape of the model is a V and in the lowest point of the V is a turning point. The V-model distinguishes two phases, one phase before the turning point and the other phase after the turning point. All the milestones and deliverables before the turning point are part of developing the business case, at the turning point the technical product development takes place and after this point the actions that are decided in the first phase of the V-model will be fulfilled. These actions are shown in figure 4. In the first three stages (stage 0, 1 and 2 of table 2) the milestones and deliverables in the blue box have to be completed. Every milestone has a deliverable, for instance the milestone; Business case has to deliver a request for Quotation. All the milestones and deliverables in the blue box lead to the Functional Unit Development(FUD) which is the turning point. Before the FUD all the processes lead to the development of a new product, after the FUD the milestones and deliverables of the purple box take place, stage 3 till 5 of table 2 have to be completed so the product is tested and launched on the market.

4.5.2 The Stage Gate Model used in a Large company

A more specific example is the SGM used by Company Y. Since they apply the SGM in their product development process. Figure 5 gives an overview of the elements of a SGM used by

Stage 0 Orientation & Pre-study phase

Stage 1 Definition Phase

Stage 2 Development Phase

Stage 3 System integration & Test Phase

Stage 4 Production Validation Phase

Stage 5 Volume Production Phase

Business case

Request for Quotation

Requirements

customer Requirement Spec

System specification

Functional Design Spec

System/ architectural design

Technical Design Spec

Component/ detail design

User acceptance

Ready for use

Acceptance testing

Site acceptance test

System testing

Factory Acceptance Test

Integration Interface testing

Test Acceptance Requirements

Unit/ module Testing

Technical Product Development

Functional Unit Development

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25 Company Y. The SGM exists of stages and during every stage activities have to be done by people of different disciplines in the company. For every Activity a template has to be filled out. These Templates create a “dashboard” which enables an overview of the process in each phase of the project. The deliverables are the outcome of the activities and the completed templates. Based on the deliverables the go or no-go decision is made during the gate meetings. When the gate is closed this process starts over on the next stage.

Figure 5 Elements of a SGM

Stages

Table 3 shows the purposes of each stage and gate. The elements mentioned in figure 5 are repeated every stage, only the content differs, since the content of the activities is based on the purpose of each stage.

Table 3 SGM Company Y (Presentation of Mister Y1 and Mister Y2)

Purpose Purpose

Stage 0 Initiation Develop the data to determine a project's potential and viability

Gate 0 To formally initiate the project

Stage 1 Concept Assess business and technical feasibility and compare implementation options

Gate 1 Review attractiveness and feasibility of the product and business concepts

Stage 2 Definition Define the product and project plan sufficiently to warrant full-scale product development

Gate 2 Review and accept the project objectives and plan

Stage 3 Design & Development

Complete and verify the product design, and design the

manufacturing process

Gate 3 Determine if the product meets its requirements and is optimized for manufacturability. This Gate authorizes production capital expenditures.

Stage 4 Validation Validate the product & process against requirements

Gate 4 Determine readiness for Production Launch

Stage 5 Launch Evaluate product delivery and customer satisfaction using limited production quantities

Gate 5 Determine Full-rate production launch readiness

Stage 6 Project Close Perform project close-out activities. Gate 6 Close the project.

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26

Stage 0 the initial stage

In the initial phase the marketing and engineering manager write an initial plan which will be the start of the business plan. In order to write a plan there must be an idea or assignment where a new product development process is needed. This could be an existing product that needs to be updated or special new product request of a client. During the initial phase the several templates, which are described in the previous section, are filled out.

The Business Opportunity Calculator (BOC) or business plan states the size of the market, the market price, the volume size and the cost price. The benchmark used in this multinational is 40%. This means that at least 40% profit must be met when the new product is on the market. It is a standard margin. The pure cost price is build up by: material costs, hours of assembly,

variable costs and the overhead costs etc. If calculations show that the margin is not feasible then the innovation process stops or will be reviewed. The project will only proceed if the 40% profit is feasible.

The templates or worksheets play an important role for the Business Plan and for the scope of a product development project. These are elaborated later in this chapter.

Stage 1 Concept

At the Concept Stage the ideas for the new product are discussed. Question such as: How to realize these ideas, how is technology applied and is the project feasible? These questions need to be answered before the next step can be taken.

Stage 2 Definition

If the Idea has been made more concrete and seems to be feasible to develop, all the

specifications of the new product should be know There will be made a list of materials needed (the Bill of Material, BOM) and technical drawing of the new to be developed product, needs to be made. At the end of this stage all parts and material requirements need to be defined. .

Stage 3 Design & Development

At this stage a prototype will be created of the new product. This prototype will be tested and evaluated. When company is satisfied with result a KEMA certificate (for safety of electric devices) will be applied. When the KEMA certificate is granted no changes to the design can be made.

Stage 4 Validation

In the validation stage the Part Permission Approval Process (PPAP) takes place and a

Production Trial Run (PTR). The production environment and process of the new product will be tested. If the production process works and functions as desired, the production process will start.

Stage 5 Launch

Full production can be started and the new product is launched on the market.

Stage 6 Project Close

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27 defined and lessons learned can be conducted. This hopefully contributes to a more optimal process next time.

The biggest challenges are at the first and second stage. These stages need extra attention. The first stage of the Stage Gate Model is the most important because at this Stage the Voice of the customer has to be translated to technical specifications. The Voice of the Customer is a market research which led to the wishes and needs of the customer. This is crucial for the question; how the product will be made? Since the customer has to buy the product at the end of the product development process. In stage 2 the technical specifications have to be translated into a good product, an acceptable cost price needs to be realized and research needs to be done to investigate if there is even a good market for the new product (Mister Y1).

Activities, templates & deliverables

The activities mentioned at the SGM exist of different tasks. The most important can be considered filling out the templates. These templates form the input for the Deliverables. The outcome of the Deliverables is the basis for the decision process during a Gate.

Company Y distinguishes different templates in a product development process. The important and often used templates are;

- Risk Assessment Worksheet (RAW)

- The RAW shows the risk analyses. The categories; design, market, environment,

resources, operational and technology are rated between 1 and 9. The higher the number the higher the risk effect per category. The sum of these categories determines the risk effect of the total project and categories the project; Runner, Minor repeater, Major repeater, Stranger and Alien to gravity ascending. Based on the risk category will be decided how the responsibility is divided and the highness of the budget for the project. For example in a Stranger project is higher management of the company involved and there more budget available than in a runner project

- SAW

This template shows an overview of the future revenues. The results of the worksheet shows three categories of future revenues; low, medium or high. Sometimes is the development of a product a must and the revenues are low. Then the product is developed to satisfy the customer.

- Activity matrix.

The activity matrix shows which disciplines are involved in the project and which activities they have to do. All activities are indicated with Required (R ) or Suggested (S). The higher the risks in the project the more activities are required.

Gates

As mentioned before each stage is followed up by a gate. During the gate phase a project can be labelled as go, go-conditional, re-direct or kill. The definitions for the different labels are:

- Go

If all requirements on the template are met, it gets the label :GO - Go-Conditional

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28 conditions are still acceptable and can be done during the next stage. So the project will still go on.

- Re-direct

A re-direct means that the project is on hold. The process needs to be re-evaluated in until it meet all desired conditions.

- Kill

Kill means that conditions cannot be met which leads to the end of the project. External factors are mostly the main reason why a project is killed. If a project gets killed it should be done as early in the process as possible. If a Kill is given after Gate 2 this will be very undesired for the company since the investments cost that are already invested are high. Killing a project would mean you have to accept the loss of all costs that are already made (Mister Y1).

Planning

The most difficult part of the project is to make a planning. Planning exists of allocating resources, budget and stakeholders. In order to enable a good start, a planning event with the whole team is being held in Stage 1of the project. With help of a breakdown structure, so the scope will be divided in smaller work packages. The next step is to determine a cycle time and the sequence of all work packages. This will lead to a provisional planning, where every stage has an estimated timeframe which is mostly based on experience (Mister Y1). In order to be able to make a planning in the concept phase of a product, the production technology should actually already be known. Since this is not always the case, often the problem arises that the planning is to some extent uncertain due to missing or lack of knowledge regarding the technology (Mister X).

If often occurs that the set deadlines of the planning are not met. The main reason given for this misjudgement is that the team was too optimistic on the planning. Not only the planning can be too optimistically calculated but also external factors affect the project and these are sometimes forgotten when the planning is made. It showed that teams with more experience with previous comparable project are able to make a more realistic planning. Still it is not (always) possible to take into account all the factors which affect the innovation process since not all factors can be foreseen. The following example was given by Company Y; a project was one day too late to deliver on the lab. The lab had no other time that week because their planning was fully booked. So two weeks later the lab had time and therefore the total project had a delay of a couple of weeks (Mister Y1)

Company Y has planned normally their meetings as follow;

Once a week there is consultation of the project this depends not on the size of the project and once per month there is a consultation with also the functional managers the boss of the project leader is also involved and in one day all projects will be discussed. And once per quarter the division management or global management (it depends of the size of the project) is getting through the projects.

Performance of the new product development by using a Stage Gate Model

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29 Company Y executes 6 to 8 projects a year and the projects can be categorized into two types (Type A and B) . Type A are the smallest projects which have a duration of 1,5 years. Type B projects have a longer duration than 1,5 years. It differences between these projects are in; distribution of the responsibility, the available financial and human resources, duration etc. In general the performance of all the product development project turned out. Therefore, the goal of 40% profit is achieved. 40% profit is the goal of every project. If in the beginning the

calculations show that the 40% profit margin is not feasible than the project will be stopped. Of the 7 projects started in the Stage Gate 1 project did not reach the target of 40% profit. Since the prices of the supplier of two years ago were taken into account and those prices were not

retrieved before they went to full reproduction. So the prices were higher and the demand on the market was decreased. Finally the cost price was too high.

The Stage Gate should deliver a 100% performance because there is a continuous overview of the matrix. However, when assumptions are not correct the performance decreases. Mostly mistakes in assumptions are from marketing, in contrast to technology is marketing more difficult to measure. Technology can be strictly specified. Good is good, wrong is wrong. In general is the engineering manager of the multinational very satisfied with Stage Gate Model that they currently use. He said; “It is a good tool if you are aware of the weaknesses and always use common sense” (Mister Y1).

4.6 Characteristics of the Stage Gate Model used by Large companies

Table 2 shows the characteristics of the SGM of Cooper. This section examines to what extent the characteristics of the SGM are applied in the adjusted SGMs used by Company X and Company Y.

Table 4 Characteristics Stage Gate Model of Cooper (2008) Characteristics Stage Gate Model (Cooper, 2008)

1. The Stage Gate Model consists of a Discovery and five stages; scoping, build business case, development, testing & validation and launch

2. The Stage Gate Model consists of five gates; idea screen, second screen, go to development, go to testing and go to launch

3. The gatekeeping group is typically multidisciplinary and multifunctional

4. Every gate consists of deliverables; the things that the project leader and team bring to the decision point

5. Every gate consists of criteria; must-meet criteria and should meet criteria to judge the project 6. Every gate consists of outputs; a decision go/kill/hold/recycle along with an approved action

plan and a list of deliverables and date for the next gate

7. each stage is designed to gather information to reduce risks and uncertainties 8. the projects costs increase with each stage

9. the unknowns and uncertainties are driven down with each stage

10. all activities within stages are undertaken by people from different functional areas within the company

11. people from different functional areas within the company are working together in a team 12. Parallel processing (more activities take place in an elapsed period of time)

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30 Table 5 Characteristics SGM Company X & Y compared to Cooper

Characteristic Company X differences compared to Cooper Company Y differences compared to Cooper General Remarks

1. Has an Orientation and

Pre-study and also 5 stages

Has an Initiation and 5 stages + extra stage Project close

Names are different, but content of the stages is similar with that of Cooper

2. 6 gates are defined Defined 6 gates , because of

the extra stage The project close of company Y ends without a gate

3. Gate keeping group

exists of; project leader or quality manager, managing director, financial officer, RD manager, industrial manager

The gate keeping group exists of; functional

managers and management

4. The deliverables are

defined The deliverables are defined

5. Uses criteria for

different kind of projects

Uses a template for required (R ) and suggested (S) activities

6. Output of a go/ no-go

is based on the deliverables

Output of a go/ no-go is based on the deliverables

7. Uncertainties and risk will be decreased within each stage by gathering information

Uncertainties and risk will be decreased within each stage by gathering information

8. Costs are increasing in the first three stages, here the biggest investments are done

Project cost increase within each stages mainly in the first three stages

When the production starts the highest investments are already done

9. Unknowns and

uncertainties are driven down within each stage

Unknowns and

uncertainties are driven down within each stage

By updating the business opportunity calculation (BOC)/ business model

10. Activities differ per

discipline The activity matrix showed which activities have to undertake by which

discipline.

11. A team consists of

different disciplines involved in the product development process

A team consists of team players from different disciplines; engineering, manufacturing,

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31

12. It is a parallel process, different activities take place in the same time.

Each stage consists of activities done by different disciplines in the same time.

4.7 The effect of company size on the SGM

This section showed how the characteristics of a Large company affect the SGM. Because table 1 is a guide to distinguish a Large company with a SME and not all the characteristics fits in every SME or Large company (Nicholas et al., 2011). Table 4 is adjusted from table 1 to the characteristics of the Large company Y. Since there was no match between all the characteristics of table 1 and the information of the characteristics gathered of the interviews. For instance a slow response to environmental change and a high degree of resistance are not applicable, since the Stage Gate Model is already used for approximately 10 years. Besides, stifled individual creativity and low incidence of innovativeness is no characteristic of Company Y so only the characteristics that match with the characteristics of Company Y are shown.

Table 6 is used to elaborate the strengths and the weaknesses of the company size of a Large company on the SGM.

The influence of the various characteristics of the SGM are shown in Table 6. In section 4.7.1 and 4.7.2 the influence will be discussed further.

Table 6 Characteristics of Large companies and the influence on the SGM (adjusted from Nicholas et al., 2011)

Large companies Strengths/ weaknesses on the SGM

Hierarchical with several layers of

management Weakness

Rigid structure and information flows Strength Limited visibility top management Weakness

Top management far from point of delivery Strength / Weakness High degree of formalization Strength / Weakness

Authority of personnel low Strength

Good access to human and financial resources Strength

4.7.1 Strengths of a Large company on the SGM

In table 6 the following strengths are mentioned:  Rigid structure and information flows

Large companies are generally known for their rigid structure and information flows. The SGM can benefit from this, since this enables clear work paths for the employees. This is most likely a reason why the SGM works so well for Company Y. Company Y developed templates that have to be filled out by ever SGM. Since these templates are used and filled out very well, it enables the company to make decisions based on the output of the templates.

 High degree of formalization

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32  Authority of personnel is low

The independence of the personnel is generally speaking low in Large companies in comparison with smaller companies. This is caused due to the fact that more employees work at a department and due to that not all responsibilities and activities are relied on one person.

 Good access to human and financial resources

A big advantage of Large companies in comparison with smaller ones, is the fact that they more often can effort to invest a Larger budget for new product development. The turnover and buffer of these companies are higher which creates some freedom to implement the SGM. This enables Large companies to invest earlier.

4.7.2 Weaknesses of a Large company on the SGM

 Hierarchical with several layers of management/ Limited visibility of top management/ Top management far from point of delivery

Large companies are familiar with more levels of hierarchy in comparison with SMEs, which influences the visibility of the top management. This can complicate decision making within the company since numbers level of management need to be involved in order to make a decision. This also applies to the SGM.

 High degree of formalization

The level of formalization can also be seen as a weakness since formalization provides more rules, an over structured process in Large companies could be a pitfall. Where the content of the process can be forgotten by focussing only on the outcomes of the Templates. For instance by using an activity matrix, the boxes have to be coloured green when an activity is done. During the Gate everyone stares at the coloured boxes and not at the content of the matrix anymore. When the SGM is very extensive, it is difficult to look at every box in detail. However, it is important not to forget the content of these boxes. The SGM that are currently used in practice all seem to been very extensive, ,with topics as Design for assembly and Design for reliability. It is important to keep the overview on the process, so that when the SGM is very elaborated the end goals stays clear. Company X states: It is important to do not loose common sense. Too much rules are not good for the performance of the model. It possibly lead to bureaucracy. However seeking a balance is difficult (Company Y). The current Stage Gate Model of company Y takes not too many rules in account. For instance in a runner project not every activity is required, but suggested.

4.8 Summary

This chapter showed that the characteristics of the SGM of Cooper are seen in the Stage Gate Model used by the interviewed companies. We have seen that the SGM of Cooper is applied, in a more extensive model than described in the theory of Cooper, at Company Y. The main

differences can be found in the added templates that Company Y is using. These templates are used for decision making during the gates.

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33 Frequently consultations are important for information gathering in order to manage the process correctly. Since information on how and what process are performing cannot only be seen in statistics or tables.

A Stage Gate Model for manufacturing SMEs