Product development is facing a fundamental challenge. Most companies are under pressure to bring new products to market more and more quickly, and companies in many sectors must work harder to ensure that they address the needs of ever-narrower customer segments. These pressures are particularly acute in fast-paced markets, such as those for high-tech, medical, and consumer goods, and in competitive markets for complex products that require large investments and long development times, such as automobiles and airplanes. CEOs wonder how their product-development organizations can meet the new challenges.

Unfortunately, at the very moment when companies need to make better products more efficiently, previous performance innovations in product development have hit a plateau. Over the past 15 years, most companies have adopted standard product-development processes, with disciplined time lines, strict design reviews, "gates" to decision making, and cross-functional development teams. While these changes have made the devel-opment of new products much more efficient, further improvements are returning smaller gains. What is needed now is a way of raising product development to a new level.

Some companies have done exactly that: they have reduced the time needed to launch new products while dramatically raising their sales of new products and...