56 CHAPTER ◆ 4 Managing Design and Development
successful managers will enjoy significant bargaining power when they threaten to
leave. As the hedge fund industry [has] boomed, so [have] outside options for suc-
cessful fund managers. [Massa et al. ] conclude that this fact—and the declining
media penalty associated with offering team-managed funds—are the most likely
explanations for the rise of teams in mutual fund management. Sharing credit can
be in the firms ’ interest, but a firm needs to make certain it retains enough of the
credit for itself.^204.5. The Fuzzy Front End
Product teams innovate. In the case of both bottom-up and top-down innovation, many
new trading/investment system projects may be well defined while others may need addi-
tional definition before they enter the development phase.A trading firm asked a simple question, “ How do we keep the quants and the programmers under control?
We know they are building stuff, but we have no idea what they are doing or when it will be done. ”Poor definition is usually the result of weak predevelopment activities, where the target
investor ’ s needs are not well understood or only vaguely defined, and required trading/
investment system features are fuzzy. Poorly defined projects waste considerable time
seeking definition and redefinition. Better definition, through sound homework, actually
speeds up the development process and reduces the odds of failure. With homework, there
is a much higher likelihood of new trading/investment system success.
The term “ fuzzy front end ” connotes the unstructured, getting-started period of new
product development, where the organization originates a trading/investment strategy
and decides on whether or not to invest resources in its further development. It covers
the phase between first consideration of an opportunity and when an idea conceived to
exploit that opportunity is ready to enter the structured development process.^21 Relative
to our methodology, the fuzzy front end includes all activities from the search for
new opportunities and idea generation to the creation of a Money Document, which we
collectively call K|V Stage 0), and through the design of a well-defined and documented
strategy, when the strategy is no longer fuzzy, that is, through K|V Stage 1. For robust,
scalable systems, just getting through Stage 2 of K|V can easily cost upwards of $1
million.
Although the fuzzy front end is the least expensive part of development, it can con-
sume a lion ’ s share of the time. As such, idea generation and screening is an essential
part of design and development and our methodology, rather than something that hap-
pens prior to it.^22 Cooper and Kleinschmidt have found that “ the greatest differences
between winners and losers were found in the quality of pre-development activities. ”^23
The front end has the greatest potential for improvement with the least possible effort.
Uncertainty, defined as the difference between the amount of information required to per-
form a particular task and the amount of information already possessed by the organiza-
tion, can be reduced quickest and most cheaply during the front end. Systematic innovation
will, down the road, reduce the number of deviations from front end specifications and
increase the chances of success.^24