Plugging the Leaky R&D Pipeline
Kodak Investors Hold Crisis Meeting BBC, Oct. 22, 2003
Headlines like that strike fear in CEOs everywhere. The market capitalization of strong companies reflects growth expectations for new product business opportunities the company will seize. Weaker companies are priced for the rundown value of their existing businesses, as stated in The Innovators Solution: Creating and Sustaining Successful Growth. Being able to explain where and how your company will grow depends on maintaining control over the vital new product development and launch (NPDL) process. Getting your product lifecycle management road map straight is the most important step.
We have asked some tough questions about NPDL and found disturbing results (see Figure 1):
- Less than 60 percent claim to have financial control over the NPDL process; 45 percent claim strategic control and fewer than one-third have both strategic and financial control.
- As for speed and efficiency, AMR Researchs benchmark data on overall time to market finds about two years at median for industries as diverse as consumer packaged goods (27.5 months), tier auto suppliers (35 months), industrial electronic equipment (19 months) and semiconductors (23.2 months). This is a long time between seeing an opportunity and seizing it, no matter what the market.
Considering this data, it is hard to argue that the NPDL process is anywhere near what is needed to survive in todays globally competitive supply chain, where products are frequently commoditized before their development costs can be recouped1. Also, since the main expense is salary and support for scientists, engineers, and designers, time is also money.
Our research further indicates what those close to the problem admit, namely that orchestration and decision making in the NPDL process are based on incomplete information and minimal adherence to process standards. Consider the statistics:
- Seventy-nine percent claim to have formal NPDL processes, but only 52 percent maintain formal metrics;
- Only 8 percent put overall NPDL process ownership at the SVP level or above; 42 percent place NPDL process ownership below VP level; and
- NPDL process owners control none of the budget for product development in 22 percent of cases and none of the budget for product launch in 45 percent of cases.
Is it any wonder that the top barriers to success are communication and resource availability?
This data shows why executing a perfect product launch still feels like a blind fire drill for so many companies. It also points to problems when stakeholders like the board or the press demand an explanation of future growth plans, or when a regulator wants complete documentation and accountability for product safety matters.
The following quote from a midlevel information technology executive at a European automotive original equipment manufacturer characterizes how those in the trenches feel about the problem:
Painful consequences from new vehicles coming late to market some tools are in place and total development time is down from 4.5 years to 2.5 years, but were still not hitting planned dates and are having unexpected quality problems We had gaps where old models were dying but new models werent ready yet losing market share lots of cost in warranty absolutely siloed at the enterprise level IS supports and perpetuates the siloed model no handle on marketing ideation process or launch process feedback loop is broken.
As this quote makes clear, plugging the leak from idea to market requires some real executive leadership.
Not Good Enough
Many companies we have worked with see the need to update their product data management systems (PDMS), whether to improve design re-use, support global engineering, or manage product liability better. Many are also happy to talk up product leadership as a growth driver. What few seem to be dealing with is the systems, processes, and metrics across the full product lifecycle. The gap is almost exclusively one of strategic road mapping.
Raising the Bar
Deciding to pursue a product lifecycle management (PLM) strategy can usually be justified at a point-solution level, as proven field results show direct materials savings, engineering efficiency, or faster customer quoting can readily be measured and baked into budgets.2
- Improvements to operating metrics in functional silos are in many cases order-of-magnitude gains:
- Engineering change cycle times 90 percent improvement is common with PLM applications;
- Engineering output 10 times productivity gains for individual users of full-power 3D computer- aided design; and
- Concept testing 90 percent plus cost and time savings for online versus conventional.
The lessons learned in supply chain automation over the past 15 years suggest that a metric-based, ITenhanced, pan-enterprise business process could deliver not just 10 or 20 percent faster and cheaper NPDL, but 80 or 90 percent gains. Inventory turns, a top-level metric of supply chain effectiveness, has increased from low single digits for typical manufacturers to high teens or twenties for average operations. The change was due both to process and technology, but in all cases, arose from a corporate-level understanding of the impact on business profitability.
More important than efficiency gains, however, is cutting NPDL cycle times and costs to lower the hurdle to enter new product markets. Rather than spend $50 million on a major launch, companies that lead this revolution will be able to attack the same business opportunity for $5 million. More trips to the plate, with shorter lead times between idea and market, mean a transformed ability to drive profit growth. A proof point is the widely studied case of fashion manufacturer and retailer Inditex, whose time to market for new garments is three weeks, against an industry norm of nine to 12 months. Why not shoot for 90 percent improvement?
For a best practice example, consider General Motors. By committing strategically to product design, the automotive giant made several organizational moves that are paying off. Vice chairman and design czar Bob Lutz provides a focal point for the core issue: getting hot cars to market. With 20 percent of capacity dedicated to brand new vehicles for 2004 and market share in the last quarter of 2003 climbing from 28 to 30 percent, GM is poised to do what investors want: grow profits from automotive operations.3
At a level down where PLM really happens, GM has driven process change with clear point owners for product engineering and process engineering. These executives set standards for tools, processes, and metrics and have helped GM reduce costs and cycle times for new vehicle development by as much as 60 percent.
Your Best ROI Move
PLM technology is essential plumbing, but every companys needs and timing are different. The PLM road map may cost nothing if enough leadership can be marshalled to drive change from existing ideas or decision frameworks. This article provides a few basic diagnostics for developing the road map. Other useful guides are available free of charge from vendors. Best practice may belong to Steelcase, which is using PTCs Product First as a discussion framework and has, with process redesign only, cut its new product documentation cycle time from nine months to four months.
Critical Plumbing
Stripped to the basics, PLM is a database plus workflows with some analytical tools. The trickiest part is data management namely rules that govern which ingredients or what parts go together. This is also the most mature part of existing commercially available applications pioneered by Boeing with Metaphase PDM (now UGS PLM Solutions Teamcenter) over a decade ago.
As for workflow, process modeling tools are generally established, and many PLM software vendors have excellent embedded workflow. Most now offer prebuilt workflows for common activities like change management for those who arent sure what process they want to follow. Implementation times have been steadily dropping, as these templates save significant project time, defining who does what and in what order. Agilents experience with MatrixOne is a best practice in using predefined process templates to quickly get to benefit.
Analytics are largely undeveloped in the PLM market, except for engineering simulation specialty tools at one end and highlevel product portfolio analysis at the other. Analytics for business processes touching the supply chain do not exist. Given the low maturity of most companies measurement capabilities, however, this might be putting the cart before the horse anyway.
Implementation vs. Direction Setting
Implementation must take a backseat to direction setting for most. Projects aimed at improving NPDL that lack executive process ownership and reliable metrics will fail. Such executive sponsorship should be codified in a living document, often called a road map. CIOs who increasingly are on point to explain PLM strategy must have this road map to assess whether any given initiative can fly and whether it serves the business strategic goals.
The key elements of a good road map include a process diagram, a business case, and a rollout plan. Many organizations have some sort of process diagram to at least start with, but they struggle with the business case and thus cant even start a rollout plan. Two diagnostics are recommended to frame the problem: strategy and readiness.
Strategy Assessment
Ask whether the business is fundamentally competing on differentiation or cost leadership,4 and whether the approach to innovation is high (lots of R&D, many new product launches, technology leadership) or low (little of these). The distinction between those we call designers who compete with differentiation, and makers who compete on cost is dramatic in terms of what balance of PLM investment makes sense.
For designers, PLM strategy should emphasize front-end processes that extend product leadership but may leave costs higher than competitors'. BMW lives by this strategy. For makers, PLM is about using design-for-supply-chain to extend cost leadership while conceding cutting-edge innovation to others. Dell lives by this strategy.
Readiness Assessment
For PLM to plug the NPDL leak, people and systems both need to be addressed. A subjective scale (0 to 5 is represented here) can be applied to gauge operational maturity from low (0), indicating fragmentation and ambiguity, to high (5), indicating integration, repeatability, and optimization. This scale should be applied to at least four elements essential to establishing managerial control: process, metrics, data, and ownership.
Rather than look for a big-bang change, most successful field efforts have been based on fixing one thing, starting with what is both broken and important. The readiness diagnostic should help determine what to attack first when mapped against the ideal PLM investment (see Figure 3).
Conclusion
NPDL is the process of renewing a companys profitability by seeing and seizing business opportunity with product innovation. It may only account for 10 to 15 percent of revenue every year, but it drives all future value. It is also a significant use of cash that should be better managed with transparency to shareholders. Ninety percent improvement in NPDL cost and speed is achievable for those organizations that can tag an executive owner and define a road map for investing in PLM.
Endnotes
1 Innovating for Cash, J. P. Andrew and H. L. Sirkin, Harvard Business Review, Sept. 2003.
2 The AMR Research Report, The Value of PLM and How to Get It, April 2003. www.amrresearch.com/Content/view.asp?pmillid=15973.
3 What Wall Street Wants From Automakers, The Center for Automotive Research, April 2002.
4 Competitive Strategy, M. Porter, 1980.
