Product Value Management

Most enterprise solutions follow some mature framework to determine value and roadmap of process transformations. I remember when at i2, we had supply chain opportunity assessment methodology to determine value of adopting advanced planning capabilities. Over time, similar methods evolve into complete framework whereby it is quite possible to - starting with a company’s strategy, determine not only by how much can relevant process metrics be improved, but also what exact changes need to take place, and how to best sequence changes to achieve desired results as a series of self-funding initiatives.

Similar concepts have been developed for areas other than supply chain management, such as ERP and CRM. What makes these framework possible?

First and foremost, ability to define clearly what aspects of process performance are directly linked to the company’s strategy. In case of supply chain management, inventory turns, on time delivery, assets utilization and forecast accuracy come to mind among other more detailed ones, as candidate indicators that may be directly related to the required operational efficiency. In product life cycle management - revenue refresh rate (for example, revenue in last four quarters achieved from products released in last two quarters), product innovation leverage (e.g. possible price discount that would raise revenue by over 50% quarter over quarter while reducing product margin not more than 50%), schedule variance (e.g. probability of the development schedule to finish earlier or later by certain period of time), design cost ratio (total R&D and engineering budget relative to the total life cycle cost including production, logistics and service costs), etc. Typically, a balanced set of metrics that represents strategic positioning needs to be defined.

Once a set of indicators is selected that fully represents the strategy, internal and external benchmarking and performance assessments can take place.

Next important aspect of a good framework is that it should pinpoint with high fidelity what is the root cause of underachieving on any required metrics. The root cause needs to be defined with a consensus of all directly involved organizational units. To enable this, frameworks have to provide precise communication language about processes, their inputs and outputs, resources efficiency, tools and assets used. This is often achieved by using some sort of reference models based on normalized semantics with detailed and accurate process description dictionaries.

Once the root causes for underachieving are understood and agreed upon, transformation framework has to facilitate soliciting of ideas for change, evaluation of best ideas and breakdown of those ideas into executable steps for change. Several scenarios may have to be developed and they all need to be compared as “apples to apples” in order to speed up decision making. To achieve this requirement, framework needs to provide a set of tools and guidelines for fast modeling and analysis of various changes, and their impact to the target metrics. Often, a complete side by side prototypes can be developed to compare and evaluate aspects of change such as process, automation, culture, metrics and organization.

PLM area is in big need for such a framework. Other areas of enterprise solutions seem to have upper hand in this regard. One such PLM framework based on VCOR reference model has been recently developed as a comprehensive set of techniques and methods supported by an integrated database for data gathering, modeling, analysis and communication of ideas. I have observed recently four cases (automotive OEM, semiconductor, CPG and aerospace) where this framework yielded significant insights into improvement opportunities and consensus on changes, albeit dealing with complex processes, and very fast.

Who needs such a framework?

PLM strategists, architects and planners in any large manufacturing enterprise definitely need a disciplined way of connecting capabilities acquired and required to the company’s strategy. They also need precise communication environment to put users on the same page with technology providers. In particular, they can benefit from much faster evaluation of ideas and prioritization of initiatives based on more objective and consistent ROI and TCO calculations.

Another important beneficiaries are vendors of PLM solutions. Rather then leaving it up to their customers to extrapolate benefits from esoteric capability maturity models and sizzling demos, vendors can in fact speed up acquisition, adoption and implementation of their solutions if their capabilities have been very directly linked to improvement of strategically critical metrics for their clients. PLM transformation framework also increase maturity of the entire space by standardizing on process patterns, semantics used to describe processes between suppliers and OEM-s and by tying principles of continuous improvement, lean and six sigma into a comprehensive, easy to follow methodology.

Drop me a note if you are interested in discussing PLM framework further, I have seen very high interest in the topic from many large manufacturing enterprises.

Mats Lindeblad of Volvo Aero sent us a link to the presentation on “VEC-Hub” concept development from VIVACE project in Europe. Here it is

http://conferences.esa.int/pde2006/presentations/pde2006_lindeblad_vivace.ppt

Paul Heller of Sopheon poses an interesting question: why is it that if SOA is so “omnipresent” in vendors positioning materials (look up IBM and BEA for example) that we do not hear about successful implementations in PLM? Well, I have recently spoken to few early adopters of SOA (one in automotive and one in the high-tech arena) and they did not want to share their story with public (sic!). Maybe, there is certain excitement of realizing competitive advantage or just the fact that early adopters really want to learn about and test SOA before making larger transformation plans. By the way, both companies are planning very ambitious changes in their approach to enterprise computing based on SOA (and yes, PLM will not stay outside of the scope).

In particular, the key to establishing competitive advantage out of SOA will be in acquiring methodology that directly links continuous process improvement to SOA solutions deployments. It is understandable that companies will not willingly share their methods once they hone them to their advantage. The question is how quickly will PLM vendors develop and offer packaged methods that will help manufacturers apply process changes more rapidly and with higher fidelity to business requirements. That is where SOA offers tremendous advantage in terms of agility, reusability and accuracy, and that is why it will stay. PLM vendors that crack that nut early will have significant rewards in the near future. My suggestion to end users is to plan on well conceived pilot projects to develop methodology in few iterations and to learn the economics of managing SOA based initiatives. The sooner the better, since it is just around the corner, and YES it has significant advantages over anything we have seen so far in terms of speed, agility and process change economics (commonly referred to as ROI or TCO).

We often get calls from our clients to discuss their approach to process transformation in product development. Most of the manufacturers have a drive and executive commitment to improve certain aspects of product development - commonly reduce cycle times and improve quality. However, they encounter difficulties at many steps in the transformation. And very often the first difficulty that they meet is to establish a solid business case and to enumerate changes required with a high degree of confidence in the roadmap feasibility. A fast and very credible method is to use benchmarking - e.g. justify the improvement case based on already established better practices that can be somehow transplanted from other internal business units or from other companies.

While benchmarking sounds like a logical first step to do, it also comes with few side effects: first, assumption that the cases compared to are fully applicable, and second - the solutions observed are reusable in other environments.

In product development, benchmarking is often done bottoms up, that is certain process solutions are observed in relative isolation from the strategic positioning and DNA of the company practicing them. And while technically they may seem perfect fits and “low hanging fruit” efforts, in reality the details underneath can be pointing to an opposite direction - if only those details are exposed when doing benchmarking. Thus for example, recent case of benchmarking program management practices, led one of our clients to the conclusion that earned value management is ideal and easiest solution to manage a balanced program portfolio.

Technically, the solution was very attractive with its simplicity and that precarious lets-crawl-before-we-run appeal. Well, the company trying to adopt EVM manages multiple innovative projects with given seasonal schedules, each new program with evolving and migrating risks (many risks have never been experienced before, some are external and some are internal, often they are very connected). The amount of effort in contract industry (DoD, governments, …) can be safely assumed proportional to estimated project value. In consumer markets nobody goes to a mass product dealership or electronics store with a list of requirements, but to browse and pick whatever they find the most appealing value proposition to their needs. The amount of development effort in that case is only proportional to the cost of design, but not to the value of the product in the eyes of the consumer. In conclusion, to really balance portfolio in innovation driven consumer electronics company and maximize on investment options, EVM is not a good choice.

To apply benchmarking in product development one must take into consideration following factors and align them to make sure that the comparisons are apples to apples:

1. Primary strategic drivers of the company being compared to need to at least partially align to the company comparing (rank by importance following factors: velocity, cost, assets, customer, reliability, adaptability, innovation)
2. A set of balanced metrics used for trade-offs must be very similar between the companies (e.g. our programs always balance innovation index vs. schedule variance, vs. cost of quality)
3. The processes compared must have at the highest level some common definition of key activities and inputs and outputs produced (e.g. we start with an idea and select a leading candidate, we monitor performance targets throughout concept design, we will cancel a program if it does not meet market acceptance and projected profit margin criteria, etc.)

With that in mind, one can find that for example the way product portfolio is managed in fashion industry is very similar to how they are managed in consumer electronics companies striving on innovation leverage and high margins. All while another consumer electronics company (or even a business unit of the same company) can have very different strategic drivers if it focuses on cost and reliability.

Choosing good benchmarks for assessment of the improvement opportunity can indeed be a great first step, but be careful to make sure you have made good choices before drawing any conclusions.