Product planning critical to high-tech success: Siemens' Maurer

By Thomas Maurer
EETimes Supply Network

05/20/2009 8:33 PM EST
URL: http://www.eetimessupplynetwork.com/217600380

High tech and electronics companies are under constant pressure to increase the number of new products they bring to market while minimizing development costs.

Analysts and consultants agree that innovation is the key to creating sustainable growth for high tech companies. The challenge for these companies is figuring out how to maximize their investment in innovation and increase the probability for success in the new product introduction process.

Booz & Co., in a research report titled The Customer Connection: The Global Innovation 1000, noted that high tech companies outspend other industries on R&D by a factor of two to one. Yet, the amount spent on innovation by the world's largest corporate R&D spenders across a variety of industry categories, did not translate directly into increased revenue.

"In the end, the key to innovation success has nothing to do with how much money you spend," wrote authors Barry Jaruzelski and Kevin Dehoff, "It is directly related to the effort expended to align innovation with strategy and your customers, and to manage the entire process with discipline and transparency."

It's obvious why high tech companies spend so much on R&D. Being first to market with a new product can mean a huge market share advantage and 20 percent higher gross margins. Also, there's a very short window in which to turn a profit due to the rapid changes in technology. By that, we mean the ability to manage both the creativity and the complexity involved in successful innovation.

Managing creativity means capturing, categorizing and harvesting ideas that come in from all sorts of sources so that only the best ideas become products (build the right products).

Managing complexity means communicating those ideas to all members of the value chain who can then validate and add value, and ultimately evolve these ideas into successful goods (build the products right).

In the high tech sector, best-practice companies derive nearly 50 percent of their revenues from products introduced in the previous five years. In contrast, typical companies derive only 25 percent of their sales from products developed within the prior five years.

In light of the industry's huge financial commitment to R&D and imperative for innovation, it's obvious that companies must find a way to manage the frequently messy innovation process so that the result is something that customers want to buy and companies can efficiently deliver.

The shorthand at Siemens PLM for describing this challenge is "build the right products, build the products right."

Best-practice companies in high tech and electronics spend significantly less resources on project that failed than typical companies. In other words, leading companies in high tech and electronics have put in place best practices that ensure that they build the right products. Some of these best practices include the following:

1. Capture the voice of the customer and trends in the market

Their report identified three types of innovators: need seekers (who engage current and potential customers to shape new products); market readers (a group that makes incremental changes in response to market conditions); and technology drivers (these "follow the direction suggested by their technological capabilities, leveraging their investment in research and development to drive breakthrough innovation and incremental change, often seeking to solve the unarticulated needs of their customers.")

For all three, the ability to identify potential product opportunities is critical. This information can be captured in a variety of ways, including direct discussion or interviews, surveys, blogs, focus groups, customer specifications, observations, warranty data, field reports and complaint logs.

Successful innovators have figured out how to track all this information, in its many different formats, so that critical pieces " and great ideas " don't get lost.

2. Optimize the product portfolio

Portfolio optimization or portfolio tuning is a very powerful strategic planning tool. Done properly, portfolio planning can help companies focus their resources on the products that will provide the highest value while accounting for the risk and uncertainty inherent in bringing new products to market.

Portfolio optimization requires the ability to define strategy through weighting, modeling and performance measurements, and to perform what-if analyses of multiple scenarios with current and future products.

3. Make better use of product platforms

With the most successful products (a popular MP3 player comes to mind), subsequent variations of a platform sell better than previous models.

The idea here is to enable the re-use of common components as early as possible in the product lifecycle and schedule the introduction of new technology components when they become available.

The critical capabilities include being able to manage product information at the platform architecture level and being able to connect concept management and strategic sourcing with engineering bill of material management.

4. Drive program execution

Driving program execution from such a schedule ensures an on-time, on-budget production launch.

Each of these best practices requires supporting technology that enables management of the innovation process "with discipline and transparency," as called for in the Booz study.

Product lifecycle management (PLM) technology addresses all of the requirements for building the right product and provides the necessary infrastructure for effective management of the innovation process.

Thomas W. Maurer is senior director, High Tech and Electronics Industry Marketing at Siemens PLM Software