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How Product Lifecycle Management makes a difference in your industry: 
AEROSPACE
AUTOMOTIVE
CONSUMER
CONSUMER ELECTRONICS
DEFENSE
EDUCATION
INDUSTRIAL EQUIPMENT
HIGH-TECH ELECTRONICS
LIFE SCIENCES
PLASTICS
SHIPBUILDING
TELECOM
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Product First: Nine Routes to Economic Value By Kevin P. Hopkins The Product First approach to product lifecycle management offers nine powerful value opportunities for increasing profitability and growth. There are two ways in which effective product development delivers value to manufacturing companies. The more commonly cited is the enhancement of profitability. Opportunities pursued in this vein create value by reducing component and product lifecycle costs or by optimizing asset utilization--that is, by increasing product development efficiency. This is where "hard dollar" ROIs typically come into play.  But according to PLM Schizophrenia, a book produced by the Needham, Mass., product development software company PTC, recent studies have confirmed that such profitability pursuits account for no more than about 20% of the potential value offered by product lifecycle management solutions. The other 80% can be found in another set of opportunities, typically less well understood, that are designed to promote top-line company growth.
These growth-oriented opportunities encompass far more than the reconfiguration of existing business processes. They involve, instead, the hard work of innovating, generating breaththrough product designs, responding in original and persuasive ways to customer needs, creating competitive barriers, and accelerating time-to-market. While profitability opportunities enhance bottom-line performance through revenue preservation, growth-related opportunities enhance top-line profitability through revenue generation--an undertaking with fundamentally unlimited value potential. The Nine Value Opportunities To understand the distinctions between top-line and bottom-line opportunities, one must clearly specify the day-to-day product management activities that feed into which opportunities. To help define these activities, PTC has set forth what it calls "Product First: A Road Map to Creating and Capturing Value"--a carefully designed schematic that vividly illustrates the interrelationship among the whole range of product development strategies, initiatives, operations, and capabilities. According to PTC, there are four main profitability-oriented Value Opportunities: • Design to realize a price premium (increased per-unit revenue) • Reduce product costs • Reduce lifecycle costs • Improve asset allocation These are all powerful and widely accepted Value Opportunities, and are a centerpiece of many successful product lifecycle management programs. But they are not the only way in which companies can benefit from efforts in this realm. As noted, for all of the focus typically placed on them, such profitability-oriented opportunities only a fraction of the potential value derivable from effective product lifecycle management. The majority of the value, some 80%, comes from an area whose benefits can be harder to document but that promises much greater potential than simple cost and productivity improvements: top-line revenue growth. Opportunities to Increase Revenue The first Value Opportunity cited above, designing to realize a price premium, offers an interesting duality. On one hand, price premiums do boost per-unit revenue from the sale of a given product, and thereby increase bottom-line profitability. But they also enlarge the overall revenue stream flowing into the company, and so point to a powerful but too often overlooked path to increasing corporate value: greater top-line revenue growth. In addition to creating price premiums, there are five other Value Opportunities that are associated with this "growth path." They include: • Expand market share with more customer-focused products • Protect product position • Improve the ability to fulfill customer demand • Design for ongoing revenue streams • Develop and define new markets Despite the fact that these Value Opportunities account for such a significant proportion of the potential economic value obtainable from product lifecycle management, they are less often pursued in part because they can be more challenging to implement. Unlike bottom-line profitability-related opportunities, which require mainly the re-engineering of current processes, top-line growth opportunities demand innovative and sometimes expensive commitments. And, as noted above, they are also considerably more difficult to demonstrate in conventional ROI models. Yet while the results may be more difficult to measure, this risk is compensated by a much greater economic return. Making Strategic Trade-offs Without question, both top-line growth and the bottom-line profitability opportunities have value, and their importance to any individual company is likely to change over time. A Product First perspective recognizes this reality. It acknowledges that every company and every market situation is unique. And it embraces the fact that one company may have sharply different priorities from another. Of course, few companies have the time or resources to pursue all nine Value Opportunities simultaneously, so manufacturers need to be careful to select those Value Opportunities that will be most effective in satisfying their particular needs and competencies. But insightful corporate strategy requires precisely that: making intelligent choices. And that intelligence comes as much in choosing what to do as in what not to do. As it happens, Product First is designed specifically to enhance the capability of manufacturers to intelligently and effectively make those strategic trade-offs. We'll see how in later columns as we look in more depth at the nine Value Opportunities introduced above. |
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Copyright 2003, by The McGraw-Hill Companies, Inc. |
