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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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Value Opportunity One: Growing Share With Customer-Focused Products By Kevin P. Hopkins As the example of one manufacturer demonstrates, finding new ways of meeting customer needs is a powerful way for product-focused manufacturers to increase market share. For companies seeking to increase corporate value, one common approach is to expand market share. It's a particularly appropriate today when many markets are stalled and capturing market share from competitors the only way left to grow. In addition, growth promises a double return because increasing sales volume can reduce the cost of production as fixed costs are spread over a greater volume of units--the well-known "economies of scale" effect. Yet deciding to capture additional market share and actually doing it are two starkly different tasks--a challenge complicated by the fact that most of a firm's competitors are striving to do exactly the same thing. In addition, the barriers to increasing market share, and the techniques to overcome them, are not always obvious. That's where the first Value Opportunity, "Grow Share with Customer-Focused Products," on product development software maker PTC's Product First Roadmap comes into play. As discussed in previous columns, the Product First Roadmap defines paths and strategies that companies can take to create and capture value for their firms. In this particular case, with Product First, companies can sort through the many drivers that affect market share and quickly identify specific executing strategies to help them meet their goals. A Challenge to Chip Makers Even before the specific components of the Product First Roadmap were fully developed, several visionary companies were capturing this first Value Opportunity, employing a variety of customer-focused strategies to boost their products' market share. An early leader in this regard was LSI Logic Corporation, a pioneer in computer chip manufacturing. During the 1970s, computer chip makers across the board had begun to experience problems that threatened their profitability. Most pronounced among these was a trend toward smaller customer segments, each of which began demanding a wider variety of highly customized chips to meet its own specialized functions. Designing customized chips for these small market segments was a very slow and laborious process, with numerous iterations required until the manufacturer had achieved the final design. Even then, exactly matching customer needs was difficult, leaving customers with little reason for vesting long-term loyalty with any one manufacturer. Manufacturers were further hampered in responding to the demands for more customized chips because doing so was very expensive, yet intense competition in the industry prevented chip manufacturers from passing these additional costs along to their customers. As a result, customers suffered. Due to the expense of chip-customization, manufacturers could cost-effectively serve only those customers willing to offer the large-volume deals necessary to help manufacturers recoup their design costs, a situation that effectively excluded most small and mid-size firms from the market. Outsourcing Product Design Rather than pursuing the "brute force" method of struggling to wring diminishing efficiencies out of the production process, LSI Logic responded to this challenge in a surprising and unprecedented way: they outsourced product design to the customer. LSI began manufacturing and distributing a new-concept computer chip called the "gate array" chip, which included a number of standard modules that could be assembled, like Lego bricks, into a wide variety of custom configurations--an "Executing Strategy" that PTC terms "increasing product variants to respond to customers' demands." In addition, to further assist customers in the design process, LSI also streamlined and integrated a number of its disparate in-house chip-design tools into one simple, customer-oriented design toolkit. The innovation was more successful than even the most optimistic LSI executives had expected. Within a relatively short period, LSI's customized-chip customer base grew from mere hundreds to hundreds of thousands, while sales of these customized products skyrocketed from almost nothing to more than $15 billion per year. What's more, the outsourced design process so drastically lowered chip-design costs and development time that even small customers could now be profitably served. The key lesson from this experience, note Harvard University's Stefan Thomke and MIT's Eric von Hippel, writing in the Harvard Business Review, is both simple and powerful: meeting a wider range of customer needs can result in huge, often order-of-magnitude increases in growth--and, in this case, in market share. By focusing on customer needs, LSI used product development to increase value and pull away from the competition, illustrating just one way in which a strategic approach to product development can transform a company. PTC's Product First Roadmap highlights this and eight other Value Opportunities, which we will continue to explore in upcoming columns. |
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Copyright 2003, by The McGraw-Hill Companies, Inc. |
