Category Archives: Product Management

For True Innovation …

Ditch the budget. First of all, as per a recent Financial Times article, there is no correlation between R&D spend and innovation success. Secondly, as per a recent Harvard Business Review blog post on “get your team out of the innovation lull”, fixing an innovation budget puts your people into a mindset that their innovation is limited to the budget they have. Third, and most important, while you can budget the cost of product development (based on what the market is expected to bear), you can’t budget the cost of innovation. That relies as much on inspiration as it does perspiration.

Plus, and this is key, you can’t “innovate” a new product until you know what is, and is not, doable. That’s why it’s ridiculous to tie the research and development budgets together. They should be separate. While the two units should come together regularly to collaborate on research directions (i.e. “this is what we’d like to build, what’s possible”) and product directions (i.e. “this is what we’ve [sort-of] figured out, what do you think you can use and sell, and we’ll focus on improving that”), research should be free from distracting day-to-day product development, market, and associated budget constraints so they can focus on figuring out what can be done and, once development has identified certain capabilities as currently marketable, how (cost) efficiently it can be done.

Now, I’m not saying Research shouldn’t have a budget, as it should, but that budget should be at the department level, and not the researcher / research project level, and it should be up to the director(s) to figure out how best to allocate it on an on-going basis. For instance, if a team requests a purchase of a new piece of hardware that would be generally applicable to multiple research projects, then even if it exceeds the typical hardware investment, the director(s) can choose to allow the purchase and then spend less elsewhere. But if a certain costly request would not be generally applicable, the director(s) can choose to deny the request and urge the investigator(s) to innovate a more cost effective way to obtain what is needed for an experiment or investigation. In other words, we need to return to the innovation lab model, where productive researchers and true innovators aren’t spending all their time worrying about budgets … because when you’re worrying about budgets, you’re not getting anything done. GE understood that, and that’s why they did so well for so many years. Not only did they give their top people the budgets they needed to be effective, but they paid also paid their top people very well so they wouldn’t have to worry about money in their personal life. While “what can we do for 20% less” is inspiring, nothing kills an innovation mindset faster than if the team is constantly stressed about money.

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There’s Opportunity in Global R&D …

… but there’s also risk as well. In fact, I’d say the risk is as big as the opportunity presented in this Global Services article on the “globalization of R&D and Product Development” which claims that there is a tremendous opportunity for growth based on the fact that only 5% of current R&D spend is based on outsourced partnerships.

While it is true that the average small to mid-sized software product company will continue to be faced with cost pressures and increased revenue expectations, that headcount in other economies like China, India, Poland, and Russia are considerably cheaper, and that a few of these countries are as likely to produce as least as many software geniuses as North America, it’s also true that there are disadvantages and risks to outsourcing. The first is market risk. Does the outsourced R&D provider’s team truly understand the market needs? The second is education. The educational systems in these countries traditionally pump out some of the world’s greatest mathematicians, but mathematicians (and pure mathematicians in particular) are often the world’s worst coders. They can come up with the most brilliant algorithms on the planet, and maybe even code an initial version of them, but good luck integrating and maintaining their code as part of your code base — because no one but them will be able to understand it, ever.

Then there’s the ever-present culture risk. Will your North American or Western European or Australian team be able to work with them to produce great results, or will they continually misunderstand each other? Then there’s the performance risk. You might get the hardest, best trained worker, or you might get the ultimate slacker who’s there because his father, brother, or uncle is in management or has a strong say over who is hired. Arun Krishnan of Cutting Chai didn’t address outsourcing and how to threaten your outsourced employees, by telling them “I will single out every one of you and kill you”, in Hindi in his first “Learn Hindi from Bollywood Movies” podcast just to be humorous. If you’re unlucky with your hires, you really will want to yell that!

Finally, there’s the cost risk. The only way to insure success is to build a relationship and understanding with the outsourced team, work closely with them, and manage the integrated team on a regular basis. This will require regular trips to their location to find the team, train the team, and manage the team, and then multiple trips for your employees who will have to take turns visiting each location to build the camaraderie required for them to truly work as a team. Early on, this will likely cost a lot more than you budget for.

Now, I’m not against the globalization of R&D, and, especially if you’re a multi-national, I think it’s a great idea, but it has to be done right, and you have to move slow at first. Otherwise, like many companies that don’t properly plan and rush right in, you’ll see nothing for your efforts but huge losses.

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Demand Management, CPO Agenda Style

I found a recent article in CPO Agenda on how to “engineer fresh opportunities to control spending” quite timely given the extended recession and the limited revenue growth opportunities due to the reduced amounts of disposable income end customers have in their pockets to buy products and services. According to the article, effective demand management is the next logical step to controlling costs and driving down inefficiency and waste, and along with improved inventory management and distribution network design, they’re right.

With a better understanding of the factors at the root of demand for products, services or internal resources, a company can put in place innovative ways to eliminate, reduce or meet demand more efficiently and the result can be considerable savings. And while demand management may be traditionally associated with indirect spend, the greatest savings to be had are usually in direct categories. The key to realizing that is to stop focussing on “savings” and instead focus on “cost avoidance” because, as I said before, “savings” is just money you should not have spent in the first place!

So how do you get started? According to the article, you follow these five steps:

  1. Create a Demand Tree
    This a flowchart that starts with demand origin and documents key drivers. It breaks down the product or service into its constituent parts to aid in a full understanding of the product or service provided.
  2. Calculate Demand
    Based on this flowchart, calculate annual demand for each component.
  3. Calculate Capacity
    Figure out how much you can produce at each production level and the associated costs.
  4. Compare Capacity and Demand
    What capacity level are you at with current and projected demands. Does it make sense?
  5. Create Action Plans
    Once you’ve figured out what level you should be at, you can create a plan to alter demand accordingly. You can ramp up sales and marketing efforts if the product or service has the potential for great profitability at a higher demand level, or shift focus to another product or service if it’s not profitable, or would be more profitable at a lower demand level (because you’ve exceeded optimal capacity and additional units require costly overtime to produce).

In other words, you simply understand where you’re at and figure out where you should be, and then create a plan to get there. Of course, the plan could require a lot of work, but at least you’re taking a step in the right direction.

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Front-End Loading

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In supply management, front end loading is the coming together of all stakeholders in a multi-disciplinary team to insure that the concept, value, and strategy of a proposed product are worked out well before the design is finalized and production begins. It focusses on front-end planning, and insures that required parts and materials are available and affordable within the target cost.

Front-End Loading is used heavily in Japan where it is seen as a primary contributor to Kaizen (value creation), which refers to the Japanese approach to continual quality enhancement and waste reduction through small, but continual, improvements. It has contributed to a lot of success over the past decade, and the CAPS Research Japan Group recently released a detailed white-paper on “Front-End Loading” (FEL) that chronicled the result of their surveys in 2002, 2004, and 2006 on FEL and ESI (Early Supplier Involvement) and eleven industry case studies.

The surveys, which also revealed a number of trends in the automobile, electronics, food, retail, and engineering industries, found that supply management experienced a significant change in the first half of the decade from where it had little involvement in product planning in 2000 to significantly increased involvement in 2006. Although some companies don’t involve their suppliers in the early stages of NPD, the involvement is on the rise.

Front-End Loading has contributed significantly to each industry it has been adopted in. In electronics, for example, Xerox obtained an annual 10% reduction in net product cost, a 93% reduction in rejected material, a 50% reduction in NPD time and cost and, most importantly a reduction in production lead time from 52 to 15 weeks and in automotive parts, Mitsuba expects to reduce it’s average product life cycle from seven or eight years to four.

When procurement leads the cross-functional team in the screening and evaluation of potential sources of supply, cycle time is reduced, costs go down, and green purchasing, social responsibility, audit/compliance, and risk management are considered up front. By tackling these timely issues, procurement can be sure that the organization reduces, reuses, and recycles; acts in a socially responsible manner; implements effective internal controls; and minimizes supply risks and the opportunity for disruption.

Why Do We Still Have The Seven Timeless Challenges of Supply Chain Management?

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A recent article in Supply Chain Digest listed “the seven timeless challenges of supply chain management”, as described by Dr. J. Paul Dittmann, the Director of the Office of Corporate Partnership at the University of Tennessee. While I have to agree that these challenges are “timeless” in that we (needlessly) see them again and again and again, I don’t understand why … since all of them are solveable with today’s technology. More specifically:

  • Too Much Product Complexity
    Most companies have too many SKUs, and, to be precise, too many underperforming SKUs. But a good “spend analysis” with a modern data analysis package, which includes profit and loss data, can easily identify these SKUs which can be phased out and eliminated when contracts end.
  • Too Much Slow-Moving and Obsolete Inventory
    While good forecasting and demand planning can never eliminate obsolete inventory, a regular “profit” analysis that factors in the carrying cost to date and current price point makes it easy to identify when it costs more to hold on to inventory than to get rid of it at a discount, making it an easy decision from a loss-prevention perspective.
  • Supply Chain Considerations Not Part of the Product Design Process
    Simply do a total cost of ownership in the design phase and your critical supply chain considerations come into play right away.
  • No Supply Chain Strategy
    This is an easy fix. Sit down and define one.
  • Ineffective Matching of Supply with Demand
    With a slew of (near) real time supply chain visibility solutions on the market, all you have to do is implement one.
  • Physical Network Problems
    There are a number of strategic sourcing decision optimization platforms on the market that can perform detailed network analysis at very reasonable price points. Get one, and if necessary, get the consulting help to do it right. A few hundred K on a network optimization project can easily save you a few million.
  • Global Issues and Outsourcing Problems
    With a number of expert niche consultancies and deal architects that are very affordable, this problem is easily solved as well.