The Product Innovation Agenda Benchmark Report

Jim Brown

Description

AberdeenGroup
The Product Innovation Agenda
Benchmark Report
Product Innovation, Product Development,
and Engineering Improvement for Profitable Growth
September 2005
Sponsored byThe Product Innovation Agenda Benchmark Report

Executive Summary

esigners dream of developing the coolest new device. Engineers dream about
solving a challenging problem in a novel way. Marketers dream about creating D the hottest new product trend. Everyone in the product development process
dreams about making an innovative contribution. Some may even dream about develop-
ing products that make a significant social contribution to the world. Executives and
shareholders dream about many things as well, but must be primarily concerned with
growth, profitability, and the generation of corporate value. Business leaders care about
the bottom line.
Key Business Value Findings
AberdeenGroup surveyed and interviewed more than 125 companies across the globe to
better understand corporate objectives for product portfolios, challenges they face in de-
veloping profitable products, actions to reach strategic product goals, and technical en-
ablers that help companies improve product innovation. Aberdeen found that 82% of
corporate strategies place a high level of emphasis on growing product revenue, while
93% maintain at least some strategic emphasis on reducing product cost, indicating that
manufacturers are striving for profitable growth.
As they’re trying to increase profits, ...

Sujets

• Revenue generating unit
• Innovation au Saguenay-Lac-Saint-Jean
• Design transport
• Public Land Mobile Network
• Airco DH.9
• Business Aviation

Informations

• Publié par: Pujeh
• Nombre de lectures: 162
• Langue: English

Extrait

AberdeenGroup The Product Innovation Agenda Benchmark Report Product Innovation, Product Development, and Engineering Improvement for Profitable Growth September 2005 Sponsored by

  The Product Innovation Agenda Benchmark Report Executive Summary   esigners dream of developing the coolest new device. Engineers dream about D th   e hottest new product trend. Everyone in the product development process solving a challenging problem in a novel way. Marketers dream about creating dreams about making an innovative contribution. Some may even dream about develop- ing products that make a significant social contribution to the world. Executives and shareholders dream about many things as well, but must be primarily concerned with growth, profitability, and the generation of corporate value. Business leaders care about the bottom line. Key Business Value Findings AberdeenGroup surveyed and interviewed more than 125 companies across the globe to better understand corporate objectives for product portfolios, challenges they face in de- veloping profitable products, actions to reach strategic product goals, and technical en- ablers that help companies improve product innovation. Aberdeen found that 82% of corporate strategies place a high level of emphasis on growing product revenue, while 93% maintain at least some strategic emphasis on reducing product cost, indicating that manufacturers are striving for profitable growth. As they’re trying to increase profits, manufacturers are facing unprecedented challenges developing products in a fast-changing, global marketplace. The environment for product innovation has changed dramatically. Manufacturers today are facing customer demands for more innovative products with shorter product lifecycles. At the same time, they’re competing in a global market, characterized by heightened competition and increased design and supply chain complexity. Continued cost pressure from customers and chal- lenging regulatory requirements make addressing complexity even more difficult. Despite these challenges, companies are succeeding in improving top-level business met- rics by improving performance in product innovation, product development, and engi- neering. Manufacturers surveyed reported double-digit improvements in product revenue (19%), decreased product costs (15%), and reduced product development cost (16%) by improving product innovation processes. Interestingly, there are a wide range of im- provement actions and technology enablers ─ known as Product Lifecycle Management, or PLM ─ being employed to reach these performance improvements. Implications & Analysis Companies today must find new ways to generate or acquire innovative product ideas, translate those concepts into compelling products quickly and efficiently, get them to market more rapidly, and then leverage them for optimal profits. Leading companies are responding to this challenge. While there are many opportunities for improvement, best- in-class companies have organized for innovation. Leaders are more likely to have cen- tralized coordination of product development processes, measure innovation performance more frequently, evaluate as much of the enterprise as possible with key performance indicators, and have standardized processes. Along with centralized processes, these high performers were also four times more likely to have PLM capabilities including inte-   All print and electronic rights are the property of AberdeenGroup © 2005.   AberdeenGroup • i  

   The Product Innovation Agenda Benchmark Report grated data, process automation and collaboration capabilities, and have centralized knowledge management. Organizationally, best-in-class companies are also more than three times as likely to have a senior management position with direct responsibility for identifying and developing innovative product ideas and then bringing them to market. These findings suggest product innovation can be managed and measured, yielding im- provements that lead to better bottom-line business results. Recommendations for Action  Manufacturers looking to improve product profitability have many options from which to choose. The following recommendations are intended to help companies capitalize on the innovation opportunity by taking action: •  Evaluate your product innovation goals in business terms as opposed to just operational metrics. Tie the value back to the business as a whole. •  Identify and implement operational improvements that yield tangible busi- ness results. Focus efforts on high-value initiatives that also create a foundation for future improvements. •  Manage for innovation success. Assign responsibility to a senior executive for end-to-end innovation success, standardize processes, and measure performance frequently on a global basis. •  Approach product innovation as a “team sport.” Look for ways to share knowledge, information, and workflows within and outside the enterprise, in- cluding with global design networks. •  Intelligently implement PLM technologies to reach revenue growth and product cost reduction targets. Enable business improvements with the appro- priate technology, leading to profitable growth. •  Don’t try to implement PLM processes and technology all at once .Pick and choose a path to the right value for your business, then continue to build on that foundation.       All print and electronic rights are the property of AberdeenGroup © 2005.  ii  • AberdeenGroup  

         The Product Innovation Agenda Benchmark Report Table of Contents Executive Summary..............................................................................................i   Key Business Value Findings..........................................................................i   Implications & Analysis...................................................................................i   Recommendations for Action..........................................................................ii   Chapter One: Issue at Hand.................................................................................1   Corporate Objective: Profitable Growth.........................................................1   Challenges to Product Innovation..................................................................2   Chapter Two: Key Business Value Findings.........................................................5   Benefits Achieved..........................................................................................5   Increasing Product Revenue.........................................................................6   Decreasing Product Cost.............................................................................10   Crossover Benefits......................................................................................15   Additional Benefits.......................................................................................16   Chapter Three:  Implications & Analysis.............................................................18   Fostering Product Innovation.......................................................................18   Organizing for Product Innovation Success.................................................20   Automating for Product Innovation Success................................................22   Chapter Four: Recommendations for Action......................................................24   Featured Sponsors.............................................................................................26   Sponsor Directory..............................................................................................29   Author Profile.....................................................................................................30   Appendix A: Research Methodology..................................................................31   Appendix B: Related Aberdeen Research & Tools.............................................33   About AberdeenGroup......................................................................................34   All print and electronic rights are the property of AberdeenGroup © 2005.   AberdeenGroup iii   

   The Product Innovation Agenda Benchmark Report       Figures Figure 1: Corporate Goals for Product Innovation................................................2   Figure 2: Top Challenges to Product Innovation...................................................4   Figure 3: Benefits of Improved Product Innovation..............................................6   Figure 4: Product Innovation Actions to Increase Revenue..................................7   Figure 5: Product Innovation Capabilities to Increase Revenue...........................9   Figure 6: Software Enablers for Product Innovation That Drive Revenue..........10   Figure 7: Product Innovation Actions That Drive Product Cost Reduction..........12   Figure 8: Product Innovation Capabilities That Drive Product Cost Reduction...14   Figure 9: Product Innovation Enablers for Product Cost Reduction...................15   Figure 10: Percentage of Products Meeting Cost Targets within Product Innovation Competitive Framework.............................................20   Figure 11: Competitive Framework – Managing for Product Innovation Success22   Figure 12: Enabling Product Innovation Success...............................................23   Tables Table 1: Product Innovation Initiatives with Multi-Faceted Benefits....................16   Table 2: Relationship between PACE and Competitive Framework...................32   Table 3: Competitive Framework........................................................................32     All print and electronic rights are the property of AberdeenGroup © 2005.  iv   AberdeenGroup  

   The Product Innovation Agenda Benchmark Report Is C s h u a e p   t a e t r     H O a n n e: d     •   The product innovation environment has changed dramatically, becoming more complex and competitive. •   Corporate strategies are placing very heavy emphasis on growing product revenue. •  However, companies continue to place significant emphasis on reducing product cost. •   Companies are aggressively pursuing higher product revenue at lower cost ─  in other words, profitable growth ─  while trying to cope with new challenges in product-innovation, product development, and engineering. Corporate Objective: Profitable Growth To begin the discussion of product innovation, let’s place product innovation in the con- text of corporate strategy. Business leaders need to focus on corporate objectives. For most businesses, that means improving the balance sheet and income statement, and pro- viding enhanced corporate valuation to serve shareholders. Many manufacturers have had to rely on cost reductions over the past five years in order to improve profitability. Cur- rent strategies, however, appear to be turning toward profitable growth as opposed to just cutting costs. With business strategy in mind, AberdeenGroup surveyed more than 125 companies to understand their product innovation goals (Figure 1). When asked to characterize the fo- cus of their corporate strategies, more than three-quarters of respondents say their corpo- rate strategies place “a lot of emphasis” on increasing product revenue. This supports the more aggressive stance Aberdeen has seen manufacturers take in the market. At the same time the focus shifts to growing the business, manufacturers can’t lose sight of cost, par- ticularly in highly competitive global markets. Of surveyed companies, approximately half of corporate strategies place “a lot of emphasis” on decreasing product cost. To fur- ther the point, 98% indicate having corporate strategies that place at least “some empha- sis” on increasing product revenue, while 93% place at least “some emphasis” on reduc- ing product cost. This dual focus translates to a strategy for “profitable growth.” Other strategic objectives investigated were increasing intellectual property (IP) value and reducing product development cost. More than one-third of respondents said their companies place “a lot of emphasis” on increasing IP value, with lower emphasis on de- creasing product development cost. While these goals can provide value to the business, they did not appear to be as highly emphasized in corporate strategy. One other point of interest from the corporate objectives review was related to product cost. As companies move down the value chain, cost reduction becomes more important. The survey shows that Tier 1 and Tier 2 suppliers place stronger emphasis on cost reduc- tion than OEMs do. This is most likely due to OEMs’ ability to leverage their market strength to push cost-reduction initiatives down onto their suppliers. In parallel with this, consumer products companies were also more likely to have a strong emphasis on cost, with 81% of respondents indicating that their corporate strategies placed “a lot of empha- sis” on product cost reduction. Similar to Tier 1 and Tier 2 suppliers feeling pressure All print and electronic rights are the property of AberdeenGroup © 2005.   AberdeenGroup • 1  

   The Product Innovation Agenda Benchmark Report from OEMs, consumer products companies are under the gun from the retail giants to continually reduce cost. Figure 1: Corporate Goals for Product Innovation 90% 82% %08 70% 55% 60% 47% 46% 45% %05 40% 34% 25% 30% 16% 20% 19% 2 1 0 0 % % 2% 7% %0 Increase productDecreaseIncrease value ofDecrease revenueproduct costintellectualproduct propertydevelopment cost A Lot of EmphasisSome EmphasisNo Emphasis   Source: AberdeenGroup , September 2005 Challenges to Product Innovation Product innovation has fundamentally changed. A combination of factors has influenced the market, resulting in a much more challenging environment. Today’s global market raises the bar for product innovation, product development, and engineering perform- ance. Barriers to global trade continue to drop, resulting in new opportunities and threats. The opportunity to sell into new geographies brings with it new regulatory requirements and the need to tailor products to local needs and preferences. Lowered trade barriers also open the door to competition, and often competition with access to much lower labor rates. Recent market shifts are due in part to globalization, but also have roots in the era of in- formation and the Internet. Customers can now gather information and compare products readily, and potentially draw upon a wider array of potential suppliers that previously didn’t have access to local markets. Competitors also have access to more information than before, making it easier to understand and replicate product features and minimize the advantage that comes from product differentiation. These changes have resulted in significantly increased competition. These challenges differ by industry and geography and even by companies with an indus- try. The wide range of challenges reported (Figure 2) indicates that multiples factors are at play in the increased complexity and competition in product innovation, and that there is no “one size fits all” solution. In summary, the innovation mandate is to produce more competitive products that better meet customer needs in a shorter period of time. But companies have to accomplish this while maintaining ─ or even lowering ─ product cost. The ability to adapt to these new market conditions effectively will determine the long- term winners and losers in manufacturing. All print and electronic rights are the property of AberdeenGroup © 2005.   2 • AberdeenGroup   

   The Product Innovation Agenda Benchmark Report •  Cost pressure has intensified. More than half of respondents listed cost pressure among their top three challenges. Consolidation in many industries has resulted in a smaller number of larger, more powerful companies in many markets. These companies frequently dictate price reduction on their suppliers and supply chain.  •   Product lifecycles have shrunk. Almost half of respondents identified shorter lifecycles as a top challenge. Short lifecycles are often the result of increased competition and competitors’ ability to reverse engineer and match features more quickly. Knowledgeable customers are demanding innovation, and punishing commodity products with lower demand and profit margins. The result is that product profitability windows have shrunk.  •  Competition is tougher. Lowered trade barriers and broader market reach due to advances in communications have opened up competition, and challenging mar- ket conditions have forced companies to improve in order to compete. Almost half of the companies surveyed said increased competition was a top concern.  •  Markets and supply chains are globalizing. Many companies are competing in new markets and leveraging low-cost manufacturing from other countries. Com- panies operate in global manufacturing networks, and are beginning the transi- tion to global design networks. Products must be designed with multiple markets in mind, complicating requirements and burdening designs with additional regu- latory and commercial constraints. More than one-third of respondents identified globalization as a top challenge, with a number of companies mentioning greater regulatory requirements as a top challenge.  •  Product complexity has increased. Perhaps as a result of competition or of ad- vancing engineering capabilities, products are becoming more complex. One ex- ample is the convergence of electrical, mechanical, and software design required for many products in the market, as products become “smarter.” Another con- tributor is added configurability of products to match customer needs more closely, requiring flexible product platforms that can be adapted to changing de- mands. All print and electronic rights are the property of AberdeenGroup © 2005.   AberdeenGroup • 3  

   The Product Innovation Agenda Benchmark Report Figure 2: Top Challenges to Product Innovation %15 %94 %84 %54 Cost pressure from customers or sales channels Demand for shorter product lifecycles Increased competition More demanding end customers Globalization of markets and/or supply chains36% More complex products 30% Faster product commoditization 27% 0%10%20%30%40%50%60% Percent Reporting Among Their Top Three Challenges   Source: AberdeenGroup , September 2005 All print and electronic rights are the property of AberdeenGroup © 2005.   4 • AberdeenGroup   

   The Product Innovation Agenda Benchmark Report Chapter Two: Key Business Value Findings •   Manufacturers are meeting current market challenges and improving business perform- ance in measurable ways by improving product innovation, product development, and engineering processes. •   There is a wide variety of operational improvement opportunities that can contribute to the strategic benefits of product innovation, leaving a lot of potential options from which to choose. •  Operational improvements, in turn, are the result of a variety of actions, business capa- bilities, and technology enablers that can be implemented to achieve the desired bene- fits.   Benefits Achieved The changing innovation landscape has resulted in both challenges and opportunities. Companies that have improved product innovation have reported tangible benefits that have a visible impact on balance sheets and income statements. Measurable benefits re- ported include enhanced product revenue, decreased product cost, and reduced product development cost (Figure 3). Reported product revenue improvements averaged 19% among survey respondents. This revenue increase was likely a combination of higher product volumes sold as well as higher product prices commanded. Cost reductions re- ported came in the form of an average 16% reduction in product development costs, and 15% for product costs. One interesting finding was that many companies reported achiev- ing multiple benefits. Product innovation improvements tend to offer multiple benefits from one improvement project. To emphasis the multi-faceted benefits, 84% of respon- dents that cited benefits reported positive results in more than one measurement area. One example is reducing time to market, which allows companies to offer differentiated products that aren’t perceived as commodities. Differentiated products command a higher price in the market than “me too” products. Decreasing product development lead times can improve revenue, but can also result in lower product development costs because projects are in development for shorter periods of time. All print and electronic rights are the property of AberdeenGroup © 2005.   AberdeenGroup • 5  

   The Product Innovation Agenda Benchmark Report Figure 3: Benefits of Improved Product Innovation Increase product revenue Decrease product tsoc Decrease product development cost %0%5 51% %61 %91 10%15%20% \Source: AberdeenGroup , September 2005 Increasing Product Revenue The pressure to increase product revenue comes from the top of the organization: the shareholders. As Figure 1 shows, 98% of surveyed companies indicate that increasing product revenue has either “some emphasis” or “a lot of emphasis” in their companies’ corporate strategies. Aberdeen investigated what companies can do to achieve this goal, PACE Key:  For a more detailed following Aberdeen’s PACE benchmark description, see Appendix A methodology. The PACE methodology ex- Aberdeen applies a methodology to bench- amines what companies are doing to address mark research that evaluates the business current business challenges, or pressures, pressures, actions, capabilities, and enablers with the appropriate actions, enabled by (PACE) that indicate corporate behavior in business process capabilities and enabling specific business processes. These terms are technology. For more information on the defined as follows: PACE methodology, see the Appendix A. Pressures — external forces that impact an The researched actions are operational im- organization’s market position, competitive- provements that could result in increased ness, or business operations revenue (Figure 4). The respondents identi- Actions — the strategic approaches an or- fied a series of high-value actions that they ganization takes in response to industry pres- indicated were important to achieving reve- sures nue goals Capabilities — the business process compe- tencies required to execute corporate strategy   •   Incorporate customer needs. Almost three-quarters of companies say in- Enablers — the key functionality of technology creasing fit of products to customer solutions required to support the organization’s and market needs is strategic to in- enabling business practices   creased product revenue, indicating that better targeting of customer preferences results in higher sales. •  Choose products by value.  Seventy percent say increasing the value of new products pursued is important, indicating that most companies surveyed believe picking the right products for the market leads to revenue. All print and electronic rights are the property of AberdeenGroup © 2005.   6 • AberdeenGroup