Design-to-Value

Increasing product profitability

Stuttgarter Gesprche

Oliver Knapp

May 05, 2011

Content

A. WHY Burning platform

B. WHAT Our Design-to-Value approach
C. HOW Implementation of Design-to-Value
D. CONCLUSION Summary & outlook
2011 Roland Berger Strategy Consultants

A. WHY Burning platform

The main reason for failed product commercialization is missed

customer requirements
Reasons for failed product commercialization
Other

"Missed market/
customer
requirements"

33%

38%

Failed commercialization mostly

linked with product performance
Main reason: Missed market/
customer requirements,
i.e. wrong product/wrong features

13%
19%

"Products with
competitive
disadvantages"

IMPLICATIONS

"The me-too-product,
facing a competition
barrier"

Product performance related issues

Source: Survey among R&D leaders in mechanical engineering based on a study by Cooper; Roland Berger

Our experience shows that as a result, companies often find

themselves on a burning platform
Example Nokia
Problems
> Missed big
g trends
> Missed customer
requirements
> Wrong decisions
regarding products/
features
>

12

2007

2008

2009

2010

"Nokia, our pplatform is

burning"!

Consumer preference UK
28%

2009

Source: http://www.wikinvest.com; http://www.bbc.co.uk

CEO Stephen Elop

EBIT [USD m]

20%
2010

B WHAT Our Design-to-Value approach

B.

Design-to-Value combines customer and company perspective

Basis to increase product profitability
Evolution
Design-toValue
((DtV)
t )

VALUE

COSTS

Offeringg customers
what they want
> for a price they are
willing to pay
> at minimum costs

Design-toC t
Cost
(DtC)
COMPANY
PERSPECTIVE

CUSTOMER & COMPANY

PERSPECTIVE
7

Design-to-Value pursues two basic optimization routes

Result: Products with the right features at the right cost
Value formula

RESULT
Customer
perspective

Company
perspective

Value
contribution

with the right

Perceived
> Brand
performance

Products

1 Better

> Product
performance
> Function and
feature

2 Same

Price increase
greater than (>)
C t increase
Cost
i

Cost new
smaller than (<)
Cost old

> Customer
satisfaction
> Value/
profitability
maximization
on product
level

features
at the right
cost

Examples demonstrate how Design-to-Value delivers higher

customer satisfaction and increased product profitability (1/2)
Benefits Examples
Mixed
signal

PMU
RF

Audio

C + DSP
RAM

RAM
2005
P2002

2006
ULC1

2007
XMMTM101

Cost down, sales up

> Mobile phone chip with features
focused on emerging markets,
enabling "ultra low cost mobile
phones"
> Improvements as compared to
conventional chips:
All functions in one silicon piece
Reduced material cost
Reduced phone design effort

Sales up

Sales up

> Machine tool with design as one of > Stroller as lifestyle product and for
the core value adding features
fashion oriented parents
> Improvements as compared to
> Improvements as compared to
conventional machine tool:
conventional strollers
Increased safety due to bigger
Easy handling (lightweight,
(lightweight
screens and safety glasses
specially designed front wheels)
Improved ergonomics/usability
Premium design
Increased process efficiency
Philanthropic (donation to AIDS
fund)

COMPETITIVE ADVANTAGE VIA SUPERIOR PRODUCT PERFORMANCE

9

Examples demonstrate how Design-to-Value delivers higher

customer satisfaction and increased product profitability (2/2)
Benefits Examples

~15% cost reduction

> Packaging size reduction More
sustainability and reduced cost
> Improvements as compared to
conventional folding box:
Reduced size by 20%
Optimized construction
Reduced material cost by 15%
Reduced logistics costs

~40% margin increase

> New product idea Panorama
sunroof with improved funct. value
> Improvements as compared to
standard sunroof:
Increased glass surface
Increased margin by ~40%
Differentiating element
Standardized across car lines,
variants modularized

~6% price increase per piece

> New packaging with improved
functional value
> Improvements as compared to
conventional packaging:
Packaging improved: re
re-closable
closable
Product handling improved:
dragees
Content increased: 46 pieces
Sales growth of +14%

COMPETITIVE ADVANTAGE VIA SUPERIOR PRODUCT PERFORMANCE

10

Our Design-to-Value approach is applied in four steps

Approach enabled by methods/tools
Approach
DEVELOPMENT PROCESS

Customer
perspective

Company
perspective

A What are

> Consumer Clinic

> Focus Groups
>

> Sales Volume Test

> Price Positioning
>

customer preferences (e.g.

performance
performance,
features)?

B What drives

C What alternatives

> Cost Driver Analysis

> Product Tear Down
>

> Collaborative
Supplier Integration
> Product Convention
>

cost and how

can we influence
them earlyy on?

What alternative
is valued by the
customer and
increases
profitability?

do we have (e.g.
features, solutions)?
)

Method/tool examples
11

CUSTOMER PREFERENCES

First, Design-to-Value identifies customer preferences regarding,

e.g. product characteristics, performance or features
Supporting methods Extract
Value-based
Featuring
1/2/5 GB

12

Battery time

48/56/72 h

Display size

30/40/45 mm

Charging time

2/4/8 h

Shopper Centric
Analysis

Collaborative
Customer
Integration
g

Customer
Observation

17

10

Specification

>12h

MPEG 4

>4 GB

Competition

Response price [EUR]

Memory

5 /10/15 cm

Memory

Video decoder

50 /75/100 g

Size

PC interface

Levels

Weight

10

Housing

Technical Responses

Requirem.

Battery

Conjoint a
analysis

14

Attribute Conjoint
Analysis

Target cost

14

10

15

12

Implementation risk

Relative importance

14

-7

Company X

Competitor 1

Competitor 2

Competitor 3

PartialEBIT

Focus
Groups

Black

Feature
Check

60 x 30 x 10

Customer Web
Check

Willingness to pay
[EUR]

Trend
Scouting

0 -12

4
2
-7

Customer
Clinic

12

COST DRIVERS

Then, Design-to-Value identifies cost drivers and levers to influence

costs early on
Supporting methods Extract
Cost Driver
Analysis

Product Tear
Down

Linear Performance Pricing

Zero-Based
Estimate

Value Added1) [EUR]

100

Example Bracket Generator Mounting [INR]

4
246
208

318

325

Component

90

Supplier
pp 3

80

60

Hydraulic control
unit (2, 4, 6, 8 valves)

60
Supplier 2

50

Target
corridor

40
Supplier 1

30

Electronic control
unit (high-/low-end)

20
Finished Casting Melting Input
Shot Fettling Heat
material loss
loss material charges charges treatcost
ment

Mat. +
casting
proces
cost

Overhead

Profit

Total
cost

10
0
0

Raw Material Cost

Price/Volume
Degression

Specification
Comparison

Processing Cost

Electronic brake
control

Subcomponents

70

20

18

Variant
Tree

Overheads

10

11

12

13

14

15

Weight [kg]

Total Cost of
Ownership (TCO)

Activity Based
Costing

16

17

18

Wheels sensors (2, 3,

4 sensors)

Waste
Analysis

Price/unit [GBP]
20

EUR/pax1

57

138

Fuel

TCO per
year

15

Best practice line

12
14

Cabin
Cleaning

Seat cover
cleaning

40

10
0

50

100

150

200

250
300
Volume ['000 units]
New seats

Supplier 1

Supplier 2

Supplier 3

Maintenance

Refurbishment

Inventory

13

ALTERNATIVES

Based on the understanding of both customer preferences and cost

drivers, Design-to-Value develops alternatives
Supporting methods Extract
Product
Convention

Collaborative
Supplier Integration

Joint Supplier
Optimization

Concept
Competition

Commonality

?
Feature/Take Rate
Strategy

Best of
Benchmark

Design to Supply
Chain

Value Chain
Alignment

Advanced Tender
Design

TIER 1
OEM
TIER 1

14

VALUED BY CUSTOMER AND MAXIMIZED PROFITABILITY

Finally, Design-to-Value determine which alternative is valued by the

customer and increases profitability
Supporting methods Extract
Price
Positioning

Sales Volume
Test

Price
Conjoint

Customer
Observation

Focus
Groups

Customer
Clinic

Design Study
Review

Customer
Survey

Test
Market

Cross-functional
Review

15

But: Successful Design-to-Value requires more than methods

Five elements are key to success
Success factors
I
The
right method

II
At the
right time

RESULT
EFFECT

> BETTER
TRANSPARENCY

V
Applied consistently
and stringently
IV
With the
right team

III
In the
right sequence

SATISFIED
CUSTOMERS

> BETTER
ALTERNATIVES
> BETTER
DECISIONS

INCREASED
PROFITABILITY

16

Our experience indicates that Design-to-Value offers a potential

EBIT contribution of 20-30% on product level
Typical financial benefits on product level [index; %] Not cumulative
N t sales
Net
l

C t off goods
Cost
d sold
ld

EBIT contribution
t ib ti

+5-10%

Customer
view

100

105-110

-4%-7%
+20-30%

Company
view

39

"Old"
Old

"New"
New

"Old"
Old

36-37

"New"
New

22

26 28
26-28

"Old"
Old

"New"
New

Note: Excluding other expenses (e.g. selling)

17

C. HOW Implementation of Design-to-Value

18

Step 1 Establish a burning platform

KEY ISSUES TO COMMUNICATE

> What is the problem, e.g.
Complaining customers
Crashing sales
Crumbling margins
> How does it affect us
> How severe is it
> What are possible consequences

Achieve a common understanding!

19

Step 2 Set up a change management roadmap

CHANGE MANAGEMENT
> Addresses four elements
CONTENT "Should do!"
COMMITMENT "Want to do!"
CAPABILITIES "Can do!"
CULTURE "Allowed
Allowed to do!
do!"
> Is systematic and pragmatic
> Combines "hard" and "soft" factors
> Starts immediately

Take it serious!

20

Step 3 Customize the Design-to-Value approach to your needs

KEY ASPECTS OF APPROACH

> Tie the approach into your
processes
> Identify most effective methods
> Define when methods are applied
and in what sequence
> Determine who is involved with
which roles & responsibilities?
> Ensure consistent set-up and
stringent
ti
t implementation
i l
t ti

Develop YOUR approach!

21

Step 4 Sustainably anchor the Design-to-Value approach

SUSTAINABILITY CORNERSTONES
> Strategy Integrate in company strategy
> Processes Align approach with current
development process and methods
> Organization Integrate in organization
and define roles & responsibilities
> Controlling Implement consistent and
reinforcing KPI system
> Qualification Set up training and integrate
in corporate training program
Systemss Se
Set up systems
sys e s aallowing
o g eefficient
ce
> Syste
application in daily work

Make it sustainable!

22

D. CONCLUSION Summary & outlook

23

Design-to-Value is a powerful approach and embraced by leading

companies
Summary
Design-to-Value
is a powerful & robust methodology
synchronizes customer & company perspective
delivers products with the right features at the right costs
makes your customer happy & increases your profitability

24

 but some companies are already tackling the next level

Focus on product design

VALUE
VALUE

Design-to-Value
(DtV)

COSTS

Focus on product value chain

Product
Value
Management
(PVM)

> Maximize product

profitability along
entire "product P&L"
> While keeping
customers happy

Design-to-Cost
(DtC)
TODAY

TOMORROW
25

Contact

OLIVER KNAPP
PRINCIPAL
Operations Strategy
Competence Center
Phone: +49 (711) 3275-7213
E mail: oliver
knapp@de rolandberger com
E-mail:
[email protected]

26