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]
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