Hitachi Consulting

Product Portfolio Management:
Launching the right products at the right time
Michael Burkett Vice President AMR Research April 11, 2006 Keith Williams PLM Competency Leader Hitachi Consulting

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Agenda
New product launch is a business imperative Product Portfolio Management and PLM Benefits realized from improved product launch

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Product launch success is a CEO’s concern
GE – Innovation is key to growth
» “We’re all just a moment… away from commodity hell…the only reason to invest in companies…is their ability to innovate.”
Jeffrey Immelt, Chairman & CEO, GE

Pfizer – New product shortfall blamed for issues competing with generics
» Net income falls 3.3%...revenue declined 8.9%...rising pressure from generics, a shortage of new drugs to replace fallen blockbusters and pressure on prices around the world (WSJ 01/20/06)

Motorola – Speed getting cell-phones to market
» “Execution is not what it should be…a great product…should have been out a while ago, and we should have been marketing the heck out of the thing. “ Ed Zander, CEO Motorola (WSJ 12/17/03)

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Balancing act of profitable growth
High
Market Growth Risk
• High margins • Low market acceptance
Sustainable Business Growth

Shareholder Value • ROI
• ROA High Risk Declining Business

Profit Growth Risk • Rapid sales increase
• Unacceptable margins

Low
Product Superiority • Customer expectations • Reliability & performance

High

Source: AMR Research, 2005
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Top reasons why product launches fail

Late to market / missed demand Pricing Product quality Doesn’t meet customer needs Commercialization or promotion No clear product differentiation Inadequate distribution channel Product availability issues Regulatory issues Other
4% 22% 20% 17% 17% 15%

32% 31% 30% 30%

Source: AMR Research, 2006

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Poll Question?
Who owns success or failure of NPI in your company?
1. 2. 3. 4. 5. Marketing Product Development Supply Chain Program Management Office Other

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PLM: The Applications

Product Lifecycle Management CEO Facing
Product Portfolio Management
NPDI Intelligence Program Management Project Management Reporting

Supplier Facing

Direct Materials Sourcing
Strategic Sourcing Component & Supplier Management RFx Management Change Management

Customer Needs Management

Creation

Requirements Management Preference Analytics ETO/BTO/DTO

Customer Facing

Collaborative Product Design
Product Design Tools Process Engineering Visualization CAD-to-CAD integration

Product Structure (BOM) Document Management Engineering Change Mgt

Product Data Management

Product Data Publishing Service Parts Records Configuration Management

Product Information Repository
Source: AMR Research, 2006
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Fuzzy-front-end through product launch
Customer Driven Input

Program / Product Portfolio Management •Project Dashboard & Portfolio Analytics

Idea Discovery

Concept

Feasibility

Design

Launch

Internal / Technology Driven Input

Platform Roadmap •Concept BOM’s and Designs

“Fuzzy-Front-End” of New Product Development

Align Customer Needs / Product Features •Requirements Management

Filter Ideas • Idea Management

Source: AMR Research, 2006
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Do you need PPM? – A diagnostic
Characteristics to look for: Product delivery deadlines missed Unable to prioritize the most important projects No visibility to evolving program risks Skilled R&D resources working excessive overtime Marketing promoting unavailable products Lost major customer due to poor resource planning

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AMR Research Hierarchy of Product Metrics What it tells you
Strategic Benefit
New Product Forecast Accuracy Innovation Innovation Benefits Investment

Predictable returns to shareholders

Time-to-Value

Time to Value Time to Time to Market Breakeven Design & Launch

Capability to respond to market opportunity

Operational Excellence

Product Planned vs. % Customer Actual Design Pipeline Needs Met Manage Budget / Sched. Post Launch New Product Detail Planned vs. Actual Mfg/Cycle Time

Part & Process Reuse

First Pass Yield

Stability of processes driving value

Engineering First Year Changes Field Returns

Cost Detail
Source: AMR Research 2006
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Basic best practices in setting up measures
Define who is reading the measures
» What action will be taken » Roles and accountability

Identify many but reduce to a critical few metrics
» Key outputs and causal factors » Process execution vs. management measures

Automate data collection and reporting
» Imbed the collection into the system » Report only what matters to avoid overload

Corrective action and next steps
» Take action on the measures » Asses if the right metrics are in place

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Benefits realized - Cases
Cell phones -2X increase in products launched TTM reduced 50% Food products - 25% value increase on 40% fewer projects Specialty materials - 40% increase new product revenue Specialty Chem - 20-30% margin imprv. & 15% pipeline productivity

Process Benefits (risk reduction)
» Med. Device - Monitor metrics to determine cause & effect in NPD » A&D - Manage globally distributed Integrated Product Teams » Tier 1 Auto – APQP process for supplier qualification on NPD

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Summary
Product launch success is an executive concern Balance return on R&D with product innovation Identify and monitor top reasons for product launch failure Product Portfolio Management is within a PLM strategy Define PPM stakeholders and process before technology Manufacturers are seeing benefits today

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Thank You!

Michael Burkett Vice President mburkett@amrresearch.com

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Maximizing Your Product Portfolio
Presented by: Keith Williams, Senior Manager - Hitachi Consulting Mike Burkett, Vice President – AMR Research

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Product Introduction and Product Management success continues to decline

Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

* Worst Case is a 40% drop in success..

* Average success rate is 50%

Source: Data from AMR Research and others…

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Symptoms of a poorly tuned portfolio
Products are released into the market and do not meet the business objectives
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

Research and Development budgets are repeatedly exceeded Product ideas get killed very late in the development process Cost overruns on new product development projects Product ideas that should have been developed never see the light of day Lack of balance in the portfolio: » Not enough ideas in the pipeline » Stale products in the market place Lack of available resources for the products that could have the most potential impact

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Product Portfolio Management - Challenges and Common Mistakes
Strategy
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

» Lack of clear product strategy for new, existing, and retiring products » Product strategy is not aligned with the business’ objectives » Strategy is not communicated and followed Mix » Mix of products do not support business and product strategy » Reluctance to kill projects » Reluctance to sun-set projects (no clear end of life strategy) Volume » Not enough volume of ideas in the pipeline » Release to market based only on speed and not proper planning » Release too many or too few new products into the market place

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Product Portfolio Management - Challenges and Common Mistakes
Definition of Portfolio Management Portfolio Management Issues Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

Execution » Lack of a decision based stage gate process to manage the portfolio » Lack of clear decision points in the process » Lack of integrated communication between functions in the process Quality » Ramp to volume and design for manufacturability not managed or considered » Speed to market as the key driver » Lack of integration and check points in the process Communication Collaboration » Lack of communication protocols between functions in the process » Information is in silos and not available for key resources » Communication is ad-hoc and not structured

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PPM Objectives for a success future…
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

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Introduction of Product Portfolio Management as a critical component of Product Lifecycle Management
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

True Product Portfolio Management is a often overlooked yet extremely critical component of Product Lifecycle Management

2

Product Portfolio Product Portfolio Management Management

Innovation/Ideation Innovation/Ideation

1

2

Product Portfolio Product Portfolio Management Management

3

Project Portfolio Project Portfolio Management Management

Product Development Product Development

4

5

Project Execution Project Execution and and Management Management

1 The Development of New Product Ideas
Product Lifecycle Management

2 The Management of New Product Ideas and Existing Products 3 The Process and Project Management for the Release of New Products 4 The Translation of Product Ideas into a Saleable Product 5 The Care, Feeding, and Ultimately Retirement of Existing Products

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Simple Formula for Improving Product Portfolio Management Performance
Analyze Your Surroundings 1 2 Define Your Identity 3 Rally Around Your Identity

Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

Step 1 – Analyze Your Surroundings » Analyze where your winning and where your losing in your market » Analyze your skills but be weary to only focus on your perceived core-competencies Step 2 – Define your Product Identity » Define how you want to attack the market » Define your product identity…Innovator or Executor Step 3 – Rally Around Your Focus » Align your business and product strategy to your focus » Align your resources to your focus » Align your processes and technologies to enable you to execute ruthlessly

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Step 1 – Analyze your Surroundings
Analyze your business strategy
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

» Analyze and understand your Business Strategy » Analyze how your current Product Identity and Portfolio support the business strategy » Define the gaps Analyze the trends in the market place » What direction is the market moving » What are the requirements in the market » Analyze the balance in your existing portfolio Analyze the competition » Analyze and understand where they're focused » Analyze and understand why you beat them and why they beat you » Analyze where they’re going next Analyze why you fail » Analyze why products you’ve released into the market have failed and learn from them » Analyze if your still making mistakes

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Step 2 – Define Your Product Direction and Identity
Understand from your analysis who you are today
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

» From your analysis map where your focus is today… » Determine if your focus supports your goals Define who you will be tomorrow » Define how you want to attack the market … (Innovator or Executor) » Define where you’ll focus your strategy, resources, processes, and technologies to support for direction and identity Articulate your vision » Document the clear definition of your vision » Clearly and frequently communicate your vision Define the success factors » Define what success means » Define a series of metrics that indicate success

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Common Product Portfolio Management Metrics
Common Product Portfolio Management Metrics
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

» TTM – Time to Market » TTP – Time to Profit » Slip Rate » Target Unit Costs, Price, and Profit Accuracy » Volume Accuracy » Specification Changes » First Pass Success » Training Level and Channel Effectiveness » Budget Accuracy » Etc…

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Step 3 – Rally Around Your Identity
Assure adequate resources to achieve your vision
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

» Provide the appropriate resources to assure success:

• Human Capital, Facilities, Partners, R&D and Product Management Budgets, etc.
Define, develop and deploy processes that support the vision » Define, develop, and deploy cross functional collaborate stage gate processes Define, develop, and deploy enabling technologies that support the vision » Deploy technologies that help with all aspects of your new vision:

• Ideation and Idea Capture. Portfolio Management and Analysis, Product
Execution. Etc. Execute relentlessly » Adhere to the vision…execute…communicate…measure

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Enabling Technologies
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

PLM> Innovation Management

PLM > Product Portfolio Management

PLM > Project Portfolio Management

PLM > Product Development and Execution

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Product Portfolio Management – Improvement Case Studies
Companies like Apple use true Innovation as a mechanism for capturing market share
Portfolio Management Issues Definition of Portfolio Management Strategic and Tactical Steps for Improvement Tools for Improving Portfolio Management

Companies like Dell use execution and operational excellence as a portfolio tool for capturing marketing share Companies Toyota are gaining market share by using quality and the voice of the customer to gain market share Others are using true disynchronous innovation and portfolio management as a way to capture market share » ESPN Phone » Apple iTunes

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Your Questions Our Answers

Hitachi Consulting’s Product Lifecycle Management Competency:
» Keith Williams at krwilliams@hitachiconstulting.com

AMR Expert Analysis:
» Mike Burkett at mburkett@amrreasrch.com

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