How to Integrate Enterprise Cost-Savings with New Product Development and Innovation ProgramsIncrease Profit Margins with Integrated Cost-Savings, NPD and Innovation Portfolios

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How to Integrate Enterprise Cost-Savings with NPD and Innovation Programs

Executive Summary

What Do Cost-Savings Programs Have to Do with Innovation and NPD?

Benefits of Integrating Management of Cost-Savings and Innovation Portfolios

How to Manage Enterprise Cost-Savings within NPD/Innovation ProgramsSet Up a Cost-Savings Process ModelIdentify and Add MetricsManage an Integrated PortfolioManage Your Resources (Scenarios and What-If Analysis)Make Provision for High Volumes of Small ProjectsMake Provision for Projects that Affect Multiple Products

How Sopheon Can Help Increase Profit Margins with Integrated Cost-Savings and Innovation PortfoliosNext StepsReference Notes

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Table of contents

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How to Integrate Enterprise Cost-Savings with NPD and Innovation Programs

A growing number of Sopheon customers are realizing great benefit from extending the use of Accolade innovation management software to the management of their cost-savings programs.

Executive SummaryThe news is everywhere: rising and volatile commodity costs; decreasing disposable income resulting in increasing consumer cost-sensitivity; companies struggling to meet profitability goals despite achieving revenue objectives. As a result, cost-savings initiatives are at the forefront of many organizations’ tactical and strategic plans.

A growing number of Sopheon customers are realizing great benefit from extending the use of Accolade® innovation management software to the management of their cost-savings programs:

• A multi-national food company saved $280 million in supply chain costs.• A global beverage producer made improvements in operating practices and

organizational structure that are expected to produce incremental cost savings of $1.5 billion by 2014.

• Another major manufacturer implemented cost-savings initiatives that increased the after-tax income from its stock by nearly 50 percent per share in only one year.

While designed to automate product development processes and to optimize product portfolios, Accolade Process Manager™ can easily be extended to the management of cost-savings initiatives for:

• Establishing a structure for capturing and evaluating cost-savings initiatives enterprise-wide.

• Ensuring that cost-saving initiatives are aligned with strategic priorities.• Prioritizing cost-savings efforts based on their expected business value.• Making faster, superior utilization of resources across cost-savings and innovation

projects with full knowledge of shared dependencies and trade-offs.• Enabling brand managers to review cost-savings projects as part of an integrated

presentation of elements affecting their product lines.

This paper describes some of the practices used by our customers for managing their cost-management initiatives. In particular, it sheds lights on the value they are seeing from reviewing their cost-management programs in the context of their innovation pipeline. These Sopheon customers used tools and techniques based on standard Accolade capabilities with proper configuration. This paper will discuss the approach, process and techniques in a general context of how companies can integrate management of cost-savings projects into overall new product development and innovation programs. Doing this enables the decision-support and visibility needed to effectively manage your business and product portfolio in these challenging times.

What Do Cost-Savings Programs Have to Do with Innovation and New Product Development ?Sopheon has long recognized that new product development (NPD) is not the only type of innovation that matters to our clients. Sopheon’s Accolade product family is used by companies around the world to manage technology platform development, product lifecycle management, long-term product planning, idea campaigns, and cost-savings projects.

Many of our customers understood early on that cost-savings programs share a number of “touch points” with NPD initiatives; touch points that require coordination and prioritization.

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How to Integrate Enterprise Cost-Savings with NPD and Innovation Programs

Cost-savings projects provide funding for innovation. As companies strive to respond to unstable market conditions, cost-savings programs have increasingly become an area of focus. The resultant savings often serve as “fuel” for new product development investments. When, as part of these efforts, business leaders choose to share forward-looking cost-savings objectives with external stakeholders, the need for clear visibility into the state and impact of cost-savings portfolios is vital.

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Project teams are challenged with cross-functional collaboration and communication. We have found that often there is no single group that owns cost-savings projects. Rather, projects are assigned to cross-functional cost-reduction teams with ownership distributed throughout the organization. This mirrors the cross-functional nature of innovation and new product development project ownership, and presents the same communication and collaboration challenges.

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Cost-savings and NPD projects compete for the same resources. Cost-savings projects are not executed in a vacuum. They often share and therefore compete for resources with innovation projects. For instance, brand managers tasked with increasing revenue from new products are also responsible for improving margins on existing products by lowering costs. And factories, supply chain personnel, quality assurance teams and IT resources that are impacted by cost-savings projects are expected to support new product development projects as well. These shared dependencies are not always explicit, but when there aren’t sufficient resources to go around, the two areas end up quietly undercutting one another, resulting in performance lags and missed goals.

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Project ownership varies by organization and project type. Ownership of cost-savings projects varies from organization to organization and from project type to project type. Typically we see a combination of the following scenarios:

• The product or brand manager is often responsible for cost savings as part of his/her overall objective to improve margin contribution.

• Product and packaging engineering is responsible for projects where the product or packaging design is changed to reduce overall costs.

• Supply chain is typically responsible for finding alternative suppliers or third party manufacturing partners to help reduce costs in ways that do not affect the final product.

• Plant engineering at the various manufacturing locations is responsible for identifying new manufacturing procedures that will help reduce runtimes, increase yields, and impact other metrics that can lower overall product costs.

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With these dependencies and cross-overs in mind, cost-savings projects should be thought of in the overall context of revenue generation and profitability. New product development is primarily about revenue enhancement – the development and launching of new products designed to increase revenue. Cost-savings is primarily about margin enhancement – the development and launching of new techniques, product changes, supply chain changes, and improved manufacturing procedures that increase profitability arm-in-arm with increasing revenue.

Organizations need a complete view of all the work that affects their products to manage their cost-savings and new product development projects as a single portfolio of projects.

New product development is primarily about revenue enhancement. Cost-savings is primarily about margin enhancement.

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Benefits of Integrating Management of Cost-Savings and Innovation PortfoliosAn integrated approach to, and integrated processes for management of, cost-savings and innovation portfolios enable the following benefits:

A holistic view: Common views are required to manage multiple programs in a broad context of strategic goals and shared dependencies across the business. Through the use of dashboards, proposed enterprise cost-savings programs can be assessed and relevant issues, new opportunities or gaps identified in a matter of minutes.

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A structure to capture and evaluate cost-savings initiatives: Program owners must be enabled to capture all cost-savings projects and project details from all cross-functional leaders that play a role in such initiatives, regardless of where they are located organizationally or geographically. Project deliverables should be submitted and statuses updated with little or no travel or face-to-face coordination. Furthermore, the system should provide stakeholders with visibility to those components of the cost-savings portfolio that are most important to them—executives can easily monitor the company’s performance against the plan over time; the cross-functional project owners are provided with views such as “by brand”, “by product line”, “by factory”, “by technology”, etc. Each function across the organization sees what it needs to bring alignment and avoid conflict in execution of the corporate plan.

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Better allocation of resources: Eighty percent of innovation executives say they have a gap in alignment between corporate strategy and operational priorities and activity.1 This is often the root cause when innovation initiatives are unexpectedly affected by corporate cost-savings programs. Segregated systems, with new product development being managed in one system and cost-savings in another, ignore the resource dependencies between the two groups of projects. Only by incorporating all project-related data into a single source of truth for project status, progress, budget, benefits, resources, etc. can an organization view all cost-savings projects in the context of one another—including innovation initiatives that depend on similar resources. This sets the stage for making appropriate trade-offs between investments in cost-savings vs. revenue-enhancement projects.

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Prioritization of cost-savings efforts based on business value: With an established, consistent process for managing cost-savings programs in place, companies can quickly rank the business value of these programs by looking at multiple metrics simultaneously.

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Faster, better cost-savings decisions: Cost-savings programs are a priority for most companies as the savings go directly to the bottom line. Improving management of these programs will generate positive business results more efficiently and more quickly.

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Managing cost-savings projects as part of your overall innovation and new product development portfolio enables the decision-support and visibility needed to effectively steer your business in challenging economic times.

How to Manage Enterprise Cost-Savings within Innovation/New Product Development ProgramsBelow we outline six steps we recommend that you follow for optimal results in managing enterprise cost savings in an integrated strategy with innovation and/or NPD programs.

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STEP 1: Set Up a Cost-Savings Process Model

There are two types of cost-savings projects—those that impact the customer or consumer perceptions of the product, and those that don’t. The nature of the projects will dictate the appropriate process to use for managing them.

Where you believe that the customer would be affected (in this case, customer could mean either the person who purchases your product or the person who uses your product), the project should be run through your standard (gated) new product development process. If the cost-saving effort involves something as simple as an ingredient change (e.g., smaller peanuts) or a packaging change (e.g., packaging cameras in plastic instead of cardboard boxes), in most cases you should consider running the project through an express process (typically comprising three stages).

Projects focused on pure cost savings through changes that are transparent to the customer or consumer (e.g., switching to an alternate supplier, improving a manufacturing process, or perhaps changing the manufacturing location) could be managed with a purpose-built process specific to cost-savings initiatives. In some cases they can be managed without any process at all. Either way, the investments and rewards associated with these projects should be tracked and made visible to the organization.

A straightforward three-stage model like that shown in Figure 2 will meet the needs of most organizations for cost-savings project management. In our experience, a process such as this is adequate for most cost-savings projects. Since such projects are often highly technical in nature, a common approach is to minimize the number of deliverables required; focus on the financials, risk, and timing; and use either ad hoc activities in the process or related documents to store key project information.

A specialized cost-savings process model will typically not include marketing activity, as the work is focused on the financial benefits that can be achieved through each project. Bear in mind that if you believe that market analysis of the proposed change is

Figure 1: Guide to selecting a process. Where cost savings impact the customer or consumer experience or perception, a new product process is the most appropriate. Where cost savings have no such impact and are transparent within the product or to its consumer, a specialized cost-savings process is best.

The appropriate process to use for managing cost-savings projects should be dictated by whether or not they impact the customer or consumer perceptions of the product.

A specialized cost-savings process model will typically not include marketing activity, as the work is focused on the financial benefits that can be achieved through each project.

Type 1: Cost-Saving Impacts the Customer

Type 2: Cost-Saving Does Not Impact the Customer

1. Project changes the Bill of Materials

2. Project changes the customer or consumer experience with the product

3. Project changes the customer or consumer perception of the product

4. Project could affect the pricing of the product

5. Project changes the material supplier without affecting product quality or characteristics

6. Project changes the manufacturing process without affecting product quality or characteristics

Impact: Project should be subjected to consumer insight or customer review before going to market

Impact: Changes in the product are completely transparent to the customer or consumer

Best practice: Use the appropriate new product development process

Best practice: Use a specialized cost-savings process

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required—as would be the case if a change impacts the consumer’s experience with or perception of the product—you should be using your standard NPD process. In such instances you will want to add “Cost-Savings” to your list of project types in order to distinguish which NPD projects are new product or product improvement projects, and which projects are cost-savings projects.

When using a cost-savings process model, scorecards remain an important tool. They are essential for effectively assessing the non-financial benefits of proposed change(s). In addition, they are often employed by the supply chain to determine the strengths and weaknesses of alternate suppliers, and to support decision-making around project prioritization and staffing.

STEP 2: Identify and Add Metrics

One of the basic but tricky things to consider when appending metrics to your cost-savings process is how to best compare cost-savings projects with revenue-enhancing projects (NPD) projects. This is an integral aspect of being able to effectively manage your combined portfolios of projects. The short horizon of cost-savings projects is difficult to compare with the longer horizons of NPD projects. In most cases it makes sense to look at the first 12 months of savings for a cost-savings project compared to the first 12 months of revenues in an NPD project. This provides at least a basic “apples-to-apples” picture of the relative short-term value of the projects to help support prioritization and the analysis of resource trade-offs between projects of different types.

Financial metrics you may want to consider include:

• Net present value (NPV) and expected commercial value (ECV): Discounted cash flows can work if the time frames for the financial analysis are similar between the cost- savings projects and new-product projects.

• Margin contribution: This can work well as a short-term comparison between new revenue and cost savings.

• Total cost savings: The amount of cost taken out of product can be used to compare cost-savings projects against one another or against cost-savings goals.

It is important that metrics go beyond financial measurement. Key scorecard values such as strategic fit and importance to the organization must be taken into account. When resources are in conflict, a product development project or new technology plat-form project with a high level of strategic fit should be weighted more heavily than an

Figure 2: A sample cost-savings process model. These models tend towards simplicity, involving a limited number of templates and deliverables due to the high variability of cost-savings projects.

Regardless of whether a project is related to NPD, technology development or cost savings, judgment of its merits must be based both on financial considerations and how well it supports the organization’s strategic goals.

CharterBusiness

Case/FeasibilityImplement

and Monitor

• Projects Charter (Problem/Benefits)• Initial Financials• Scorecard• Initial Timeline

• Refined Financial Analysis• Verification of Scope• Scorecard• Success Criteria• Risk Assessment• Vendor/Partner Assessment• Test Plan

• Final Execution Plan• Track Actual Benefits• Plan For Further Improvement• Lessons Learned

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attractive cost-savings project. Once you have selected the metrics, you need a quick and simple method to input and update critical project information. The ability to take regularly-scheduled snapshots of the database (monthly, weekly, etc.) allows you to track historical and trending information.

STEP 3: Manage an Integrated Portfolio

The importance of aligning project investments with strategic objectives has been stressed a number of times in this paper. Regardless of whether a project is related to new product development, technology development or cost savings, judgment of its merits must be based both on financial considerations and how well it supports the organization’s strategic goals. Again, the only effective way of doing this is by develop-ing portfolio views that provide visibility into all projects regardless of type. This brings us to the importance of a unified approach to innovation management. Keeping all of your projects in a single system allows users to go to one place to manage their project information and leadership to go to one place to see all of the activity that affects their product lines, business units and cost-savings projects.

a. Cost-Savings Portfolio Views

The first level of visibility that is useful is the portfolio of cost-savings projects. It pro-vides insight into the products and facilities impacted by the projects. Figure 3 shows a sample view that lists all cost-savings projects with attributes for the business unit, product line, or even the facility affected by the project. In this instance, the cost- savings projects are summarized by product line. However, the view can be adjusted easily to present the projects by brand, facility, etc.

A view could also summarize projects by product types or groups. For example, a food company that we work with uses brands as its market-facing classifications, but its R&D and operations groups think in terms of internal classifications for product plat-forms such as Shelf-Stable, Frozen, Fresh, etc. This manufacturer implemented paral-lel reports that organize their cost-savings projects both by market-facing and internal classifications. Properly organized views of cost-savings portfolios provide for better management of project investments, helping to optimize returns and improve visibility into the products and facilities they impact.

Figure 3: A sample view of a cost-savings portfolio. This simple project listing can be rolled up by product line, brand or facility.

A portfolio view of all cost-savings projects provides insight into the products and facilities impacted by those projects.

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How to Integrate Enterprise Cost-Savings with NPD and Innovation Programs

b. Consolidated Portfolio Views

Although different types of projects can be handled using simple processes within separate silos, an integrated portfolio provides the one version of the truth required for effective decision-making.

Consolidating project information in one place creates a corresponding need for single-source reporting and decision-support tools. Some examples of consolidated views that are useful to decision-makings are shown in Figure 4. These include looking at the levels of investment or expected returns from different types of projects. While growth projects like new product development typically generate the bulk of returns, seeing how much cost-savings and maintenance projects contribute to the portfolio value provides powerful integrated portfolio decision-making capabilities.

Many organizations may choose to filter this type of view by product line or brand, allowing more refined drill-down into the project mix that supports the goals and objectives of each business. This type of view into investment levels highlights the trade-offs that have been made in selecting projects for investment, and is critical to understanding the overall landscape of innovation investments.

A consolidated view that highlights the trade-offs that have been made in selecting projects for investment is critical to understanding the overall landscape of innovation investments.

Figure 4: Examples of consolidated portfolio views. Shown here are a breakdown of investments by project type, and the revenue or margin contribution for each. Note the downward trend in the income forecast; this is explained by the fact that the view shown here includes only active projects and not income from in-market products or ideas that have not yet entered into the product development process.

STEP 4: Manage Your Resources (Scenarios and What-If Analysis)

Once all relevant project and resource information is stored in the portfolio database, advanced tools are used to analyze the implications of different portfolio scenarios across all the project types. This is an effective way of managing your innovation investments across the entire organization.

As illustrated in the view shown in Figure 5, prioritization of projects should be based not only on financial benefits, but also on the expected impact of cost-savings projects and new product development projects on the resources that are shared across project types. Separate, discrete systems do not provide the level of overall visibility and decision-support required to ensure that the right projects are being funded, regardless of project type.

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How to Integrate Enterprise Cost-Savings with NPD and Innovation Programs

Figure 5: An Accolade screen showing allocation of resources across all projects, irrespective of project type.

STEP 5: Make Provision for High Volumes of Small Projects

Cost-savings projects often require special handling for a number of reasons:

• There may be a very large number of small projects.• Projects are often managed in manufacturing facilities.• Projects are often managed by teams that are process adverse.• The cost of administration must be lower than the value received by tracking these

projects in a consolidated portfolio.

The above conditions are not unique to cost-savings projects; we see them in NPD projects as well. However, cost-savings projects seem to exacerbate these issues, calling for the development of procedures specifically formulated to deal with them.

If project leaders and team members perceive tracking cost-savings projects as overly burdensome, even a simple three-stage process may be overkill. Rather than trying to manage these projects in a multi-stage process, consider managing them in a one-stage process with few or no deliverables. You need the flexibility for a good “low-friction” solution depending on varying circumstances.

There are other ways to deal with a large volume of projects that do not call for individual tracking but whose aggregate value and investment requirements must be reflected in the portfolio. One of the most effective is to create a single administrative project that contains many smaller projects. An example of this approach would be to list all the small projects in progress at a single manufacturing facility, or a collection of projects where a single change is being rolled out in phases.

STEP 6: Make Provision for Projects that Affect Multiple Products

Projects that affect many products—potentially across multiple product lines and brands—might be either pure cost-savings initiatives or NPD projects that promise to result in cost savings. Whichever is the case, special procedures are required to manage this type of project efficiently.

Although implementing a product change may be a single engineering project, the reality is that only a limited number of new product releases can be handled at one time. For this reason, these projects are often treated as a series of projects called “waves”, “pulses” or “phases”. Each phase affects some group of products; when that phase is complete, a new group of products is released. A “launch-only” process may be required to manage the subsequent releases.

Be sure to implement “low-friction” procedures to manage and execute cost-savings projects.

Special procedures are required to effectively manage projects that affect multiple product lines or brands.

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These are some of the most complex projects to manage. The cost of the change and benefits of the change may occur at different times, and the financial analysis will have to take that into account. You may need to work with your finance group for guidance on how to handle this, but you will likely need to be able to “stage” the benefits as the different waves are launched.

When this kind of project affects multiple product lines or brands, the benefits may need to be apportioned across all product lines or brands. This may require financial benefit and even cost metrics for each product line or brand. These metrics can then be used to provide a true view of how the cost-savings projects affect the businesses.

How Sopheon Can Help Your Company Increase Profit Margins with Integrated Cost-Savings and Innovation PortfoliosSopheon offers the industry’s only end-to-end solution for defining, aligning, and managing activities across the entire innovation and new product development lifecycles. Our flagship software system Accolade was designed from the ground up to guide and facilitate high-value product innovation and new product development. It supports all four core innovation-related business process areas: innovation planning, product portfolio management, ideation, and structured/gated process execution. It enables companies to make better decisions about which product ideas to invest in, helps align resources with those opportunities, and accelerates their movement to market.

Everything you have read in this paper has been done successfully by Sopheon customers using Accolade.

Sopheon has helped a growing number of customers to realize great benefit from extending the use of Accolade beyond innovation management to the management of their cost-savings programs. Leveraging the expertise gained from working with these companies, we can offer practical assistance to your organization in a number of ways to improve the management and impact of both your innovation and cost-savings programs. Among other benefits, Accolade for Cost-Savings can do the following:

Create a clear understanding of the corporate cost-savings plans across all relevant internal and external stakeholders.Reduce the time and administrative effort required to create and manage cost-savings programs through automated collaboration and reuse of information.Visualize all enterprise cost-savings programs in the context of the broader portfolio that depend on similar resources, and organized across common strategic metrics.Help you to prioritize cost-savings programs based on the highest impact to the company.Support better resource allocation between cost-savings and innovation initiatives by presenting a common view to these projects.Provide cross-functional visibility into cost-reduction activities.Allow cross-functional teams to fully adopt your innovation process.

In addition to the Accolade software system for managing activities across the entire innovation and new product development lifecycles, Sopheon’s services team is available to work with you to develop integrated portfolio, innovation and cost-savings processes specific to your needs and circumstances.

Leveraging the expertise gained from working with a growing number of customers, Sopheon can offer practical assistance to your organization to improve the management and impact of both your innovation and cost-savings programs.

Sopheon can assist in developing integrated portfolio, innovation and cost-savings processes specific to your needs and circumstances.

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How to Integrate Enterprise Cost-Savings with NPD and Innovation Programs

We encourage you to engage us in a further discussion of these possibilities. A fully integrated innovation pipeline that contains three major types of projects—new product development, technology platform development, and cost savings—is critical to providing the decision-support and visibility needed to effectively manage your business in challenging times. Accolade can support cost-savings projects as part of your complete innovation and new product development portfolio.

Reference Notes1 Halpern, M. (2008) “Expand Markets Yet Reduce Costs with Winning Product Portfolios”, Gartner

We can offer practical assistance with managing your cost-savings projects. Contact us on info@sopheon.com to learn more.

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About Sopheon

Sopheon partners with customers to provide complete Enterprise Innovation Performance solutions including software, expertise, and best practices to achieve exceptional long-term revenue growth and profitability.

Sopheon’s Accolade® solution provides unique, fully-integrated coverage for the entire innovation management and new product development lifecycle. For the first time, businesses can access a single source of the truth across Strategic Innovation Planning, Roadmapping, Idea and Concept Development, Process and Project Management, and Portfolio and In-Market Management.

Sopheon’s solutions have been implemented by over 200 customers with over 60,000 users in over 50 countries, including industry leaders such as BASF, Corning, Electrolux, Honeywell, Northrop Grumman, PepsiCo, Philips, Total Petrochemicals and many more.

For more information on Sopheon and its software and service offerings, please visit www.sopheon.com

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