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Next Generation Innovation:Decision Support Across The Value ChainMike BurkettVP Research Value Chain StrategiesAMR Research
Driving for Continuous Innovation
Keith DishnoIndustry Solutions Professional
Product Innovation
Kevin Burkett- AMR Research Vice President
Pete ThompsonGeneral Manager - Surface Computing, Microsoft
Herman HarwellSenior Member, Global Operations Manufacturing Engineering Organization - Applied Materials
Driving for Continuous Innovation
AMR ResearchAn independent company of experts who advise decision makers
Independence – We have no vested interest in the decisions to which we lend adviceOn what? – We research the intersection of business process with supply chain and enterprise technologies
Since 1995, we have published close to 14,000 pieces of research and conducted over 10,000 primary interviews
For whom? – Operations and I.T. executives in the following industries
Manufacturing (13 of top 15 discrete manufacturers)Consumer Products (16 of top 20 firms)Life Sciences (13 of top 15) Retail (14 of top 20)
How? – Through retained advisory services and peer networking forums
Agenda
Innovation business environmentTrends and priorities for successTechniques and transformation stages
Innovation Is An Executive Concern
Qualcomm – Global Design Teams meet world demand
…added engineering teams …new groups will help us …provide complete system solutions to… worldwide marketplace.” (Letter to Stockholders - Qualcomm 2004 Annual Report)
Palm – New product delays impact stock value "Uninspired product launches suggest a weak new product engine and have reduced Palm's differentiation …" he said in a downgrade of the stock issued Sept. 10. He said improvements wouldn't come for another 12 months. (Jeffrey Kvaal Lehman Brothers Holdings Inc. WSJ 09/19/07 “Palm Bets Big on New Phone”)
Procter & Gamble – External innovation fuels growth
…inventors are evenly distributed in the population…as likely to find invention in a garage as in our labs…(A.G. Lafley – CEO P&G, Fortune 05/04)
Evolving World Of Innovation
New approaches to improve R&D returns Driving open innovation Design outsourcingBorderless innovation
Creativity applied in a business contextFrom Six Sigma DMAIC to CENCORShift from brand manager to innovation managerAnthropology and consumer insight
Product modularity and the risk of interfacesFrom systems engineer to systems managerExperimental learning, validation, and corrective actionInterdependencies shared across the supply chain
Challenges For Delivering Innovation
Contract manufacturing integration – (Microsoft, all high-tech)Global design centers – (Qualcomm and Phillips)Product lifecycle cost analytics – (Sony TVs)Rapid introduction of more variants – (Dell and Nokia)Software and electro-mechanical CM – (Sony Ericson)Compliance/RoHS – (Sony PlayStation)Portfolio Management and Optimization – (Micron, Sony Ericsson)
High Tech Margin Model
Mfg cost
Sell price
Compete on price
Compete with innovationCapture market share & margins
Time
Dolla
rs
Top Reasons Why Product Launches Fail
Source: AMR Research, 2006
32%
31%
30%
30%
22%
20%
17%
17%
15%
4%
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
PERFECT LaunchDemand driven supply networks
DemandMarket FeaturesPricing
SupplyCapacityFlexibilityQuality
ProductInnovationOptionsRoadmap
ROI R&D-Production- Marketing
ROA Intellectual Plant Inventory
Market Success Growth- On-time- Reliability
Measure
Define Design Promote Support Supply
Competencies
Requirements
Forecast
Availability
Specification
Capability
VoiceOf the
Customer
LeanSupply
Validate
Source: AMR Research, 2007
Innovation ExamplesEssentials for success
Customer focusIntel switch from speed to application segmentsElectrolux consumer insights and development teams
Capturing ideasGoogle 20% employee time pursuing ideasP&G Connect + Develop using innovation brokers
Joint value creationXM and Samsung Helix portable satellite player in 9 mo.IBM semiconductor innovation network
Speed right products to marketNissan 21 now 10 mo.Motorola 18 now 9 mo.
Research And Development Different processes
ExplorationExperimentalIterative learningUncertainty
ExploitationExecutionControlsLess risk
Source: Peter Koen, Front End of Innovation Conf. 2007. Blue Ocean Strategies, 2004
61% of profits14% of new products
Focus On The Right Ideas
“the goal is to focus on few very bold ideas that tend to work, as opposed to many, many ideas all over the place that tend to fail.” (Larry Keeley, President Doblin Group BW 8/1/05)
Design Proliferation Impacts Forecast Accuracy
Fuzzy-Front-End Through Product Launch
Program/Product Portfolio Management
Project Dashboard and Portfolio Analytics
Idea Discovery Concept Feasibility Design Launch
CustomerDriven Input
Internal / Technology Driven Input
Filter Ideas Idea Management
Align Customer Needs/Product FeaturesRequirements Management
Platform Roadmap Concept BOM’s and Designs
“Fuzzy-Front-End” of New
Product Development
AMR Research Hierarchy Of Product Metrics
What it tells youNew Product Forecast Accurac
yInnovatio
n Investme
nt
Innovation
Benefits
Strategic Benefit Predictable returns to shareholders
Time to Market
Time to Breakeven
Time to Value
Time-to-ValueCapability to respond to market opportunity
OperationalExcellence
New Product Detail
Planned vs. Actual Design Budget/ Sched.
Cost Detail
Part and Process Reuse
Planned verses Actual
Mfg/CycleTime
First Pass Yield
Engineering Changes
First Year Field
Returns
Design and Launch
Post Launch
% Customer
Needs Met
Product PipelineManage
Stability of processes driving value
Source: AMR Research2006
Open Innovation
Knowledge is everywhereCustomer, suppliers, brokers, universities
Alternative business modelsExisting paradigms may not work best
Rethinking product strategyModular architectures, components, integral systems
The new role of product researchKnowledge brokers, system managers
…win by making the best use of internal and external knowledge…combining…in new and different
ways to create new products or services…Open Innovation, by Henry Chesbrough
CaseOpen innovation and joint value creation
Boeing 787 Demand insight airline customers’ desire for fuel efficiency 160 risk sharing design partners to develop the new aircraft. Partners contribute light weight composites and electric drivesCut 12 mo. off dev. time, 20% off cost, 25% improved efficiencyThree different configurations available based upon customer requirements
Gaps In Contract Manufacturers Relationships
Collaboration Varies Across The Lifecycle
Define Design Promote Supply Support
Team space/NetMeetings
Adhoc discussion
MarketingEng.Business Strategy
Interactive design
Eng. Manf.Supply
Develop collateral for launch
Mktg.Eng.Channel
Ramp to volumeFinalize quotesContinuousimprovement
Customer and channel feedbackChange/ Enhance
E-Mail/Fax/Teleconference
Project/Portfolio Management
Product Data And Document Management
Analytics/Integration/Security
Interactive Viewing And Design
Workflow And Business Process Management
Data Capture/Forms
Product Launch Dashboards Differ Based On User Role
Define Develop Promote Supply Support
Cross-functional
Team
ProgramManager
ProgramManagement
Office
Product Portfolio Management
Project/Program Management
Product Development Execution
Foundation
IdeationRoadmap
Portfolio OptimizationPhase-gates
FinancialsRisk
Work-Breakdown Structure Skill-setsResource allocation Schedule
Visualization RequirementsPlatform-systems
Data capture Analytics SecuritySearch-retrieve Best-practices Collaboration
Role-tasksTeam Readiness
CapabilityChange notification
Team Execution
IntegrationContent management
CXO ROI R&D-Production- Marketing
ROA Intellectual Plant Inventory
Market Success Growth- On-time- Reliability
Enterprise Performance ManagementRole
Source: AMR Research, 2007
Innovation DashboardsWhere is the benefit?
Cell phones – 2X increase in products launched TTM reduced 50% Food products – 25% value increase on 40% fewer projectsSpecialty materials – 40% increase new product revenueSpecialty Chem – 20-30% margin imprv. and 15% pipeline productivity Tier 1 Auto – 400% increase in customer quotes Process Benefits (risk reduction)
Med. Device – Monitor metrics to determine cause and effect in NPDA&D – Manage globally distributed Integrated Product TeamsTier 1 Auto – APQP process for supplier qualification on NPD
Stages Of Maturity For New Product Launch
Product development operates in a silo and pushes innovation out in search of a market
to serve
I
Inte
rnally F
ocu
sed
Exte
rnally
Focu
sed
Cost Focused
Internal integrated product teams share a common set of product
information and standardized new
product introduction & launch practices
External supply partners become
integral to product innovation and
launch and demand analytics evaluate opportunity trade-
offs
Joint value creation by orchestrating the
innovation process across an extended
value chain and architecting products
and services that combine partner
expertise
II
III IV
Revenue Focused
Growth and Profitability Cost to ServeCost to Deliver
Demand Driven Value Driven
Customer / BrandDriven Efficiency
MarketsFocused
Source: AMR Research, 2007
Case Examples
Stage II – Customer/Brand EfficiencyGeneral Motors – 35% reduction in its global development
budget by consolidating over 1500 systems Procter & Gamble – millions saved using a global specifications d-base to rationalize items
Stage III – Demand DrivenLockheed Martin F35 JSF – military served by common design platform. Program coordinated across suppliers Kraft’s Star Network - design network for early stage innovation. 98% of R&D resources from external sources.
Stage IV – Value DrivenBoeing’s 787 – design driven by airline efficiency needs. 80% external partner innovations for composites and controlsKimberly Clark – ethnographic studies understand customer behavior. Streamlined the process to reduce TTM by 50%
Source: AMR Research, 2007
Takeaways And Next Steps
Innovation is an executive concernIdentify reasons for new product launch failureObserve customers to truly understand needsInnovation combines iterative learning and phased executionSupport open innovation for joint value creationUse dashboards and metrics to drive valueCollaboration must support all lifecycle phases
© 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.
The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after
the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.
