design to value

7/24/2019 Design to Value

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Desi n-to-Value

Increasing product profitability

May 05, 2011

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Content

. 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 2


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A. WHY Burning platform

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The main reason for failed product commercialization is missedcustomer requirements

Reasons for failed product commercialization

"Missed market/customerrequirements"

Other IMPLICATIONS

33%38%

Failed commercialization mostlylinked with product performance

13%

Main reason: Missed market/customer requirements,

"The me-too-product,facing a competitionbarrier"

"Products withcompetitivedisadvantages"

. .

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Product performance related issues

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


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Our experience shows that as a result, companies often findthemselves on a burning platform

Example Nokia

CEO Stephen Elop

"Nokia, our platform is> Missed big trends

EBIT [USD m]

12

Problems

burning"!> Missed customerrequirements

32

2010200920082007

> Wrong decisionsregarding products/

features

Consumer preference UK

> 20%

5Source:http://www.wikinvest.com; http://www.bbc.co.uk


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.

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Design-to-Value combines customer and company perspectiveBasis to increase product profitability

Evolution

Offerin customersDesign-to-

Value

DtV

what they want> for a price they are

willing to pay

VALUE

> at minimum costs

Design-to-ost

(DtC)COSTS

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PERSPECTIVE

PERSPECTIVE


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Design-to-Value pursues two basic optimization routesResult: Products with the right features at the right cost

RESULTValue formula

Value

contribution ProductsCustomer

perspectiveCompany

perspective

with the rightfeatures

1 BetterPrice increase

greater than (>)

=

Perceived

> Brandperformance > Customer

at the right

cost

os ncrease> Product

performance

> Function and

> Value/profitabilitymaximization

2 SameCost new

smaller than (


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Examples demonstrate how Design-to-Value delivers highercustomer satisfaction and increased product profitability (1/2)

Benefits Examples

Mixedsignal

Audi o

PMU

RF

C + DSP

2005P2002

2006ULC1

2007XMMTM101

RAM RAM

Cost down, sales up Sales up Sales up

focused on emerging markets,enabling "ultra low cost mobile

phones"

the core value adding features> Improvements as compared to

conventional machine tool:

fashion oriented parents> Improvements as compared to

conventional strollersconventional chips: All functions in one silicon piece Reduced material cost

screens and safety glasses Improved ergonomics/usability Increased process efficiency

,specially designed front wheels)

Premium design Philanthropic (donation to AIDS

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COMPETITIVE ADVANTAGE VIA SUPERIOR PRODUCT PERFORMANCE


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Examples demonstrate how Design-to-Value delivers highercustomer satisfaction and increased product profitability (2/2)

Benefits Examples

~15% cost reduction ~40% margin increase ~6% price increase per piece

sustainability and reduced cost

> Improvements as compared to

conventional folding box:

sunroof with improved funct. value> Improvements as compared to

standard sunroof:

functional value> Improvements as compared to

conventional packaging: Optimized construction Reduced material cost by 15% Reduced logistics costs

Increased margin by ~40% Differentiating element Standardized across car lines,

- Product handling improved:

dragees Content increased: 46 pieces

+

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COMPETITIVE ADVANTAGE VIA SUPERIOR PRODUCT PERFORMANCE


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Our Design-to-Value approach is applied in four stepsApproach enabled by methods/tools

Approach

DEVELOPMENT PROCESS

A What arecustomer prefer-ences (e.g.

D Whatalternativeis valued by thecustomer and

,

features)?> Consumer Clinic> Focus Groups

profitability?> Sales Volume Test> Price Positioning

Customerperspective

B Whatdrivescost and howcan we influencethem earl on?

C Whatalternativesdo we have (e.g.features, soluti-ons ?

Companyers ective

> Cost Driver Analysis> Product Tear Down>

> CollaborativeSupplier Integration

> Product Convention>

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Method/tool examples


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A CUSTOMER PREFERENCES

First, Design-to-Value identifies customer preferences regarding,e.g. product characteristics, performance or features

Supporting methods Extract

FeatureCheck

TrendScouting

Value-basedFeaturing

Battery

Housing

PCinterface

Videodecoder

Memory

Weight

Size

Memory

Willingnesstopay

[EUR]

Requirem. Levels

analysis

Technical Responses

50/75/100g

5/10/15 cm

1/2/5GB

14

6

10

At tr ibute ConjointAnalysis

Customer WebCheck

Battery time

Specification

Company X

Competitor 1

Competitor 2

Competitor 3

Implementation risk

Target cost

Relativeimportance

PartialEBIT

Conjointa

Compe-

tition

48/56/72h12

5 35 12

4 23 34

4 35 24

5 24 33

>12h

60x30x10

Black

MPEG4

>4GB

3 1014 1215

0 54 43

0 02 22

14 0-7 -7-12

Responseprice[ EUR] 17 7 10 3 5

Display size

Charging time

30/40/45mm

2/4/8h

4

7

Shopper CentricAnalysis

CustomerObservation

FocusGroups

CustomerClinic

CollaborativeCustomerInte rat ion

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B COST DRIVERS

Then, Design-to-Value identifies cost drivers and levers to influencecosts early on


Linear Perfor-mance Pricing

90

100

Value Added1) [EUR]

Supplier 3

Cost DriverAnalysis

Electronic brake

control

t

Component

VariantTree

Zero-BasedEstimate

Example B racket Generator Mounting [INR]

3253184 8 2

5

Product TearDown

0

10

20

30

40

50

60

70

80

0 10 11 12 13 14 15 16 17 189

Weight [kg]

Supplier 1

Supplier 2

Target

corridor

t

Hydraulic control

unit (2, 4, 6, 8 valves)

Electronic control

unit (high-/low-end)

Wheelssensors (2, 3,

4sensors)

60246

208

Finished

material

18

Casting

loss

20

Melting

loss

Input

material

cost

Shot

charges

Fettling

charges

Heat

treat-

ment

Mat. +

casting

proces

cost

Over-

head

P r of it T ot a l

cost

Raw Material Cost Processing Cost Overheads

WasteAnalysis

SpecificationComparison

Price/unit [GBP]

Price/VolumeDegression

Total Cost ofOwnership (TCO)

Activi ty BasedCosting

10

15

Best practice line

13857

40

14 2

127

6

EUR/pax1

13

0 50 100 150 200 250 300

Volume ['000 units]

S up pl ie r 2 S up pl ie r 3Supplier1New seats Cabin

CleaningSeat covercleaning

Main-tenance

Refurbish-ment

Inv ent or y Fu el T CO p eryear


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C ALTERNATIVES

Based on the understanding of both customer preferences and costdrivers, Design-to-Value develops alternatives


ProductConvention

CollaborativeSupplier Integration

Joint SupplierOptimization

CommonalityConceptCompetition

?

Advanced TenderDesign

Value ChainAl ignment

Design to SupplyChain

Best ofBenchmark

Feature/Take RateStrategy

TIER 1

OEM

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TIER 1


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D VALUED BY CUSTOMER AND MAXIMIZED PROFITABILITY

Finally, Design-to-Value determine which alternative is valued by thecustomer and increases profitability


PricePositioning

Sales VolumeTest

CustomerObservation

FocusGroups

PriceConjoint

CustomerClinic

Cross-functionalReview

CustomerSurvey

TestMarket

Design StudyReview

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But: Successful Design-to-Value requires more than methodsFive elements are key to success

Success factors

RESULTI IIEFFECTThe

right methodAt theright time

SATISFIEDCUSTOMERS

> BETTER

TRANSPARENCY

V

INCREASED

> BETTER

ALTERNATIVES

> BETTER

Applied consistentlyandstringently

With theright team

In theright sequence

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Our experience indicates that Design-to-Value offers a potentialEBITcontribution of 20-30% on product level

Typical financial benefits on product level [index; %] Not cumulative

e sa es os o goo s so con r u on

+5-10%

Customerview 100 105-110

Company

view 39

36-37

-4%-7%

+20-30%

" "" " " " " "

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" "

-

" "

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


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C. HOW Implementation of Design-to-Value

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Step 1 Establish a burning platform

> What is the problem, e.g.

Complaining customers

Crashing sales

Crumbling margins

>

> Howsevere is it

> What are possible consequences

Achieve a common under-standing!

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Step 2 Set up a change management roadmap

> Addresses four elements

CONTENT "Should do!"

COMMITMENT "Want to do!" CAPABILITIES "Can do!"

" "

> Is systematic and pragmatic

> Combines "hard" and "soft" factors> Starts immediately

Take it serious!

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

> Tie the approach into yourprocesses

> Identify most effective methods

> Definewhen methods are appliedand in what sequence

> Determine who is involved withwhich roles & responsibilities?

> Ensureconsistent set-up andstr ngent mp ementat on

Develop YOUR approach!

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Step 4 Sustainably anchor the Design-to-Value approach

> Strategy Integrate in company strategy

> ProcessesAlign approach with current

> Organization Integrate in organizationand define roles & responsibilities

> Controlling Implement consistent andreinforcing KPI system

> QualificationSet up training and integratein corporate training program

> S stems Set u s stems allowin efficientapplication in daily work

Make it sustainable!

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D. CONCLUSION Summary & outlook

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

Summary

Design-to-Value

is apowerful & robust methodology

delivers products with the right features at the right costs

makes your customer happy & increases your profitability

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but some companies are already tackling the next level

Focus on product value chainFocus on product design

VALUE Product > Maximize productprofitability along

VALUE

Management(PVM)

entire "product P&L"> While keeping

customers happyDesign-to-Value(DtV)

Design-to-Cost

(DtC)COSTS

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TODAY TOMORROW


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Contact

OLIVER KNAPP

Operations Strategy

PRINCIPAL

Phone: +49 (711) 3275-7213

Competence Center

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