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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
Supporting methods Extract
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
Supporting methods Extract
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
Supporting methods Extract
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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