The CIO's Role in PLM

Transcription

1 Facilitating Great Product Development to Drive Economic Recovery March 2010 Chad Jackson

2 Page 2 Executive Summary With findings from the 2010 first quarter Aberdeen Business Review showing that executives are expecting revenue growth from new products, Product Lifecycle Management (PLM) has never been more crucial to business continuity and, as a result, has been swept onto the CIO's strategic agenda. To identify which strategies and tactics CIO's of the most successful manufacturers are doing to deploy, integrate and support PLM, Aberdeen conducted a study of over 160 manufacturers. This resulting report provides actionable guidance to CIO's to ensure they get the most business value out of PLM. Best-in-Class Performance Aberdeen used four key performance criteria to distinguish the Best-in- Class. While the implementation of PLM produced results in all companies, the Best-in-Class are: Almost eight-times as likely to meet product cost targets (86% versus 11%) and stay within product development budgets (86% versus 11%) Almost five-times as likely to launch products on time (86% versus 18%) Able to reduce time to product launch by 21% while those not Best-in-Class increased time to launch by 24% Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics. The Best-in-Class are: Twice as likely to include the product development fundamentals (product data management, design release, change management) in initial PLM deployment (55% versus 26%) More likely to support PLM with IT budget (59% versus 47%) but also more likely to justify the spend with a business initiative or strategy (64% versus 52%) Are 80% more likely to maintain a forward-looking plan for the PLM solution (52% versus 29%) Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: Include product development fundamentals in PLM deployment Tie PLM deployment to a business strategy or initiative Support PLM with IT budget and support staff Research Benchmark Aberdeen s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations Aberdeen Business Review The Aberdeen Business Review survey is conducted quarterly in order to identify economic and technology trends. Data referenced in this report was collected in October and November 2009 and used to analyze the impact of the 2009 economic recession and gauge the future plans for With the current economy, everyone is working with less and expected to produce more. As a result, we have implemented a PLM system to help manage our engineering assets. It has allowed us to keep our data in a clear, concise place for everyone to view, essentially one record and one source for data. ~ Engineering Manager Automotive Industry

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Business Context...4 The Maturity Class Framework...6 Best-in-Class Strategies...8 The Best-in-Class PACE Model...9 Chapter Two: Benchmarking Requirements for Success...11 Competitive Assessment...11 Capabilities and Enablers...13 Chapter Three: Required Actions...19 Laggard Steps to Success...19 Industry Average Steps to Success...19 Best-in-Class Steps to Success...20 Appendix A: Research Methodology...22 Appendix B: Related Aberdeen Research...24 Figures Figure 1: Top Two Pressures Driving PLM Adoption...4 Figure 2: Product Development Areas Addressed by PLM...8 Figure 3: PLM Deployment across Competitive Framework...9 Figure 4: Capabilities Included in Initial PLM Deployment...14 Figure 5: PLM Deployment across the Competitive Framework...16 Figure 6: PLM Modifications across PLM Version Deployed...18 Tables Table 1: Top Two IT Related Challenges for PLM...5 Table 2: Top Performers Earn Best-in-Class Status...7 Table 3: The Best-in-Class PACE Framework...9 Table 4: The Competitive Framework...12 Table 5: Integration Technologies...17 Table 6: The PACE Framework Key...23 Table 7: The Competitive Framework Key...23 Table 8: The Relationship Between PACE and the Competitive Framework...23

4 Page 4 Chapter One: Benchmarking the Best-in-Class Business Context As the economy starts to change over from recession to recovery, c-suite executives realize that while cost control strategies may have kept them in business in 2009, product development initiatives are critical to top line growth. In fact, findings from the recent Aberdeen Business Review reveal that 39% of all manufacturers have identified the development of new products as one of the top two actions they are pursuing to achieve their 2010 corporate objectives. As the backbone technology enabling mission critical new product development, Product Lifecycle Management (PLM) solutions can no longer be seen as a rogue project but instead must increasingly become part of the corporate IT strategy and of the CIO s strategic agenda. To achieve top revenue growth through new products, development executives and the CIO must work collaboratively to ensure not only product development continuity but also compliance and integration within the corporate IT ecosystem. This report will identify the strategies and tactics used by the Best-in-Class to ensure business continuity for product development. Business Needs Driving PLM Adoption We've established that new product development will be a key to revenue growth in However, which pressures are driving the need for a better backbone for product development? The answers vary but in general are related to the impact of product development on the business (Figure 1). Fast Facts 58% of respondents cite deployment and implementation as the top IT related challenge of PLM The Best-in-Class average at least a 68% advantage over Laggards in hitting product cost targets, hitting development budget targets, and launching products on time The Best-in-Class achieved a 21% average net decrease in time to market while Laggards suffer a 24% net increase The Best-in-Class are 36% more likely to focus PLM on improving new product development project execution Figure 1: Top Two Pressures Driving PLM Adoption Shortening development schedules 56% Pressure to reduce product costs Development stakeholders increasingly distributed Wider collaboration with the supply chain 34% 30% 29% Shrinking development budgets 20% 0% 10% 20% 30% 40% 50% 60% Number of Respondents. n=163 Despite the fact that many manufacturers cut staffing costs and grew smaller in 2009 through Reductions in Force (RIFs), there's still no break from the race to market amongst competitors. Getting to market earlier is often

5 Page 5 associated with both greater revenues and market share. Shortening development schedules, which has consistently been a top driver of product development initiatives, is the dominant driver again to acquire or expand a PLM solution: and for good reason. One of the foremost value propositions of PLM solutions is the ability to save time in the development cycle through the avoidance of errors that cause delays and the automation of development processes. Another top pressure driving PLM adoption is the pressure to reduce product costs. When it comes to calculating the corporate margin, the recurring Cost of Good Sold (COGS) for products have a significant impact because it drives individual product profitability. Manufacturers are focused on squeezing every penny out of COGS to drive margins up. Lastly, increasingly distributed stakeholders in product development and the need for wider collaboration across the supply chain speak to the fact that product development is now a global process for many companies. During the jobless recovery, manufacturers will continue to rely more on the expertise of external parties like suppliers to add more value than just delivering parts and subsystems. Additionally, many of these companies have outsourced development work or built new technical centers around the world in an effort to both take advantage of the global talent pool and develop products locally to target markets. PLM solutions support these efforts by managing a single definition of the product that is centrally managed and accessible. This acts as the anchor upon which collaboration among stakeholders, whether they are external or internal or local or remote, can be built. Price competition has significantly pressured us into an aggressive cost reduction initiative; mainly how to reduce continued improvement engineering on established products. Therefore, when it comes to investing into a PLM solution, the PLM solution has to be able to work with the way we do business ~ Engineering Manager, engineering services company The IT Related Challenges of PLM Solutions There certainly are serious business issues driving PLM adoption. However, setting up a PLM solution to support development isn't simple and requires the proper commitment of resources. There are a number of IT related issues that are challenging (Table 1). Table 1: Top Two IT Related Challenges for PLM IT Challenges for PLM Percentage of Respondents PLM deployment or implementation 58% Interoperability of PLM with other software 38% Configuration or customization of PLM 33% PLM required atypical IT personnel and skill 32% Upgrades or Migrations of PLM 16% Initially, the first deployments of PLM tended to be large in scale and scope, requiring large budgetary investments and taking a significant amount of time to complete. However most manufacturers have shied away from this 'big

6 Page 6 bang' approach and instead moved to smaller incremental deployments. Fully 64% of all respondents from this study have deployed PLM in a phased project approach. Proving success by completing these early milestones helps assure continued attention and commitment, thereby providing the opportunity for adding more functionality and producing more business benefits. However, one of the reasons that initial deployment and implementation remains the dominant challenge is because of scope. Even though phased implementations offer the means of proving the value at interim stages, the initial deployment must indeed address the core fundamentals of PLM (see sidebar) preventing these first stages from being too heavily scaled back. Another challenge related to PLM solutions is interoperability with other enterprise solutions. This is primarily driven by the needs of product development stakeholders to gain accessibility and visibility into product related data, which may be scattered across a number of enterprise systems. Some examples would be inventory levels in inventory management and/or Warehouse Management Systems (WMS), preferred supplier lists maintained in Supplier Relationship Management (SRM) solutions, and financial records in Enterprise Resource Planning (ERP) solutions. Also, manufacturers can potentially face serious decisions regarding deploying standard "out-of-the-box" functionality, configuring or customizing their PLM solution. On the one hand, the development processes within specific manufacturers are considered the basis for competitive advantage, on which executives are loath to compromise. On the other hand, a customized PLM solution, where custom code is written, compiled and the integrated into the solution can often 'break' during subsequent upgrades to newer versions. As a result, some manufacturers delay upgrading to the latest version which then restricts the availability of capabilities of the new release. However the latest release of many PLM solutions provides the ability to configure capabilities that in the past would have had to be customized into the solution. Therefore, upgrading or redeploying the PLM solution on the latest release may provide an opportunity to eliminate some existing customizations. The Maturity Class Framework When it comes to business metrics, how does corporate IT support of a PLM solution help a company grow revenue in an economic recovery? To answer this question, we must understand the impact of high or low quality IT system support on product development. IT support issues include: Downtime or inaccessibility of the system Poor performance and responsiveness Lack of automated integration Lack of process management and support Product Development Fundamentals Three sets of capabilities are important to include in an initial PLM deployment to support core product development including: Core Product Data Management (PDM) to manage design deliverables Design release automation to control how and when downstream stakeholders can see and access design deliverables Change management automation and governance to control the change approval and implementation process Implementation of our PLM solution has been painful. The impact of PLM to the business was not appreciated by the IT staff to the point that the IT department did not allocate adequate resources and time for proper implementation. In addition, the lack of the broad business perspective has challenged the IT organization's ability to understand and satisfy business process requirements. If implemented properly upfront, we could have minimized a lot of headaches and confusion. ~Engineering Manager, Industrial Product Manufacturer

7 Page 7 In many of these cases, the product data and information as well as development processes are not enabled and supported by the PLM solution. As a result, key product development information is managed manually, introducing human error, security and IP protection issues and lack of visibility and oversight. This leads to schedule delays and increased costs. While the IT issues cited above are important to track and benchmark, the top level objective that PLM solutions are meant to enable is to achieve onschedule product launches, stay on-budget for product costs and stay under defined development budget targets. Results show a significant difference in performance between the Best-in-Class, Industry Average and Laggards with respect to these exact metrics. Within our organization, the expectation was that PLM deployment will reduce development cycles and time to market. In fact, we used these metrics were to measure the Return of Investment (ROI) for investing in the solution. ~Manager, Consumer Packed Goods Manufacturer Table 2: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance 86% of projects meet product cost targets 86% of product development projects completed within budget targets 86% of products launch on time 21% year-over-year average decrease in net time to product launch 54% of projects meet product cost targets 54% of product development projects completed within budget targets 55% of products launch on time 1% year-over-year average decrease in net time to product launch 11% of projects meet product cost targets 11% of product development projects completed within budget targets 18% of products launch on time 24% year-over-year average increase in net time to product launch The findings show that everyone is not generating the same business value from PLM. In fact, the top 20% of performers, the Best-in-Class, are dramatically outperforming all others in every single measureable metric. Percent of products on-cost. The fact that the Best-in-Class are hitting cost targets 86% of the time compared to 11% of Laggards translates directly to the ability to achieve the profitability goals of the company. Addressing the second highest pressure is a major accomplishment. Percent of on-time launches and net change in time to market. Despite all of the organizational, schedule and budgetary

8 Page 8 constraints identified earlier, the Best-in-Class are not only launching products on time more frequently, but they are shaving more time off on a year-over-year basis. Satisfying the top pressure around meeting shortened product development schedules leads to increased top line revenue growth by getting to market on time or even early. Percent of projects on-budget. With development budgets shrinking, the fact that the Best-in-Class hit their development cost targets on 86% of projects compared to 11% for Laggards is significant. This result can be the difference between executing a RIF plan as well as whether or not promising development projects, ones that could significant affect top line revenue growth, are cancelled. Best-in-Class Strategies Now that we've identified the significant gaps between the Best-in-Class and Laggards, let's uncover what the top performers are doing differently to achieve their objectives. To start, it's important to understand where in product development the top performers are applying PLM from a strategic perspective (Figure 2). Figure 2: Product Development Areas Addressed by PLM Number of Respondents, n=163 80% 70% 60% 50% 40% 30% 20% 10% 0% 76% 60% 56% New Product Development Project Execution 64% 53% 49% Design / Engineering Efficiency Best-in-Class Industry Average Laggard In response to the dominant pressure to shortening product development schedules, the Best-in-Class are more focused on efficiency and execution both at the product development and design and engineering levels. Improving both of these require streamlining the product development process by removing unnecessary activities and automating and managing development and design processes with technologies like PLM solutions.

9 Page 9 The Best-in-Class PACE Model Successful application of PLM to product development requires a combination of strategic actions, organizational capabilities, and enabling technologies that can be summarized as shown in Table 3. Table 3: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Shortening development schedules Improve new product development project execution Improve design / engineering efficiency Forward looking roadmap for both PLM and enterprise system interoperability maintained Product development fundamentals included in initial PLM deployment PLM costs funded by centralized IT budget, but justified as part of strategy or initiative PLM supported by centralized IT organization PLM system responsiveness monitored and reviewed on regular basis Include Product Data Management, Design Release, Change Management and Configuration Management in the initial deployment of a PLM solution Set of integration technologies used including out-of-the-box integrations, XML and Service Oriented Architectures (SOA) Aberdeen Insights Strategy Are manufacturers getting value out of PLM solutions? How do you measure if that is in fact the case? Obviously one can look at the performance metrics representing business success for an answer. But another answer comes in the form of how many manufacturers across the Best-in-Class, Industry Average and Laggards have moved their PLM deployment to a follow-on phase (Figure 3). Figure 3: PLM Deployment across Competitive Framework Number of Respondents, n= % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15% 11% 12% 36% 30% 18% 26% 23% 40% 30% 27% 31% Best-in-Class Industry Average Laggard Replacement, considered or in-progress Follow on deployment, complete or in progress Initial deployment, complete or in progress Not deployed continued

10 Page 10 Aberdeen Insights Strategy The greater percentage that has progressed past an initial deployment is an indicator of value delivered. The initial cost of deploying PLM is generally sufficient to drive the approval of the expenditure to the highest authority levels in the organization, perhaps even to the level of the CEO. During that initial expenditure, expectations for either Return on Investment (ROI) or explicit development improvements resulting in business success are set. Those deployments that do not come close to those expectations have a very low chance of gaining approval for a follow-on deployment. Likewise, follow-on deployments that do get approved often have delivered expected value. All in all, these statistics tell a simple yet compelling story: the Best-in-Class are getting more value out of PLM. In the next chapter, we will see what the top performers are doing differently to get that value.

11 Page 11 Chapter Two: Benchmarking Requirements for Success The deployment, integration and support of a PLM solution play a crucial role in the ability to develop the right products on time and on budget. Case Study Migrating from Silo'd Systems to One PLM Solution A large North American Aerospace and Defense (A&D) company recently reassessed how information was distributed across the enterprise. The company realized that across the organization they had nine disparate systems, of which seven of these systems were tracking the same information. Within the product development department alone, there were four different systems that were used to track the information that was shared between the engineering, configuration management, and manufacturing teams. Furthermore, these systems were not integrated to each other, thus information had to be manually uploaded into each separate system. In order to prevent pieces of data from being duplicated into multiple systems, the company realized it needed to move away from having several silo'd systems. Therefore, as of last year, the company rolled an expansive multi-phase PLM expansion plan with each phase looking at the different line of businesses and making sure that the plans met the business and technical requirements for each department. The final goal is to migrate the entire enterprise onto one single PLM system. As the project lead explains, We have a forward-looking roadmap plan for our PLM solution. Therefore, we re spending a lot of time upfront to make sure that our PLM system will meet all of our business needs. One of the requirements is to have its PLM solution be as out-of-the-box as possible. The company wants to avoid customization (i.e. modifying the PLM solution by writing custom software code) because of the migration issues that result from broken software code when migrating to the latest version of the software. In our old PLM system, we ve experienced the problems that come with customization, therefore, we want to minimize the modifications of our PLM solution," explains the project leader. "We hope that in three years we'll be able to get everyone onto this new system - and have a better system in place to better communicate and collaborate across departments." Fast Facts The Best-in-Class are more than twice as likely to include the product development fundamentals in an initial PLM deployment (55% versus 26%) The Best-in-Class are more likely to support PLM with IT staff (59% versus 47%) and with IT budgets (57% versus 34%) The Best-in-Class are almost five-times as likely to not modify PLM solutions, exclusively using out-of-thebox functionality (33% versus 7%) Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of appropriate tools and effective deployment of

12 Page 12 those tools); and (5) performance management (the ability of the organization to measure its results to improve its business). These characteristics (identified in Table 4) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 4: The Competitive Framework Process Organization Knowledge Technology Performance Best-in-Class Average Laggards Product development fundamentals (PDM, design release, change management) included in initial PLM deployment 55% 29% 26% PLM justified only as part of business initiative or strategy 64% 55% 52% Formal requirements and ROI plan required prior to the start of any PLM expansion projects 47% 26% 35% PLM supported by staff from corporate IT organization 59% 55% 47% PLM spend comes out of corporate IT budget 57% 49% 34% System of record identified for each piece of product information 58% 43% 39% Forward-looking roadmap plan of PLM solution maintained (inclusive of expansions, upgrades, modifications, etc.) 52% 39% 29% Forward-looking roadmap plan of enterprise ecosystem interoperability maintained 32% 27% 20% PLM deployment and integration technologies 33% out-of-thebox PLM setup 29% out-of-thebox integrations with other enterprise systems 16% out-of-thebox PLM setup 37% out-of-thebox integrations with other enterprise systems 7% out-of-thebox PLM setup 28% out-of-thebox integrations with other enterprise systems Solution performance tracked and reviewed 47% PLM 25% PLM 16% PLM solution solution solution performance performance performance monitored in monitored in monitored in real time real time real time 48% PLM 41% PLM 27% PLM solution solution solution performance performance performance reviewed on a reviewed on a reviewed on a periodic basis periodic basis periodic basis

13 Page 13 Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users, Aberdeen s analysis of the Best-in-Class reveals that there are three major themes relevant to the CIO's role with respect to PLM solutions: Product development fundamentals: Even though PLM solutions can, and have, been deployed to support specific business initiatives, it's important that a core deployment footprint is implemented that supports the fundamentals of product development. All other initiatives and strategies should build on top of this base. Top performers exhibit a number of characteristics in this area. Justifying IT spend with a business initiative: Even though the deployment and expansion of PLM solutions are being justified by business initiatives relevant to functional organizations or lines of business, the funding to support PLM solutions comes from IT budgets. Corporate IT departments work collaboratively with a line of business owner to develop the justification. This, in turn, acts like an internal agreement the line of business owner and the IT owner take forward to executives for the approval to release IT funds. The Best-in-Class showed several traits under this theme. PLM under corporate IT to ensure 'business continuity:' Because new products are so core to the revenue growth, executives want to make sure that product development isn't interrupted. Because PLM is the backbone of product development, the same theme of business continuity applies from an IT support perspective. However corporate IT can only ensure that the PLM solution is available, responsive and secure. The product development organization is ultimately responsible and empowered to derive the value from the PLM solution. Top performers display several characteristics in terms of corporate IT support of PLM solutions. As we discuss findings with respect to processes, organizational traits, the management of knowledge, performance management as well as technology enablers, the relevant theme will be highlighted in bold for easy reference. We had several failed attempts at implementing PLM due to lack of understanding of its complexities. The need was finally great enough to hire a consultant after an internal team chose the next software tool to implement. That consultant has been offered a full-time position, another consultant is also being hired, and several internal employees are being transferred to support PLM full-time. Deployment is late again, but appears to be on track to at least be successful when deployed. ~Configuration Control Manager, A&D Industry Process An aspect of this study looked at the process areas in which PLM was deployed to support. There's a wide variety of these product development areas that could be enabled such as idea generation, system engineering, regulatory compliance, production engineering, and many others. However, the Best-in-Class showed significant differentiation in the areas targeted with the initial deployment of PLM solutions. And these areas in general fall under the product development fundamentals theme as described earlier (Figure 4).

14 Page 14 Figure 4: Capabilities Included in Initial PLM Deployment Number of Respondents, n=163 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 75% 77% 48% 44% Product Data Management 66% 61% 42% 44% 40% 33% 33% 31% Design Release Support Change Management Process Support Best-in-Class Industry Average Laggard Configuration Management Capabilities Focusing on these areas initially is critically important because many other product development areas build on top of these core ones. For example, configuration management that is not integrated with product data management can become desynchronized and produce errors downstream. Also, the design release and change management processes govern both how and when changes should be made to product configurations. However, as critical as these core product development areas are, requiring their inclusion in the initial implementation translates into sizeable first milestones. This contributes to the fact that deployment and implementation is the top IT related challenge for PLM, even for those going through initial deployment. Another set of findings fall into the theme of justifying IT spend with a business initiative. Findings show that top performers justify the initial acquisition, deployment and expansion of PLM solutions as part of a business initiative or strategy, speaking to the reality that any budgetary spend must positively and directly impact the business. Furthermore, the Best-in-Class define formal requirements and detail out a Return on Investment (ROI) plan prior to starting the deployment or expansion of the PLM solution. This ensures that the scope of the deployment project is fixed compared to the ROI plan, allowing the company to avoid scope creep that can often occur during PLM deployments. Once an initial implementation has been done, it is almost impossible to rollout a Gen 2 or major upgrade because the data can't live in two systems for any length of time. This requires a Big Bang approach that is very difficult to make successful and has high risk. Original rollouts of PLM usually meant converting from paper or legacy systems that could be done by department or business unit, stabilized and move on to the next. Our second rollout had much lower risk, but was not necessarily easier. ~ Customer Service Manager, Industrial Equipment Manufacturer Organization From an organizational perspective, top performers are also taking specific actions that fall under the theme of PLM under corporate IT to ensure 'business continuity.' Specifically, they have a corporate IT organization supporting PLM as opposed to line of business roles also taking on PLM support in addition to their functional roles. This ensures that the PLM solution, which is critical to uninterrupted product development, is

15 Page 15 supported in a standardized way with respect to performance responsiveness, migration and upgrades and integration with other enterprise systems. Another organizational trait, one that falls under the theme of justifying IT spend with a business initiative, is that the spend to support the implementation, expansion and maintenance for the PLM solution comes out of the corporate IT budget and not a line of business or functional organizational budget. However, this isn't necessarily a 'free ride' as we saw previously; the line of business owner and IT owner must work collaboratively to justify the spend with a business initiative or strategy that affects business performance. Knowledge Management The knowledge management characteristics of top performers fall under the theme of placing PLM under corporate IT to ensure 'business continuity.' Two of these findings show that the Best-in-Class build out forward looking roadmaps that detail plans for the PLM solution and the overall ecosystem of enterprise solutions within the company. The PLM roadmap describes when the solution will be upgraded to newer versions as well as when it will be expanded in terms of new modules and functionality. The roadmap for the overall enterprise ecosystem details how the various enterprise solutions within the company will be upgraded with an eye towards integration and interoperability. This is critical as some newer versions of enterprise solutions offer new integration technologies, such as Service Oriented Architectures (SOA), that can offer improved interoperability. In the end, the objective is to ensure the continuity of product development that will ultimately drive revenue growth with new products. Another trait of the top performers is to identify the system of record for each piece of product information. Without taking this approach, the same pieces of product data or information may be duplicated in multiple enterprise systems, resulting in two conflicting values that can cause costly errors and delays downstream. With this approach, the single system of record for each piece of product information is identified and as necessary, that information is replicated in an associative way in other enterprise systems in a read-only fashion. As a result, when the information is changed in the system of record for that information, the change is pushed to all other enterprise systems as an update. This is actually part of a Master Data Management (MDM) strategy that is growing in popularity amongst corporate IT organizations. Corporate understood the importance to have a single system to support collaboration across the enterprise. The budget for our PLM expansion is financed from the corporate budget. The long term goal is to have our PLM deployed across the enterprise, and to get everyone from engineering to marketing, to get onto one system. ~ Project Leader Large North American Aerospace and Defense Company Performance Management The performance management approaches of the Best-in-Class also fall under the theme of placing PLM under corporate IT to ensure 'business continuity.' Specifically, they track and review PLM solution performance. This is especially important in the context of one of the top pressures of supporting product development amongst distributed

16 Page 16 stakeholders and supplier collaboration because of the large size of design data and network bandwidth between distributed geographies. PLM solutions can be tuned to dramatically improve performance and responsiveness. Technology Enablers Does your company have some competitive advantage in how it runs its product development process? Most companies would fervently and emphatically say yes. And that leads to the desire to modify a PLM solution. Specifically, these modifications are meant to support the management and automation of company specific types of information, data and processes. When it comes to how PLM solutions are modified, there is a wide variety of choices one can make. However, top performers tend to take an approach of minimalism regarding these modifications (Figure 5). Figure 5: PLM Deployment across the Competitive Framework Number of Respondents, n=163 70% 60% 50% 40% 30% 20% 10% 0% 33% 16% 7% Out-of-the-box, no modifications 59% 51% 48% Configured, modifications made through PLM solution 18% 41% 36% Customized, new software code created and compiled PLM plays a significant role in product development. The solution is powerful because it provides relevant information to make timely decisions, as well as improve collaboration between internal and external teams. In addition, PLM helps clarify process, dependencies, and deliverables and improves maturity in many areas. ~Director of IT, Large Food and Beverage Manufacturer Best-in-Class Industry Average Laggard Customization offers an opportunity to dramatically modify a PLM solution to closely fit the needs of specific companies. However, it may require some specialized IT skills sets particularly if the software coding involved uses Application Programming Interfaces (APIs) that are specific to that PLM solution which may or may not be widely known. Furthermore, these API calls can change from release to release, meaning that they can 'break' during a migration to the latest version of the software. Configuration, on the other hand, allows for the modification of the PLM solution, however in a far more structured and controlled way. This approach tends to be far more reliable though as underlying changes are supported as part of the migration to the new release. As a result, it is infrequent that modifications made through configuration are 'broken' during an upgrade. The degree of customization gets lower as the customized features can be replaced by the newly added functionality of the standard application. This has minimized the time we ve spent on customizing our PLM solution and therefore freeing up our time to focus on other aspects of the business. ~IT Manager, Consumer Product Manufacturer

17 Page 17 It's clear from Figure 5 that the Best-in-Class are more likely to make no modifications, using purely out-of-the-box functionality, than all other companies. They are also far less likely to customize. Does that mean all companies should steer away from configuration and customization? No. The point behind this finding is that the Best-in-Class work to minimize the modification of the PLM solution because of the difficulties that result in upgrading to the latest versions, however they still support product development with whatever modifications are necessary. Modifications most likely will still be necessary, but make sure they clearly add value, and perhaps even competitive advantage, before modifying the PLM solution itself. Another major issue that must be considered is how to integrate the PLM solution with other enterprise systems. Product data as a whole is scattered across a variety of solutions. And product development stakeholders often need access to various aspects of this product record to make the right decisions in the product development process. Integration is a means by which to move various aspects of the product record into the necessary enterprise solutions. When it comes to integration, there are many types of technologies that can be used (Table 5). Table 5: Integration Technologies Best-in- Class Industry Average Laggard Out-of-the-Box PLM Integrations with other Enterprise Systems 29% 37% 28% SOA used as Integration Technologies 17% 18% 18% XML used as Integration Technologies 31% 50% 36% Out-of-the-Box PLM integration with corporate portals 16% 24% 11% Findings in this area show that, in fact, no single type of integration technology is used more frequently by the Best-in-Class, but that a wide variety of them are used across the competitive framework. Given the fact that PLM deployment and then expansions are driven by business initiatives and strategies, there is a need for IT flexibility in terms of integration. You never know what you might have to interconnect. A general toolkit of integration technologies affords that flexibility to plug together enterprise solutions as necessary.

18 Page 18 Aberdeen Insights Customize PLM: Proceed at Your Own Risk As discussed earlier, the Best-in-Class are more likely to minimize the modification of their PLM solutions to fit their specific business needs. The rationale is that configurations sometimes need to be recreated and customizations can 'break' during upgrades to newer versions of PLM solutions. The breakdown of support for company specific processes stands in direct opposition to one of the three major themes that has emerged from this study around 'business continuity' with respect to product development. Results show this conflict between modifying PLM solutions to support company specific processes and the demand for no interruption in product development affects many company's ability and willingness to upgrade the latest version of PLM solution available (Figure 6). Figure 6: PLM Modifications across PLM Version Deployed Number of Respondents, n= % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 13% 36% 33% 55% 54% Out-of-the-box, no modifications 23% 40% 38% Configured, Customized, new modifications made software code through PLM solution created and compiled Latest One behind latest Two or more behind latest In short, these findings show that 63% of those that have customized their PLM solution are not on the latest version available compared to only 45% of those that have not modified their PLM solution in any way. The unfortunate effect of this reality is that those held back from the latest versions of PLM cannot take advantage of newer capabilities that their hard spent maintenance dollars fund. Furthermore, this inaction can wreak havoc on interoperability plans amongst the enterprise application ecosystem if not monitored and planned.

19 Page 19 Chapter Three: Required Actions Whether a company is trying to move its performance in product development from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements: Laggard Steps to Success Minimize the customization of PLM. Customization can keep organizations from upgrading to the latest versions of PLM that are available. This eliminates leveraging new capabilities in new PLM versions but also complicates the interoperability within the enterprise application ecosystem. In fact, Best-in-Class companies are half as likely to customize their PLM solution as Laggards (18% versus 36%). Closely assess any requested customization or configuration to ensure it truly adds value to the product development process before proceeding. Include the product development fundamentals in the initial deployment of PLM. Many subsequent PLM expansions and the business initiatives and strategies that they support depend on having a single source of the truth and managing core development processes. Top performers are over twice as likely as Laggards to address these core processes in the initial PLM implementation. Include core product data management, design release and change management in the initial deployment of PLM. Monitor PLM responsiveness on a real time basis and review it on a periodic basis. With product development playing a crucial role in the recovery of many manufacturers, it is critically important to avoid any interruptions to the launch of new products. Compared to Laggard companies, the Best-in-Class are three times as likely to monitor performance in real time and almost twice as likely to review performance data on a periodic basis. Monitor the performance and responsiveness of the PLM solution in real time and then review it on a periodic basis for next steps to address issues or improve performance. Industry Average Steps to Success Maintain a forward looking roadmap for the PLM solution. Top performers are more likely to explicitly plan out when newer versions of the PLM solution will be deployed. This enables them to react and support new business initiatives and strategies that require new capabilities of PLM. In fact, compared to the Industry average, Best-in-Class performers are over 33% more likely to maintain this type of plan. This knowledge enables them to simply upgrade to the latest version, where the capability might be Fast Facts Best-in-Class companies are 2.9 times as likely as their competitors to monitor PLM responsiveness on a real time basis and review it on a periodic basis The Best-in-Class are 35% more likely to define formal requirements and ROI plans prior to PLM deployment The Best-in-Class are more likely to maintain a forwardlooking plan for PLM (52% versus 29%) and a forwardlooking plan for the entire enterprise application ecosystem (32% versus 20%) We have a vision to expand our PLM solution globally and enterprise wide. We hope to one day be able to integrate and synchronize our PLM solution with our ERP and financial system to improve collaboration and knowledge management. ~Product Development Manager Industrial Product Manufacturer

20 Page 20 provided, as opposed to customizing the new capability into the PLM solution. Identify the system of record for each piece of the product record. This approach, which can be part of a Master Data Management (MDM) strategy, enables the Best-in-Class in planning interoperability between enterprise applications in support of business initiatives or strategies more easily and quickly. The Bestin-Class are 35% more likely than the Industry Average to use this approach. Best-in-Class Steps to Success Support PLM with IT staff and budget. While top performers are 25% more likely than Laggards to support PLM with IT staff and 67% more likely to support PLM with IT budget, there are many that have not yet adopted this practice. Having a dedicated IT staff to support PLM maintenance and deployment, ensures that product development executes in an uninterrupted manner as it is folded into the overall agenda for the corporate IT department. Justify PLM as part of a business initiative or strategy. Top performers understand that ultimately the deployment or expansion of PLM must materially affect the business in a positive way. Fully 64% of the Best-in-Class link PLM activities closely to a business initiative to ensure that the technology is applied in such a way that contributes to the strategy. Maintain a forward-looking plan for the enterprise application ecosystem. While the Best-in-Class are 60% more likely than Laggards to maintain a forward-looking roadmap for the entire enterprise application ecosystem, only 32% of them are actually adopting this capability. By maintaining a roadmap that describes the versioning roadmap for all of the enterprise applications within the corporate IT ecosystem, it will enable them to plan how the upgrade or expansion of one enterprise application affects the upgrade or expansion of other enterprise applications as well as the business processes or initiatives on which they depend. Aberdeen Insights Is PLM on the CIO's Agenda? Collaboration is more important now than ever due to reduced travel budgets limiting one-on-one time with our suppliers. With the economic downturn we have to be able to deliver the right product to the market in order to capture market share. Timing and communication is critical. ~ Engineering Manager, Apparel Manufacturer In summary, have we found our hypothesis to be true? Is PLM being folded into the CIO's realm of responsibility more formally because of the economic recession and the forecasted recovery? By and large, findings from this study show the answer to those questions are a mixed bag. Findings that are a measure of PLM's movement into the CIO's responsibility range widely but ultimately rarely peak over 50%. continued

21 Page 21 Aberdeen Insights Is PLM on the CIO's Agenda? Overall, there are some companies that have made PLM part of the corporate IT ecosystem on a global scale. These tend to be larger companies that focus more on standardization. However there are a large number of companies where, for a variety of reasons, PLM is supported, deployed, expanded and maintained by either departmental IT or even product development stakeholders that maintain the PLM system outside their 'day job.' This study has shown that top performers are more formally supporting PLM with corporate IT budgets and staffing. It also shows top performers plan carefully for the future, not only for PLM but how the entire ecosystem of enterprise applications fit together. But ultimately the takeaway from this study depends on how your company answers a very serious questions: How important is business continuity in terms of new product development for your organization? The answer to that question will ultimately drive strategies and actions around how PLM is planned, deployed, maintained and supported.

22 Page 22 Appendix A: Research Methodology During February 2010, Aberdeen examined the use, the experiences, and the intentions of more than 160 enterprises on New Product Development (NPD) and Product Lifecycle Management (PLM) in a diverse set of manufacturing enterprises. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on NPD and PLM strategies, experiences, and results. Responding enterprises included the following: Job title: The research sample included respondents with the following job titles: CEO / CIO / President (11%); EVP / SVP / VP (15%); Director (21%); Manager (29%); Staff (10%); and other (14%). Department / function: The research sample included respondents from the following departments or functions: product development / engineering (35%); information technology (31%); corporate management (8%); business development or sales (8%); and other (18%). Industry: The research sample included respondents from the following industries. Industrial Equipment Manufacturing (14%); Aerospace & Defense (11%); Automotive (11%); and other various other industries all under 10% comprise the remainder. Geography: The majority of respondents (69%) were from North America. Remaining respondents were from the Asia-Pacific region (10%) and Europe (19%). Company size: Forty-four percent (44%) of respondents were from large enterprises (annual revenues above US $1 billion); 29% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 27% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Fifty-nine percent (59%) of respondents were from large enterprises (headcount greater than 1,000 employees); 23% were from midsize enterprises (headcount between 100 and 999 employees); and 18% of respondents were from small businesses (headcount between 1 and 99 employees). Study Focus Responding manufacturing executives completed an online survey that included questions designed to determine the following: The degree to which PLM is deployed in their product development operations and the financial implications of the technology The structure and effectiveness of existing PLM implementations Current and planned use of PLM to aid operational and promotional activities The benefits, if any, that have been derived from PLM initiatives The study aimed to identify emerging best practices for PLM usage in manufacturing, and to provide a framework by which readers could assess their own management capabilities.