1 executive review 2/2007 ENGINEERED PRODUCTS & HIGH TECH > Designing new products and solutions > New business models > Globalizing R&D ISSN
2 "We analyze current management issues to find out what they mean for decision makers in the capital goods industry." Axel Schmidt
3 2/2007 ENGINEERED PRODUCTS & HIGH TECH executive review
4 2 Content > Perfecting the art of product development Managing the product lifecycle from end to end 5 > Interview with Professor Dr. phil. Dr.-Ing. E.h. Claus Weyrich Retired member of the Managing Board of Siemens AG 12 > Knowing where to do what! Globalizing R&D with pinpoint accuracy 18 Machinery and industrial systems providers have successfully streamlined their materials flows using ERP systems research and development need to follow > Don't react act! Using product roadmaps to underpin development decisions 24 > Interview with Denis Senpere Senior Vice President of Dassault Systèmes 32 > Product and service: It's the whole package that counts! Ramping up service business in the engineering industry 36 > The Competence Center Engineered Products & High Tech 42 Published by: Roland Berger Strategy Consultants GmbH Löffelstraße 46, Stuttgart Responsible: Thomas Ring Editors: Henning Arndt Isabel Rincón Photographs: Title: Mauritius Images (Dirk von Mallinckrodt) p. 4: Mauritius Images (John Warburton-Lee) p. 12: Siemens-Pressebild p. 18: Reuters (Kiyoshi Ota) p. 24: Mauritius Images (Westend 61) p. 32: Dassault Systèmes CATIA-Produktbild p. 36: Reuters (Victor Tonelli) Layout: Roland Berger DesignTeam Published semi-annually No reprints without prior permission of the publisher
5 executive review 2/2007 Editorial 3 this issue of executive review is dedicated to finding the right strategies for designing products and solutions, always with innovation and change in mind... Change is indeed a subject affecting our editorial team too. I have now taken over as head of the Engineered Products & High Tech Competence Center. Axel Schmidt will continue to provide valuable support in editing the review. After years of cost cutting and restructuring, new growth opportunities are arising for capital goods companies and particularly for those in the engineered products sector both in their home markets and abroad. At the same time, product life cycles are shrinking, new markets are demanding specific products and global distribution is creating all kinds of new interfaces. Seizing new opportunities is a complex challenge that compels companies to optimize their product and solution strategies. The key is to use product lifecycle management (PLM) systems to drive profitable expansion and outpace market growth. Professor Claus Weyrich, long-time member of the Managing Board of Siemens AG and head of Corporate Technology, talks about R&D's crucial role in product lifecycle management. Denis Senpere looks at the topic as seen by Dassault Systèmes, a leading provider of PLM systems. We also discuss three other questions dealing with product and solution designs: Should international companies globalize their R&D structures at all costs? How can you offer the right products at the right price? And how can you operate a strong and profitable service business? Read on to discover our answers to these questions. If anything is still unclear, feel free to contact us personally or by mailing us at Enjoy your read! Thomas Ring Head of the Engineered Products & High Tech Competence Center Axel Schmidt Head of the Operations Strategy Competence Center Spend a little time with us Roland Berger Strategy Consultants.
6 4 Product lifecycle
7 executive review 2/2007 Product lifecycle 5 Dr. Ralf Augustin Principal Managing the product lifecycle from end to end > Perfecting the art of product development Engineering firms are under pressure to radically improve established product development and production processes if they are to roll out the innovative products that customers demand and get them to market quickly. Product lifecycle management (PLM) is the discipline that helps them rise to this challenge. PLM information systems ensure that all product information is constantly kept up to date in digital form at a central network location, and is therefore permanently available to everyone who needs it. This relatively simple principle is proving instrumental in slashing development lead times and laying a swift but solid foundation for the multiplicity of new products hitting the market. Four key tasks top the list of priorities at most mechanical engineering and industrial systems companies: continually cutting costs and/or raising profitability; consistently improving product quality; accelerating product innovation; and making organizations more flexible.
8 6 Product lifecycle In recent years, companies have tackled the issues of cost-cutting and product quality enhancement head on. And their efforts have borne fruit: Corporate profits in this industry have improved noticeably. Some progress has also been made in making organizations more flexible and stepping up the pace of innovation. In many cases, German engineering companies lead the world in these areas. Regarding these latter two issues, however, much remains to be done and it needs to be done fast. Why the urgency? Because innovation and flexibility ultimately determine how well a company can position itself, how well it can keep itself in shape for the future and whether it can sustain profitable growth beyond the current boom phase. Toward more innovative, flexible enterprises A fast pace of innovation fuels growth and keeps rivals at a safe distance. One of the most pressing needs is for companies to improve the cost/benefit ratio the total cost of ownership, in other words that products deliver to customers. Another is to provide high-quality, efficient machine servicing. To do this, however, firms must anticipate their customers' future requirements, and then define product roadmaps that enable their own machines to gradually satisfy these requirements.
9 executive review 2/2007 Product lifecycle 7 Moves to organize companies more flexibly must aim to shorten lead times in both development and production. Every person, every department concerned needs access to the same data and must collaborate closely within the process. Only then can many decisions that irrevocably define the end product be taken as late as possible in the process. Innovation and flexibility can only be cultivated successfully if product development processes are consistently focused on these two goals, receive systematic IT support and dovetail perfectly with downstream processes. Three key factors determine whether or not product development processes can be integrated effectively. An efficient product development value chain with clearly defined sequences is imperative. This allows companies to manage all their intellectual property effectively, involve external partners in "simultaneous engineering" and simulate the finished product even in the early stages of design. End-to-end provisioning of information in digital form via a centralized platform is equally essential. Development cycles can be shortened and mistakes kept to a minimum only if everyone involved marketing staff, product planners, buyers, production specialists, and in some cases even suppliers and customers has constant access to relevant product data. Exhaustive virtual product validation should also be ensured. The development process chain must be linked to the production value chain within the company and with outside partners. Product development and manufacturing data must be networked to the greatest extent possible. This helps ensure that the technical information generated during development is complete, correct and can thus be put to good use during production and assembly and also for after-sales service. It also makes sure that all necessary commercial data is there to support vital decisions during the design process. Modeling the real and virtual worlds and linking them together The conditions that allow these three success factors to be realized are already in place. In recent years, successful engineering firms have taken great pains to model their "real" world their production, purchasing and service processes systematically in electronic (or "virtual") form. The core data and workflows defined for these processes are stored in what are referred to as enterprise resource planning systems (ERP systems, the best-known of which is SAP). The resultant models have made their business perfectly
10 8 Product lifecycle transparent. Costs have thus been cut while production and assembly lead times have been slashed, not only in large companies. SMEs too have long since learned to put ERP systems to very good use. Which is only logical: Their business models are often built around intelligent, customer-specific combinations of standard purchased components (such as controllers, hydraulic and pneumatic components, drive systems and so on). Accordingly, these companies in particular depend heavily on process and product information to facilitate punctual, zero-defect production runs. As has already happened in the real world, similar improvements must now also be made in the "virtual" world of product development. To shorten innovation cycles and get new products to market faster, effective, computer-assisted processes must be established for concurrent and collaborative development, production process planning and service management. What is more, this must be done throughout the entire engineered product lifecycle. Finally, data for the virtual development process must then be linked to real production processes. One aspect of redesigning those business processes that precede production is to forge an optimized development value chain. This chain consists of three links or steps that must be reiterated continually. The first step is to build up market knowledge. Understanding the customers' future product and production trends is pivotal to this step, as is an in-depth knowledge of the opportuni-
11 executive review 2/2007 Product lifecycle 9 ties and threats that will arise from these trends. It is equally important to quantify market potential for one's own company. Ultimately, it is interplay between the three key repositories of knowledge traditional Sales Units, Engineering and Market Research (a function that is still underdeveloped at many machinery and industrial systems providers) that spawns fresh ideas for future product platforms and new lines of business. During the innovation management process, the second step is to investigate, filter and refine these ideas, and ultimately to translate them into marketable products. The third step is then to validate the technology used by these products and consume a minimum of resources in producing them. Redesigning business processes with PLM systems This kind of process can flow smoothly only if all relevant information is stored centrally in digital form right from the word go and is accessible to everyone involved. These fundamental requirements for efficient communication are met by product lifecycle management systems, or PLM systems for short. Merely installing such systems naturally provides no guarantee of success. Like the ERP systems we mentioned earlier, however, these systems too can be a key driver in the change process. Four specific PLM functions are crucial if innovation and growth potential is to be tapped: 1. Making lifecycle data available The principal task of a PLM system is to manage product lifecycle data such as requirements catalogs, system and component descriptions (specifications, drawings, etc.) and bills of materials for development, production and service. Dynamic data links ensure that everyone involved in the process has access to consistent, up-to-date product information at any time. This is one vital way to keep wrong decisions and unplanned extra work to a minimum during the development and production processes. 2. Defining and validating the product, process and resources on an electronic platform Storing all relevant product, process and resource information in electronic form speeds up the time to market and enables both functions and costs to be optimized. It does so by facilitating the advance simulation of product functionality, manufacturing and maintenance. 3. Supporting business process reengineering Modeling innovation management, systems engineering, change management and production and procurement planning from end to end in electronic form likewise facilitates standardization and automation. As such, it contributes to the continuous improvement of every business process surrounding the product in question. 4. Providing virtual integration for distributed workplaces Virtual workplace integration (featuring workflow control) opens the door to online collaboration. It brings the key players in the development and production value chains together even when they are not together, so to speak. It thus makes the organization significantly more agile and flexible. Thanks to such powerful functionality, PLM systems enable companies to transform their business processes systematically. Our project experience shows that PLM systems address literally all the key issues on CEO's agendas in the engineering sector. > Engineering enterprises that use PLM systems to integrate their development processes shave up to 30% off their development spending. They also reduce innovation lead times by as much as 20 to 25%. The need for fewer change iterations pays handsome dividends, as the technical feasibility of new products and components can be validated at an early stage. > All partners in the development process can make better use of available knowledge. This drives up the innovation rate, making it easier to focus on those attributes that, from the customer's perspective, will make the end product stand out from the crowd. > Product and production costs are reduced by up to 20%, simply because the modules stored in the PLM system can be exploited systematically. > The result is superior product quality and a more flexible organization, as new products can be built on the basis of any number of pre-validated modules.
12 10 Product lifecycle Launching PLM systems in easy stages In the context of PLM system launches, three practical guidelines have repeatedly proven invaluable: (I) Beware of automating existing processes without first examining them closely. Hasty action may well accelerate ineffective processes, but will do nothing to improve their quality. It is therefore vital to optimize the entire development process chain when introducing a PLM system. (II) The transformation we have described is not a piecemeal affair. It entails reengineering processes from top to bottom. Accordingly, PLMs should only ever be launched in the context of a fully fledged change management project in which top management is deeply involved. (III) Roland Berger advises clients to launch PLM systems step by step in a pilot setting. The first step is to introduce a product data store that structures parts and module documentation such as bills of materials and drawings. Everyone participating in the process gains read or write access to this information in line with their
13 executive review 2/2007 Product lifecycle 11 needs and roles. The next step must then be to implement a system of change and release management. The latter should clearly define both workflows and who is responsible for them. In addition, it must enable notification of completion to be forwarded automatically to the next person in the chain. Only then will version management be sufficiently fault-resistant, lead times short and data complete and consistent. The third step is to create a virtual collaboration portal that allows a wide variety of partners to keep development work moving in parallel. Finally, to ensure that both the virtual and real worlds are fully networked at all times, bidirectional interfaces must be set up between the PLM system and ERP and CAM solutions. Leveraging PLM systems to stimulate growth and set your company apart Properly handled, the launch of enterprise-wide PLM systems can yield benefits that go far beyond those of traditional CAx and product data management systems. Many of the engineering companies that today use PLM systems testify that these tools indeed help make them substantially more flexible and innovative. Put simply, the intelligent use of PLM systems can make all the difference in injecting growth stimulus and setting your company apart.
14 12 Interview with Claus Weyrich Interview with Professor Claus Weyrich, a recently retired member of the Managing Board of Siemens AG, head of the same company's Corporate Technology operation and an honorary professor at the Technical University of Munich executive review: We can think of very few people in the world who have such a depth and breadth of experience in research and development as yourself. Professor Weyrich, please tell us the secret of how a global player that operates in so many different fields can still keep a handle on ever more complex R&D activities. "You have to respond quickly to what customers want, while at the same time preparing the key technologies of the future." Claus Weyrich: Once you have reached a certain level of complexity be it in terms of the number of people, the number of business lines or even the number of countries in which you operate managing everything from the center would deprive the company of much of its dynamism and flexibility. Corporate R&D management therefore concentrates on building a framework and setting broad targets. You naturally have to be careful to respond quickly
15 executive review 2/2007 Interview with Claus Weyrich 13 and with the right products to current trends and what customers want. At the same time, however, you also have to take a longerterm view and prepare the way for the key technologies of the future. executive review: Do you feel that specific methods have proven themselves as a way to do this? Claus Weyrich: At the short- to medium-term end of the product development spectrum, the impulses come from the customers themselves and from the market, or from the development departments in the front-line units in each business. Solutions and discoveries that are more generally applicable are then usually circulated to the wider company by communities of experts and best practice sharing methods. That way, other parts of the company get to use them too. The situation is different for long-term innovation and technology planning, however. Here, you first need to identify those megatrends that are of significance to the company. You then distill these systematically until you are left with specific things that customers and markets will demand in future. The second step is to weigh up the alternative technological solutions, which is often done together with key customers. You then set priorities and piece together a strategic R&D portfolio. Whichever path you take, business success will always hinge on a carefully targeted implementation strategy and efficient implementation processes. Systematic innovation and technology benchmarking play a very important part in this context, as do effective project management and control. Ultimately and I know this is no new revelation success always depends on the quality, the excellence of your people. So the management must always pay very special attention to human resources, not just in the area of R&D. "Ultimately, success always depends on the quality, the excellence of your people." executive review: Software will presumably take on ever greater significance in R&D. How do you see the developments that lie ahead? Claus Weyrich: Yes, software is indeed becoming more and more important, because it handles more and more functions in electronic products and systems. The embedded, intelligent and autonomous systems that will assist people in all walks of life are just one of many examples. Like the interface between man and machine, the entire environment in which we live and move will in future adapt automatically to the individual user. One consequence of "The entire environment in which we live and move will in future adapt automatically to the individual user."
16 14 Interview with Claus Weyrich such constantly increasing capabilities is that software programs and solutions are becoming ever more complex. At the same time, the need to make them stable and secure and to develop them faster is growing all the time too. This circle can only possibly be squared by establishing highly stable, well-defined processes and by using modular, scalable platforms and architectures. Incidentally, of the EUR 5.7 billion that Siemens pumped into research and development last fiscal, more than 50% was spent on writing software. executive review: Technologies such as MP3 and wireless LANs were around for a long time before anyone really began marketing them. That finally gave them a powerful position. Which suggests that the problem is identifying tomorrow's technologies at the right time "A solution becomes established on the market when customers are willing to pay money for it." "One increasingly important criterion for abandoning projects is if you miss the window of time for market entry." Claus Weyrich: There is no patent recipe that lets you do that. Broadly speaking, however, one can say that a solution doesn't automatically become established on the market as soon as it is technically feasible. That only happens when customers are willing to pay money for it. To get a feel for the right window of time for long-range developments the time when the market will be ready to absorb a new technological achievement you have to constantly peer into the future and repeatedly and systematically analyze future scenarios in light of emerging market segments and future customer benefits. In most cases, it has proved expedient to translate new technologies into new applications in order to "attack" incumbent technologies that are fighting for their life. executive review: How can you judge which development projects should be pursued and which should perhaps best be aborted? Claus Weyrich: When you want to prioritize development projects, pivotal criteria include volume and growth in the new business areas, as well as profitability, of course. To put it bluntly, you need to know how much value you can add. Beyond that, developments must also fit in with corporate strategy. And you have to have sufficient skills and capabilities available in house. Approved projects are then measured by the degree to which they reach defined milestones, i.e. by keeping focused, meeting deadlines and staying on budget. One increasingly important criterion for abandoning projects is if you miss the window of time for market entry. That in turn underscores the need for rigorous project management and control. Having said that, you shouldn't go by the book too closely when it comes to very long term developments. In such situations you often need a good dose of entrepreneurial intuition, a sensitive touch and plenty of staying power but not at all costs.
17 executive review 2/2007 Interview with Claus Weyrich 15 executive review: We would be interested to know how you personally persuaded front-line business areas of the need to use new technologies, and how often the impetus came from the employees themselves. Claus Weyrich: At Siemens, no-one needs to be persuaded on that score. Rolling out a constant stream of innovations and setting the technological trend on the market is part of our corporate culture. Managing such developments is therefore not so much about convincing employees of the need for innovative technologies. It has more to do with evaluating the bubbling wellspring of innovative ideas from a technological, commercial and patent-law perspective, and then steering them in the right direction. To this end, Corporate R&D engages front-line business areas in an ongoing dialog on both a strategic and an operational level. Of course, there are also situations where it makes sense to press ahead in researching a technology even if no business unit takes the bait to begin with. That could happen because it will take a very long time before the technology in question takes on commercial relevance. Another reason is that the value of some technologies lies in their horizontal impact. The latter case keeps such developments flying below the radar coverage of individual business areas, because their potential business impact does not yet reach a critical threshold. However, given that such technologies can be applied in several areas, their overall value to the company can be substantial. executive review: Then there is the issue of time. How does a company consistently stay ahead of its rivals and defend its position as technology leader? Claus Weyrich: There are various innovation strategies. In our view, the most successful of these in the long run is the trendsetter strategy applied in conjunction with technological and market power. The first layer of bedrock for this strategy is a clear vision of future markets and customers' needs. This vision can be formulated only if the company knows its customers' business and processes inside-out. At the same time, the company itself must lead the field in strategically important technologies. Only then can it accurately assess both the potential and the limitations of current technological trends. From there, it can go on to develop the most promising approaches itself. Another aspect is strategic patent management. Only intellectual property that receives appropriate legal protection can be wielded as a powerful strategic weapon in the battle for markets and market share. Points five and six are the need to master the innovation process and the existence of a deeply ingrained culture of innovation. Innovation must always be a job for the boss. And anyone who wants to set the trend first and foremost needs excellent people who can work well as a team and are focused on successful outcomes. "Managing such developments has to do with evaluating the bubbling wellspring of innovative ideas and steering them in the right direction." "Only intellectual property that receives appropriate legal protection can be wielded as a powerful strategic weapon in the battle for markets."
18 16 Interview with Claus Weyrich executive review: As a manager in industry and an honorary professor, you know both sides of the fence. How important is it to collaborate with the scientific community? Claus Weyrich: For trendsetters in particular it is singularly important. Industrial research and public-sector research complement and facilitate each other. While industrial research focuses more strongly on markets and customers, one of the main goals in the public sector is to conduct basic research that aims purely to increase knowledge. Joint projects give universities the benefit of both extra research funding and applied knowledge. Conversely, companies keep their finger on the pulse of fundamental research and can exploit technological expertise in areas in which they do not wish to build up their own capabilities at least not yet. These activities naturally also give them access to an attractive recruiting pool for new employees. Such collaboration will only bear good fruit in the long term if it has the full backing of the management on either side. Moreover, both sides must see each other as partners of equal standing. They must share a clear, common goal and communicate intensively with each other. Both must also benefit from their collaboration. "Universities receive extra research funding and gain the benefit of applied knowledge." executive review: Is it really possible to guess what trends and developments will emerge? Or is it not more common for us to be surprised and then scramble to get on board? Claus Weyrich: There is a little more to it than guesswork. Trends indicate the long-term direction of development and can be identified systematically. This can be done by extrapolating from the present and engaging in "reverse extrapolation" from the perspective of future scenarios by taking account of a host of different factors. Clearly, no-one can predict the future and the trends it holds with absolute accuracy. What is far more important is to cultivate a process that systematically concerns itself with the future. The journey is the goal, in other words. One natural consequence of treading this path is that you develop an agility that lets you respond swiftly and at short notice to changes in customer demands, markets and technologies, but also to socioeconomic changes. executive review: Would you mind telling us where your personal forecasts were spot on and where you were disappointed? Claus Weyrich: After the initial patent was registered, it took 20 years before the first diesel injection system based on piezotechnology actually hit the market. That marked a revolution; and the technology has since become a trendsetter. What undoubtedly helped us was that, in our role as a newcomer among automotive suppliers, we consciously had to aim to leapfrog the mainstream. Incidentally, the German president awarded us and Bosch the German Future Prize for this technology in A year earlier, we had won another Future Prize for developing the "lab on a "Trends indicate the long-term direction of development and can be identified systematically." "Silicon carbide too is a substance that I long saw only in the context of light generation. Today, it is a key technology in innovative power electronics."
19 executive review 2/2007 Interview with Claus Weyrich 17 chip" in collaboration with Infineon and the Fraunhofer Society. I am convinced that this innovation will enjoy a tremendous future in in-vitro diagnostics and in the process industry. As a dyed-in-thewool anorganic solid-state physicist, however, I got it wrong with my assessment of the innovative potential for polymers in electronic circuits and as light sources. Organic displays, known as OLEDs, are now already fitted in products. And polymer-electronic circuits for RFID systems, for example are on the verge of a breakthrough. Silicon carbide too is a substance that I long saw only in the context of light generation. Today, silicon carbide is a key technology in innovative power electronics. Its high breakdown voltage, low electrical resistance and ability to work even at high temperatures are opening up entirely new system strategies. executive review: After more than 40 years in R&D in both the academic and industrial spheres, what hints can you give to others? Claus Weyrich: Some I have already mentioned. The golden rule is undoubtedly to focus what you do on the customer, or on your future customer. "Help your customer to earn money" is definitely the simplest formula to fuel successful innovation. That implies not just doing what customers want, but also what they need. A second important point is that, although innovation often happens by chance, you cannot leave it to chance alone. Innovation must be managed systematically. Third, as I said at the outset, you should never underestimate the ability of established technologies to resist change. You always need new applications to attack old technologies. Last but not least, people are ultimately the decisive factor. Excellence technical and personal excellence creativity, motivation and team skills are key factors in every successful research and development undertaking. That applies as much to industrial companies as it does to universities and research organizations. "Innovation often happens by chance. But you cannot leave it to chance alone." executive review: Professor Weyrich, thank you! Thomas Ring, Partner at the Düsseldorf office, conducted this interview on behalf of executive review.
20 18 Research & development Globalizing R&D with pinpoint accuracy > Knowing where to do what!