PLM Software as a Service : Enterprise Strategies Report: Improving Product Development Performance for Smaller Manufacturers

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1 PLM Software as a Service : Enterprise Strategies Report: Improving Product Development Performance for Smaller Manufacturers

2 Page 2 of 7 Overview Achieving product profitability in the current product innovation environment is difficult. Challenges such as faster product commoditization, outsourcing, cost pressure, and more complex products often defeat efforts to increase product profitability. In fact, small to medium size manufacturers (SMEs) are missing product development targets that directly impact business results. Aberdeen s Product Lifecycle Management for Small to Medium-Size Manufacturers Benchmark Report reveals that about one half of SMEs meet time-to-market targets just 20% to 80% of the time and about one quarter hit them only 20% of the time or less with similarly alarming figures for meeting product cost, revenue, product development cost, and quality targets. These figures indicate that product development processes for SMEs are very commonly inadequate or out of control. In fact, Aberdeen benchmarks show that only 13% of SMEs have centralized product data management, and just half have more than limited process automation and collaboration capabilities. These are now considered core product lifecycle management (PLM) capabilities. Yet AberdeenGroup research shows that most SMEs lag in implementing PLM solutions because of resource constraints, despite the significant competitive and financial advantages they provide. Best in class SMEs are four times more likely to employ PLM solutions and they are achieving double-digit cost, revenue, and time-to-market gains (Table 1). For many of these top performers, the key to removing implementation barriers and improving product development performance is software as a service (SaaS) PLM or on-demand PLM solutions. Aberdeen found that manufacturers that report using SaaS PLM are much more likely to be performing at best-in-class levels. SaaS solutions reduce PLM implementation barriers common to smaller manufacturers, by offering: Lower barriers to entry because SaaS solutions require fewer IT resources Low total cost of ownership Fast, easy adoption

3 Page 3 of 7 Decision Framework Core PLM Functions: Critical to Achieving Control and Key Business Benefits The PLM for SME Benchmark Report indicates that 17% of SMEs are acting to improve product development processes by investing in core PLM capabilities. Their top priorities are: Product data management a trusted, centralized source of product data including revision control, data security, and search. These controls are all necessary given the increased complexity of product data and the growing size and diversity of development teams. Project automation to control both data and activities for better project, product development, and program execution. Capabilities include managing tasks, timelines, deliverables, and approvals as well as business process automation and project management functions. Design and project collaboration for responding rapidly to market demands and incorporating multiple parties early in design in order to enhance innovation and prevent rework. Capabilities for design sharing, from online reviews to visualization tools, support first-time-right design, while project collaboration keeps multi-functional, increasingly dispersed project teams working in tight coordination and on the same information. Smaller manufacturers are adopting core PLM, recognizing that best in class companies (those meeting targets 80% to 100% of the time) are four times more likely than their peers to employ PLM solutions and are achieving business benefits on a par with larger companies (Table 1). Table 1: Benefits of Improved Product-related Processes - SME All Companies SME Increased Revenue 19% 19% Reduced Product Cost 15% 17% Decreased Product Development Cost 16% 16% Source: AberdeenGroup, March 2006 With these tangible benefits available, why haven t most SMEs seized the PLM opportunity?

4 Page 4 of 7 Unique SME Barriers to PLM: SMEs face challenges in implementing PLM unique to smaller organizations, including: Cost of implementation. To be successful and deliver a timely ROI, a solution must be widely adopted by users. This often requires changing business processes, integrating the new solution with other software, and training users. The cost of implementation, thus, becomes a barrier if solutions are complex, require significant configuration, entail significant software modifications, or require widespread changes to business processes. Lack of internal resources. Smaller companies may face roadblocks in assembling the appropriate project team. They must dedicate talented functional people with the requisite business knowledge to the project to ensure the software improves the business. Frequently, they also lack capacity from appropriate technical resources. To address these resource challenges, many manufacturers are embracing a new kind of solution that is gaining ground across a number of enterprise applications, specifically SaaS. Software as a Service Solutions: Reducing the Effort of Change SaaS Solutions Are: Externally hosted and managed applications, content, services Delivered as Web-based services Available in flexibly priced models Enterprises are increasingly deploying and benefiting from on-demand or software as a service applications as a key part of their major system infrastructure areas, including CRM, ERP, SCM, procurement or supply management, and PLM. SaaS, or on demand software, is a new approach to implementing software solutions. In this model, the company simply pays a fee to utilize the functionality provided by the software. There is no up-front investment to purchase the software and no technical implementation because software is already installed on the service provider s equipment. With SaaS software, the company simply signs up for the service, pays a monthly fee, and begins to access the solution (typically over the Internet). Using this approach, companies are able to rapidly begin to utilize the software, and often at a reduced cost. In fact, Aberdeen research shows that best-in-class, smaller companies are frequently operational with SaaS solutions within 90 days (Chart 1). Chart 1: Implementation Time by Company Size ANNUAL REVENUE $1B B M <50M <1 WEEK 1-4 WEEKS 4-8 WEEKS 8-12 WEEKS >12 WEEKS Overall 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: AberdeenGroup, 2005

5 Page 5 of 7 AberdeenGroup research confirms that a wide range of companies are turning to SaaS solutions to address implementation barriers such as implementation time, ROI, limited IT resources, and budget constraints (Chart 2). Chart 2: Top Drivers for SaaS Solutions PERCENT OF RESPONDENTS Considering These Pressures Very Or Extremely Important 70% 60% 50% 40% 30% 20% 10% 0% 62% Faster Implementation/ROI 51% Executive Mandate 49% Limited IT Support Budget Constraints 46% 46% Headcount Restrictions 35% Avoid Technological Obsolescence Top Drivers Non-Top Drivers Source: AberdeenGroup, March 2006 These solutions are also fulfilling their promise. Users of SaaS solutions report: Operational implementations within weeks Full payback and ROI within months Initial solution fees 50% lower than traditional software licensing models Ongoing operating costs 50% lower than installed software Furthermore, Aberdeen found that manufacturers that report using SaaS PLM are much more likely to be performing at best-in-class levels (Chart 3). Chart 3: Performance Levels of Companies Using SaaS Solutions for PLM Best in Class 60% Average Laggard 7% 30% 14% 10% Currently Using Planning on Use 0% 10% 20% 30% 40% 50% 60% 70% Source: AberdeenGroup, March 2006

6 Page 6 of 7 Aberdeen Conclusions AberdeenGroup research on PLM and SaaS leads to two clear conclusions. First, PLM capabilities for product data management, process automation, and collaboration can significantly improve product development processes and performance. Second, SaaS solutions reduce PLM implementation barriers common to smaller manufacturers, by offering: Lower barriers to entry because SaaS solutions require fewer IT resources Low total cost of ownership Fast, easy adoption Therefore, SMEs should definitely consider adding SaaS solutions to their PLM portfolio to reduce the technical hurdles and resource constraints that prevent PLM implementation, but with the following recommended actions: Recommended Actions Beyond the deployment of the solution, be sure the application suits the business need. Start with a need and pick a solution that will provide tangible results. Compare the uptime, availability and cost of internal systems, if tracked, to SaaS vendors. SaaS systems are likely to be favorable. Compare the security and data continuity of current systems and infrastructure, if available, to SaaS solutions. SaaS offerings may be favorable, particularly for smaller companies that lack specialized IT resources. Look for a technology architecture built for Web performance, security, and reliability with proven integration capabilities to back-end systems.

7 Page 7 of 7 About Aberdeen Group Author Profile: Jim Brown Vice President Global Product Innovation and Engineering Research AberdeenGroup, Inc. Jim Brown leads AberdeenGroup s Global Product Innovation and Engineering research. Its goal is to provide fact-based research and experienced analysis that advises executives on how to achieve maximum product profitability and corporate value by using the right approaches and enabling technology to identify, specify, engineer, develop, and continuously improve innovative, high-value products. Jim founded research and consulting firm Tech-Clarity, acquired by Aberdeen in May Tech-Clarity focused on making the value of PLM and enterprise software solutions clear to manufacturing business leaders. Jim began his professional experience with roles in manufacturing engineering and software systems at General Electric before joining Andersen Consulting (Accenture), where he focused on enterprise software applications. He has also served as an executive at several software companies and as the PLM analyst for Technology Evaluation Centers and The PLM Evaluation Center. Jim is a frequent author and speaker on applying software technology to achieve tangible business benefits. Related Research The Product Lifecycle Management for Small to Medium-Size Manufacturers; March 2006 The On-Demand Tipping Point in Supply Chain Benchmark Report; March 2006 OnDemand Supply Management Benchmark Report; June 2006 Author: Jim Brown, Vice President, Product Innovation and Engineering Founded in 1988, AberdeenGroup is the technology- driven research destination of choice for the global business executive. AberdeenGroup has over 100,000 research members in over 36 countries around the world that both participate in and direct the most comprehensive technology-driven value chain research in the market. Through its continued fact-based research, benchmarking, and actionable analysis, AberdeenGroup offers global business and technology executives a unique mix of actionable research, KPIs, tools, and services. This document is the result of research performed by AberdeenGroup. AberdeenGroup believes its findings are objective and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by AberdeenGroup, Inc. and may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means without prior written consent by AberdeenGroup, Inc.

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