Telia Sonera IT/IP Business Competence Development Programme. Modularization 16th of Feb 2010

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2 Telia Sonera IT/IP Business Competence Development Programme Alex von Yxkull Modular Management AB Modularization 16th of Feb

3 Agenda Modular architecture basics How modular architecture improves profitability How to introduce a modular architecture Summary Discussion on Telia s approach

4 Agenda Modular architecture basics How modular architecture improves profitability How to introduce a modular architecture Summary Discussion on Telia s approach

5 Modularity in telecommunications SERVICES: DEVICES: ACCESSES: CORE and TRANSPORT SERVICE ENABLERS Modularity enables faster and cheaper: Television Voice calls Fax Company services Upgrade with new services and service variants Addition of new accesses and variants Common resource utilization Voice calls Internet SMS Internet Data storage Security Voice calls CUSTOMERS: ORDER & CONFIG. SYSTEM CONF RULES SERVICES CUSTOMERS $ $ BILLING BILL TARIFFS & DISCOUNTS SERVICES & USAGE CUSTOMERS

6 Business strategies Cost reduction Operational Excellence by: Efficient processes and commonality + Productive + Even quality + Low cost -Unflexible - Price pressure Price premium Product Leadership by: Innovation, fast R&D cycle + Price premium + Positive brand image - Development costs - Quality risks Market share Customer Intimacy by: Fast, precise customer adaptations + Faithful customers + Many product variants + Market share - Unstable processes - High customization costs Discipline of Market Leaders by Michael Treacy & Fred Wiersema

7 The problem is Operational Excellence Customer Intimacy Product Leadership improving in one direction makes the other two suffer

8 The problem is Operational Excellence Standardized solutions conflicts with customer specific solutions Using well proven processes and focusing on even quality slows down development and conflicts with Product leadership Customer Intimacy Product Leadership improving in one direction makes the other two suffer

9 The problem is Operational Excellence Customer Intimacy Product Leadership A high level of customization increases complexity in the company making the OE suffer. The product variance created makes it impossible to also maintain product leadership for all those products improving in one direction makes the other two suffer

10 The problem is Operational Excellence To be product leader forces you to focus on a small number of products. This makes the variance offered to the customers decrease Product leadership requires a constant development of the product. The frequent changes is making the OE hard to maintain. Customer Intimacy Product Leadership improving in one direction makes the other two suffer

11 Decoupling by modularity Operational Excellence Customer Intimacy Product Leadership Module: A building block with defined interfaces, driven by Company specific strategic reasons Market requirements must guide the modularization

12 Modularity depends on interfaces Product Leadership Operational Excellence Customer Intimacy Interfaces isolate the modules in their strategic circle

13 Definitions Module: A building block with defined interfaces, driven by Company specific strategic reasons. Module Variant: A physical realization of a module. Module System: A set of modules that through different combinations generates a range of products that can be efficiently developed, marketed, produced, and delivered

14 Agenda Modular architecture basics How modular architecture improves profitability How to introduce a modular architecture Summary Discussion on Telia s approach

15 Scania With a minimum of components we have achieved the difficult task of having a very flexible variety of finished products. Leif Östling, CEO Scania AB 026 en

16 Scania 4-series

17 Scania consistently outperforms other integrated truck manufacturers Scania... DaimlerChrysler MAN EBIT margin Percent Update numbers Volvo 2.8 Iveco n/a 026 en Leif Östling, CEO Scania AB Scania attributes its profitability to its company wide adoption of Modular Systems Source: Scania

18 Modular systems - Scania 4-series

19 Cabs-Scania 4 series

20 The Cab modular system, modules and variants Wind shield module Roof module Door module Back panel module Bumper module Square panel module Lower panel module Front module Click here to configure product Modularity terms: Specified interfaces Commonality Configurability Module Module variant Module system

21 Effects, Scania truck cabs Scania 4-series 030 en Parts 100% 22% Variants <1000 > Assembly time 100% 50% Packing volume bad bad Storing (max) 4 months 10 days Storing (average) 2 months 5 days Robotic welding 0% 80%

22 Rapid development of Sony Handycam Source: Ron Sanches Modularity - high product introduction rate at a low development load

23 Platforms and commonality Audi A3 (3+ 5-door) Audi TT coupe Audi TT roadster VW Golf IV (3+5 door, station wagon, convertible, and Minivan) VW Bora (Bora sedan, coupe, convertible, and station wagon) VW plans for 19 vehicles based on A-platform VW Beetle (New Beetle, New Beetle convertible) Skoda Octavia (Octavia sedan, and station wagon) VW estimates development and investment cost savings of $1.5 billion/yr using common platforms Seat Toledo Successor (Toledo, coupe, station wagon, and convertible)

24 ESAB Welding Equipment Results: 40% reduction of part numbers 50% shorter assembly time Lead time reduction from 9 to 1 day 50% reduction of suppliers Product variant increase by 50% Time to market of new variant was cut by 40% Source: Modular Management AB

25 How can a company utilize modular architectures to improve profitability? Cost reduction Revenue increase OH cost reduction Lead-time reduction Tied up capital reduction DM cost reduction Modular architectures Mass customization More frequent launches of new functions/features Quality improvements Cost of non-quality reduction Performance improvements Upgrades

26 Modular architecture KPIs Key Performance Indicators Part Number Count, PNC Typical values with a modular product architecture compared to non-modular designs 30 90% decrease Part Number Introduction, PNI 50 90% decrease Number of product variants Time To Market (TTM) for new product variant Lead-time from Order to Delivery OTD Inventory level Dramatic increase even with less PNC and PNI 50 90% decrease 60-90% decrease 20-70% decrease

27 Agenda Modular architecture basics How modular architecture improves profitability How to introduce a modular architecture Summary Discussion on Telia s approach

28 Implementation project and governance phase Pre-study phase Concept phase Implementation phase Industrialisation phase Governance phase Business Case Project proposal From market requirements to defined modular system Implementation of the modular system Put in production, launch, market and sell Maintain the Modular architecture

29 Modular Function Deployment

30 Product Management Map (PMM)

31 Risks and pitfalls The organisation is not prepared for major changes. Market input is incomplete or radically changed. High cost of commonality via over-specification

32 Agenda Modular architecture basics How modular architecture improves profitability How to introduce a modular architecture Summary Discussion on Telia s approach

33 Summary Modular design benefits: Operational Excellence Less complexity More product variants Product Leadership Customer Intimacy Improved quality Faster Time-to-Market Architecture becomes part of the company strategy Higher profitability

34 Agenda Modular architecture basics How modular architecture improves profitability How to introduce a modular architecture Summary Discussion on Telia s approach

35 Waste of resources and long lead-times Projects are driven through pipelines Every product manager is racing on his own Project Managers is braking new ground parallel to his/her colleges Unclear specifications The value of customer demands and properties are seldom thoroughly worked through The technology of tomorrow is driving the future customer demands Dangerously close to an infarct to many parallel projects (ca 30 official) Difficult to get people working in a structural manner. People are used to putting out fires Drowning in documentation A billion documents needs to presented at the same time Bottlenecks Everything needs to be passing through Jonas and Ola Lack of communication and walls (working in herring barrels) Marketing and technology is using different languages

36 Plattformar och komponenter IA500 Användarutrustning AM NA(1) Transmission NA(2) Ollbox ADSL-modem m. POTS-splitter DSLAM u. POTS-splitter Catalyst FLS WWW-hosting ADSL-modem u. POTS-splitter Cu DSLAM m. POTS-splitter ATM Redback FLS Proxy/cache DNS Router GAP? Integrerad lösning Streaming

37 Thanks for listening! Alex von Yxkull +46 (0) Modular Management AB Kungsgatan Stockholm Phone: +46 (0) Website: