Mastering complexity in global development organizations

Transcription

1 Mastering compleity in global development organizations A benchmark study across technology intensive industries Discussion Paper July 006

2 Contents 1 What is the "Organizational FIT"? How to master organizational compleity? 3 How to put it into practice? Organizational_Fit_06071.ppt/m

3 What is the "Organizational FIT"? Motivation 1 With this study, Arthur D. Little is aiming to introduce a first quantitative approach to evaluating and improving the design of global R&D organizations Background and motivation of the study In order to win in the global competition, companies active in high-tech areas need to make sure that their innovation strategy is eecuted smoothly. As there is no single best way of doing business, the fit between strategy and organization becomes crucial and research has shown that the organization does either support or contradict specific strategic goals. Oddly enough, the fit between innovation strategy and development organization has received little management attention: the design of development organizations is usually done in a pragmatic and incremental way, with little systematic thinking to master the compleity involved. In order to provide top managers with the appropriate tools to design their organizations, Arthur D. Little in cooperation with the University of Berlin have developed a technique to measure how closely a company s development organization fits with its strategy. This measure, called the FIT-inde, is based on profound academic research on successful development organizations and tested with the 68 global companies from the Automotive, Manufacturing, Aerospace and Defense industries who have chosen to participate in this study. Organizational_Fit_06071.ppt/m 3

4 What is the "Organizational FIT"? How it was done 1 How it was done Research Scanning of scientific databases 108 research papers reviewed and evaluated 35 documents taken into consideration The process, we went through Development of methodology First quantitative approach of organizational assess -ment Organizational FIT describing the correlation between 10 strategic objectives and 15 organizational dimensions Joint development with the Chair of Innovation Management of the University of Berlin Global study 68 global companies - Automotive, Aerospace & Defense and Electronics Industry "practices" "Organizational Fit" across five dimensions: [%] Organizational_Fit_06071.ppt/m 4

5 What is the "Organizational FIT"? Methodology 1 Illustration of the Organizational FIT Inde methodology Correlation between strategic objectives and organizational dimensions 10 strategic dimensions 15 organizational dimensions "Organizational FIT Inde" Correlation between 400 matri points Organizational_Fit_06071.ppt/m 5

6 What is the "Organizational FIT"? Overall organizational fit 1 The average organizational fit of 58% across the board demonstrates that a significant potential for optimization remains for most companies Average organizational fit inde Remarks Operational structure: Management of critical interfaces 7% Organizational structure and network 57% 58% Governance: Resources and budgets 61% Significant potential in optimizing fit between strategy and organization No industry specific pattern No strategy specific pattern No regional pattern Operational structure: Integration and validation processes 54% Governance: 56% Project/program/ product management Fit to depend solely on individual company situation Source: Arthur D. Little, Development Ecellence Study Organizational_Fit_06071.ppt/m 6

7 What is the "Organizational FIT"? Methodology: Strategic Dimensions 1 Companies' strategies have been classified according to their general positioning and a set of characteristics which drive their business Strategic Dimensions Strategic Positioning Business Characteristics Quality leader Cost leader Innovation leader Importance of differentiation (e.g. brands) in product portfolio Importance of short innovation cycles Importances of reuse of concepts, modules, and components Relative importance of development costs Importance of supplier integration Product compleity Importance of customization (customer specific requirements) Organizational_Fit_06071.ppt/m 7

8 What is the "Organizational FIT"? Methodology: Organizational Dimensions 1 Five clusters of organizational dimensions have been considered Organizational Dimension Organizational structure and network Top level structure of development organization Market/regional orientation of development organization Engineering network structure and allocation of competencies Operational structure: Management of critical interfaces Advanced & series development Engineering & design/styling Launch management Governance: Resources and budgets Engineering resource planning Budget allocation Operational structure: Integration and validation processes System integration Procurement & production integration Sales integration Validation Governance: Project/program/ product management Role and authority of project mgmt. Product life cycle responisbility Organizational_Fit_06071.ppt/m 8

9 What is the "Organizational FIT"? Study participants 1 From September 005 till February 006 a total of 68 companies were interviewed around the globe Participating industries Companies originating from: Manufacturing and consumer goods A&D Electronics 1% 0% 1% 56% Automotive OEMs and suppliers Regional coverage Europe (incl. CEE) USA Japan/ South East Asia Total: 68 global companies Sales figures Electronics Size of the participating companies > 0 Bn 10% 10% 14% 5-0 Bn 6% Mio Others40% 1-5 Bn 500 Mio-1Bn Background research Academic patronage: Chair of Technology & Innovation Management Prof. Dr. Gemünden, University of Berlin Source: Arthur D. Little, Development Ecellence Study Organizational_Fit_06071.ppt/m 9

10 What is the "Organizational FIT"? Overall organizational fit 1 The average organizational fit of 58% across the board demonstrates that a significant potential for optimization remains for most companies Average organizational fit inde Remarks Organizational structure and network 57% Significant potential in optimizing fit between strategy and organization Operational structure: Management of critical interfaces 7% 58% Governance: Resources and budgets 61% No industry specific pattern No regional pattern Operational structure: Integration and validation processes 54% Governance: 56% Project/program/ product management Fit to depend solely on individual company strategy and situation Source: Arthur D. Little, Development Ecellence Study Organizational_Fit_06071.ppt/m 10

11 Contents 1 What is the "Organizational FIT"? How to master organizational compleity? 3 How to put it into practice? Organizational_Fit_06071.ppt/m 11

12 How to master organizational compleity? Individual FIT Inde For each study participant we have determined the individual "Organizational Fit" Eample: XYZ Corp. Quality leader Strategic positioning Cost leader Importance of differentiation in product portfolio Importance of short innovation cycles Importance of degree of reuse of concepts, modules & components Importance of development costs in relation to total product costs Importance of supplier integration in the development process Product compleity Degree of product customization to customer specific demands Innovation leader not important X X X X X X very X Operational structure: Management of critical interfaces 7% 60% 54% 65% Operational structure: Integration and validation processes "Organizational Fit" Organizational structure and network 78% 57% 40% Organizational Fit 67% Governance: Resources and budgets 80% 61% 56% 58% Governance: Project/ program/ product management Average score of participants Organizational_Fit_06071.ppt/m 1

13 How to master organizational compleity? Key recommendations The study reveals some general recommendations which are valid for all participating companies and "independent" from the selected strategies General recommendations from the study Avoid the "over-simplification trap" Design your engineering organization balancing closeness to markets with economies of scale across BUs, regions and brands Plan and allocate resources on the basis of market mechanisms wherever possible and fund development projects directly Implement personalized responsibility Get rid of cozy committees Put more emphasis on integration and validation processes as product compleity increases with distributed functions Develop competencies at critical engineering interfaces Styling and launch management Organizational_Fit_06071.ppt/m 13

14 How to master organizational compleity? Individual FIT Inde furthermore, for the majority of study participants following improvement areas have been identfied: Frequently identified improvement potentials 1. More coordination of R&D across BUs in order to realize synergies (-> CTO/ Corporate Technology Mgmt. in a market oriented decentral R&D structure). Stronger role of project managers, budgets should be mainly with projects vs. line functions 3. Personalized product life cycle responsibility (-> product managers) 4. Separation of technology/ module and product development 5. Dedicated system integration centers and product validation according to standard processes respectively with central resources 6. Engineering, procurement, and manufacturing under one leadership 7. Strong customer oriented organization with permanent customer focused sales & engineering teams (->commercial and technical key account management) 8. Standard product launch management processes and clearly defined overall launch responsibilities Organizational_Fit_06071.ppt/m 14

15 How to master organizational compleity? Top level structure For 83% of the interviewed companies the cross-bu engineering organization is the most appropriate choice 1.1. Organizational structure and network Top level structure Alternatives & % chosen Study results [% of] Strategic considerations Note: Preliminary general recommen -dation for typical medium sized machine builders; valid for the majority of engineering & manufacturing study participants; specific recommendations for depend on strategic objectives a) Engineering across all BUs Board BU BU BU b) BU specific engineering Board BU BU BU 51% 49% % chosen alternative All industries optimum for % of companies % with appropriate choice Cross-BU engineer. optimum for 83% of companies Balance distinctive offerings for markets with synergies across BUs Central - Cost effective but comple to manage Often found as transitory (e.g. integration not finished after PMI) Automotive + A&D frequently choose the suboptimum b) BU specific engineering Decentralized Rarely to be the optimum Lacking synergies Cost/ quality optimizations Organizational_Fit_06071.ppt/m 15

16 How to master organizational compleity? Market/ regional orientation When dealing with globalization of R&D most companies show dysfunctional behavior 1.. Organizational structure and network Market/ regional orientation a) (Globally) centralized structure b) Matri structure Head of eng. Head of engineering Local business head c) Decentralized structure Local business head Alternatives & % chosen Local business head Local business head Local business head Local business head Local business head Local business head 40% 51% 9% % chosen alternative Study results All industries optimum for % of companies % with appropriate choice Strategic considerations For 4% of the companies a globally centralized structure makes sense, for 58% the regional component is more important Achieving global synergies is easier within a centralized organization but this is generally perceived to be too comple to manage Matri Management is en vogue but in most cases not appropriate (it seems that companies prefer the sub-optimal compromise rather than making a clear decision) Organizational_Fit_06071.ppt/m 16

17 How to master organizational compleity? Allocation of competencies Companies typically struggle with historically grown integrated engineering locations and often failed so far in implementing clear Centers of Ecellence 1.3. Organizational structure and network Allocation of competencies Alternatives & % chosen Study results Strategic considerations a) Full range of competencies in each engineering location Competence 1 Competence Competence 3 Competence n Engineering location 1 Engineering location b) Specific competencies in each engineering location Competence 1 Competence Competence 3 Competence n Engineering location 1 Engineering location Engineering location 3 Engineering location 3 40% 60% % chosen alternative All industries 1 88 optimum for % of companies % with appropriate choice Most engineering organizations have grown historically, change is therefore emotional and difficult For 9 out 10 companies a Center of Ecellence (CoE) approach is appropriate Most interviewed companies without CoEs are in the process of transitioning towards this organizational model Organizational_Fit_06071.ppt/m 17

18 How to master org. compleity? Engineering resource planning & allocation Top down approach in distributing R&D budgets the most common option. However, only for 40% the optimum solution.1. Governance: Resources & budgets Engineer. resource planning & allocation Alternatives & % chosen Study results Strategic considerations a) Centralized planning "Top-down allocation" Local engineering units b) Market mechanisms "Competitive bidding for orders" Local engineering units Global engineering budget Local engineering units Global engineering budget Local engineering units c) Decentralized planning Local engineering budget Local engineering units Local engineering budget Local engineering units 70% Local engineering units 4% Local engineering units 6% Local engineering budget Local engineering units 3 All industries optimum for % of companies Centralized budget is preferred (perceived as easiest) but not always appropriate = control Market mechanism, partly understood, difficult to do but often appropriate for introducing a stronger market orientation Decentralized planning tends to be driven by local P&L`s but lacks synergy across the business units Research and development budgets follow different allocation logics % chosen alternative % with appropriate choice Organizational_Fit_06071.ppt/m 18

19 How to master organizational compleity? Allocation Most companies should give budget governance to projects. For the rest a mied allocation would be the optimum.. Governance: Resources & budgets Allocation Alternatives & % chosen Study results Strategic considerations a) Budget governance by development project Project budget Development project function 1 b) Mied budget allocation Project budget Development project function 1 function function c) Budget allocation to line functions Development project function 1 function 3 budget budget budget function 41% 39% function 3 0% budget budget budget function 3 % chosen alternative 0 All industries optimum for % of companies % with appropriate choice Budget allocation by project for 73% the most appropriate solution Strong project management requires full control of budget & resources Short cycles, tough deadlines For a high degree of reuse a mied budget allocation is appropriate to avoid project specific optimization Budget allocation has grown historically and companies are still suffering from the effects Organizational_Fit_06071.ppt/m 19

20 How to master organizational compleity? Project management A strong project manager tends to be the optimum organizational model, especially when seen as "Multi-Project-Manager" 3.1. Governance Project management Alternatives & % chosen Study results Strategic considerations a) Full responsibility and authority with project manager Project manager b) "Matri" principle Project manager Project manager function 1 function 1 function 1 function Development project function Development project c) Main responsibilities and authority is within line function function Development project 38% function 3 4% function 3 0% function 3 % chosen alternative 0 All industries optimum for % of companies % with appropriate choice For 95% full responsibility with PM is the appropriate option Heavy duty PM good way to realize your strategic objectives (low risk option) Potential risk: Project specific optimization Requires change in line function self perception (from technical solutions to competency management) Besides budget issues PM is also about "soft" organizational skills (culture, coaching, transfer of know how) Organizational_Fit_06071.ppt/m 0

21 How to master organizational compleity? Product/ program management Even though 9% of the companies interviewed considers PLM responsibility an issue, only one third have a structured solution for life cycle management 3.. Governance Product/ program management Alternatives & % chosen Study results Strategic considerations a) One personalized responsibility (e.g. 34% within engin., prod. mgmt, ) over entire life cycle Product mgmt. Engineering b) Committee approach Product mgmt. Engineering BU/ board Production Sales After Sales BU/ board Production Sales After Sales c) No specific product/ program mgmt., decisions taken on BU/ board level BU/ board 46% 0% All industries 9 9% see life cycle management important, only 34% personalize this responsibility For 9% personalized responsibility appropriate: Clear accountability Life cycle integration issues addressed Important to reach costs & quality targets Manufacturability & serviceability Life cycle responsibility still implemented to a low etent Engineering Production Sales After Sales % chosen alternative optimum for % of companies % with appropriate choice Important to reach costs and quantity targets Organizational_Fit_06071.ppt/m 1

22 How to master organizational compleity? System integration System integration teams are considered a must for all situations involving comple integration in rigorous time frames 4.1. Operational structure: Integration & validation processes System integration a) Dedicated system integration centers with local concentration of teams System integration team 1 function 1 function b) Formalized system integration without local concentration of teams Engineering BU/ board c) No formalized system integration Engineering Alternatives & % chosen function 3 Production Sales After Sales System integration process & workflow BU/ board 44% 33% 3% Production Sales After Sales % chosen alternative Study results All industries optimum for % of companies % with appropriate choice Strategic considerations Most interviewees are faced with increased system integration responsibility in the coming years For 63% of the interviewees, dedicated system integration teams to be appropriate: Master compleity of their products (e.g. launch, ramp-up) For short innovation cycles (e.g. software) Reduce redundancies Supplier OEM interface Dedicated teams are a major lever for avoiding quality problems For long innovation cycles (e.g. A&D) a workflow solution may be appropriate Organizational_Fit_06071.ppt/m

23 How to master organizational compleity? Procurement & production integration Companies increasing go for a COO approach integrating E, P and M, being the optimum solution in 100% of the cases 4.. Integration & validation processes Procurement & production integration Alternatives & % chosen Study results Strategic considerations a) E, M, P under one head M M, E & P b) E and M under one head P independent M c) E and P under one head M independent d) E, M and P independent E M & E M M E E BU / board P BU / board S AS P S AS P BU / board E & P S AS BU / board 0% 16% 7% 57% E P S AS All industries optimum for % of companies COO approach is 100% appropriate COO approach to foster technical solution at optimum manufacturability and costs Avoid silo optimization, open up value chain thinking Any integration from E/P and M better than independent Different integration levels are seen across industries: E&P integration: e.g. BMW, DC and Volvo Trucks COO approach: MCG % chosen alternative % with appropriate choice Organizational_Fit_06071.ppt/m 3

24 How to master organizational compleity? Sales integration A Key-Account organization or an organization combining sales and application engineering is strongly recommended for BB businesses 4.3. Operational structure: Integration & validation processes Sales integration Alternatives & % chosen Study results Strategic considerations a) Functional organization E S b) Key-Account matri E S Project A Project B KAM A KAM B 41% 40% 0 0 All industries 41 Generally a customer orientated organization is better for BB businesses Customer orientation High correlation with market success Positive on cycle times Danger of being too much in customer focus ignoring cross customer synergies c) Customer orientated organization E&S KA A KA B KA Advanced Eng. 19% % chosen alternative 59 optimum for % of companies % with appropriate choice Customer orientated organization is particularly applicable if sales is based on module / platform with customer specific customization Organizational_Fit_06071.ppt/m 4

25 How to master organizational compleity? Validation Typically validation is not done effectively ignoring emerging governance issues 4.4. Operational structure: Integration & validation processes Validation Alternatives & % chosen Study results Strategic considerations a) Centralized Validation office Project 1 Project Project n b) Project specific with centralized resources Validation office c) Validation within project teams Project 1 Project Project n Project 1 Project Project n 8% 50% % % chosen alternative All industries optimum for % of companies % with appropriate choice Centralized planning appropriate in 98% of the cases Standardization and bundling of validation activities become more and more important Generally for all companies with comple systems option a) is a strategic must Cross project / organization standardization of testing and validation Governance issues emerging (DIN /IEC Functional Safety / Safety systems) Organizational_Fit_06071.ppt/m 5

26 How to master org. compleity? Integration of advance & series engineering For 89% of the companies, an advanced engineering organization independent from series engineering is appropriate 5.1. Critical process interfaces Integration of advance & series engineering Eample a) "Advanced engineering/ research" independent from series engineering Advanced engineering Telematics Active safety Alternative propulsion function 1 Engineering series engineering function b) Integrated in product engineering Eample Alternatives & % chosen function 1 Adv. eng. line funct 1 product A Series B Engineering function Adv. eng. line funct product C Testing 6% 38% % chosen alternative Study results All industries optimum for % of companies % with appropriate choice Strategic considerations Go for independent if Emphasis is on product innovation High risk of resource cannibalization (firefighting) Modularization is required Go for integration if: Speed of integrating new concepts Early integration of suppliers More emphasis on costs Remark: Often 3 layers: Research Advanced engineering Series engineering Organizational_Fit_06071.ppt/m 6

27 How to master organizational compleity? Integration of engineering & styling As styling gets more and more important for BB organizational issues need to be discussed 5.. Critical process interfaces Integration of engineering & styling a) Styling integrated within (advanced) engineering Styling Alternatives & % chosen Adv. eng. & design Adv. eng. function 1 Series engineering function b) Styling independent from engineering, same reporting Eng. & design lines Styling function 1 function c) Different reporting lines of styling and engineering BU / board Styling Engineering 31% 11% 17% Study results All industries Strategic considerations In BB industrial goods design gets more and more important Design to be independent for premium BC Avoid too much influence from engineering / more freedom If packaging / manufacturability /serviceability issues occur an integration to be considered d) Not relevant 41% % chosen alternative optimum for % of companies % with appropriate choice Organizational_Fit_06071.ppt/m 7

28 How to master organizational compleity? Launch management Most companies launch products with the project team Thus often not leveraging critical eperience in product launch 5.3. Critical process interfaces Launch management a) Separate launch team Option I Engineer -ing Pilot- Plant BU / board Production S Option II Engineer -ing Pilot- Plant b) Simultaneous engineering team with standardized set of methods Project Mgt. SE- Launch- Team Alternatives & % chosen Engineering BU / board Production c) No formalized launch management BU / board Production 6% 60% S 14% S % chosen alternative Study results All industries optimum for % of companies % with appropriate choice Strategic considerations Launch as top issue for all industrial companies: In time, in spec., in budget Showed to be bottleneck Development project Good engineers but often lacking industrialization know how Launch teams with specialized competencies integrated in engineering or production is in 98% of the cases the most appropriate solution Simultaneous engineering most chosen option, but due to risks associated specialized teams (option a) more favorable Organizational_Fit_06071.ppt/m 8

29 Contents 1 What is the "Organizational FIT"? How to master organizational compleity? 3 How to put it into practice? Organizational_Fit_06071.ppt/m 9

30 How to put it into practice? Improvement 3 Our suggestion of the improvement trajectory Three step approach Improvement Trajectory 1 3 Get independent outside view and feedback on study results Report Presentation by Arthur D. Little Identification of improvement areas Workshop series to align corporate strategy and development organization Bring it down to concrete actions Organizational development in R&D Actions / tracking Organizational_Fit_06071.ppt/m 30

31 How to put it into practice? Contact persons 3 Wir stehen Ihnen für eine detailliertere Vorstellung der Studienergebnisse und als Diskussionspartner für mögliche Ansatzpunkte gerne zur Verfügung Volker Bellersheim Senior Manager Maschinen- und Anlagenbau Arthur D. Little GmbH Leopoldstraße 11a 8080 München Tel.: +49/89/ Fa.: +49/89/ Mobile 0175/ [email protected] Organizational_Fit_06071.ppt/m 31