Kevin O'Marah of Amrresearch writes, Product Lifecycle Management (PLM) may be the product system of record, but business value depends on faster time to value in product innovation, and PLM vendors aren’t the only ones ready to tackle this opportunity. Excerpts with edits and my comments added:
PLM vendors and projects seized the initiative bubbling up out of product innovation as an aid to business growth. This has been good news for most vendors, which have seen strong growth in revenue and valuation. Looking ahead to 2005, however, the game is changing fast as Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and supply chain vendors find their place in the product innovation world.
New product innovation is widely seen as a business imperative. The best case study is Apple Computer versus Dell. Apple is a famously messed-up supply chain with a history of disastrous forecasting and a manufacturing model that is regarded as archaic, but its iPod and sleek Mac product lines make it a perennial darling among product innovators. Dell spends far less on Research and Development (R&D) than its peers in electronics and is the symbol of 21st century supply chain operational excellence. Nevertheless, in the past year, Apple’s stock has outperformed Dell’s by more than 200%. Even over a five-year horizon, Apple beats Dell. Investors obviously see the value of excellent product innovation. The best growth companies of the 21st century will be operationally excellent and quick innovators. Such companies will justify higher valuations for the same dollar of current earnings. The higher p/e multiples await companies that can demonstrate operational effectiveness and quick time to value. Time to value is defined as the total elapsed time between a new product concept receiving its first formal development budget and the time it achieves breakeven with all development and launch spending.
For several years, as PLM has emerged, the product innovation domain has been left alone by big vendors selling other classes of enterprise applications. Not anymore. SAP in particular has defined the path forward by moving beyond a me-too PLM strategy in favor of a general management pitch to fix New Product Development and Introduction (NPDI). The difference is more than semantics. In a survey of new product development practices and tools, several major findings leave the door open for non-PLM vendors to win big business.
- Average overall product development volume managed in a formal process—only 74%. This is an opportunity for collaboration, business intelligence, and resource management applications from Microsoft to PeopleSoft.
- No. 1 reason new product launches fail: product does not meet customer needs—52%. This is an opportunity for CRM, marketing analytics, and business intelligence applications from Siebel to Cognos.
- Most important single tool in NPDI today: project management—19%. This is an opportunity for program management, cost estimation, and portfolio management applications from Primavera to Oracle.
Business leaders aiming to improve product innovation need to rationalize requests for new tools investment, ranging from better CAD systems to supply network planning tools. Companies committed to accelerating time to value in product innovation certainly cannot succeed without a sound PLM foundation. This, however, will not be enough because leaders will separate from the pack by connecting multiple tools that capture the voice of the customer, the limits of the supply chain, and the patience of finance.