SAP Product Lifecycle Management enables the “business of product”

Industry leaders struggle with massive job reductions, energy costs continue to soar, and continued threats of global unrest and recession permeate every facet of corporate decision-making. Many executives struggle to predict what lies ahead and where to focus their corporate efforts.

“So what does matter in this topsy-turvy world, where there is no bedrock, no true north, and no preferred market wisdom? In a word: innovation,” states a Business Week magazine article, “Masters of Innovation” (by Amy Cortese, March 2001).

As uncertainty continues companies must, now more than ever, be willing and ready to drive into new markets with new, innovative offerings. Truly, innovation has become for many industries, a “corporate imperative”. It is time to focus on the business of product.

Real innovation encompasses a new way of thinking about your products and services, about creating something customers did not know they wanted but now must have.

Consider, for example, a major jet engine manufacturer that decided to innovate across their business, rather than just continuing to sell jet engines. They began offering, for a bundled fee, a guaranteed level of engine uptime, including all the parts, maintenance, and financing airlines needed for their aircraft. This innovation was not focused on their products alone, but on evolving their product business into a service. To accomplish this they had to innovate across their business, from executives to service personnel. It required significant changes to their business processes and organisational structure.

“An individual innovation has value, but it doesn't make or break the company anymore,” says Tom Kelley, general manager of IDEO Product Development, the famed design shop that helped create such breakthrough products as the Palm Pilot. “That's why you need the culture of innovation.”

How companies achieve such a new culture of innovation has become one of the defining challenges of this decade. Talk of innovation appears everywhere these days; in fact, more than 70 percent of companies responding to a recent Boston Consulting Group survey rank innovation as one of their company’s top three priorities for 2006. Even more telling was that the percentage of respondents who listed innovation as their top priority almost doubled from 2005.

In addition, more than two-thirds responded that globalisation is having a major impact on their approach to innovation. Companies are faced with a formidable threat from offshore manufacturers and service companies located in countries with significantly lower labour and social costs. In order to compete, even in their local markets, companies must sell against global competitors. Staying ahead of the competition or creating new markets is quickly becoming the only viable strategy for many manufacturers in key growth industries.

“Globalisation is driving everyone to rethink their innovation strategies, and that not only includes SAP but most of our customers as well,” states Henning Kagermann, CEO, SAP.

With innovation on the minds and priorities of executives, investments directed at increasing innovation have naturally followed. Executives have high expectations of what innovation can bring their companies. They know that by introducing new and better products to market faster than their competitors do, they will increase their competitive advantage and grow their companies.

Innovative companies are more capable of growing revenues and retaining high margins by launching new products and creating new customers in new markets. Newer and more innovative products typically command higher margins in the market, while older products are impacted by competitive challenges and waning customer interest. Innovation has a direct impact on the bottom line. Ultimately, the measure of a company’s “return on innovation” is the increase in their market valuation compared with competitors.

If innovation is a key driver for profitability and growth for many industry leaders, why don’t all companies focus on innovation? Why are some companies dissatisfied with the pace of their innovation and return on their investment? Why do some companies continue to ignore or compartmentalise their innovation efforts in engineering only? Fundamentally, creating innovation or transforming a company into a market-leading innovator is not easy and in some cases, without the support from executives, nearly impossible.

The Boston Consulting Group Innovation survey found a number of obstacles reported as barriers to achieving the desired level of innovation.

Of the barriers to innovation reported, the top three were:

• Development times too long
• Lack of coordination
• Risk-averse culture

Surprisingly, despite the focus of many companies over the last decade to accelerate their product development cycle times (computer-aided design [CAD] tools, engineering applications, product data management [PDM] systems, and collaboration tools), long development times still accounts for the leading barrier to innovation. The other two – lack of coordination and risk-adverse culture – represent a lack of end-to-end process control, ineffective management oversight across organisational boundaries, and a culture hesitant to make significant process changes.

In many industries, innovation has been focused solely on their product development activities with the intent of developing new products for existing and new markets. However, innovation efforts that become compartmentalised and are not broadly deployed throughout the lifecycle rarely have the power and momentum to transform a company into a leading innovator. Innovation becomes stifled as an organisation tries to innovate but then forces new ideas, products, and/or services through the existing methodologies and processes to get to market.

However, some industries – and increasingly spreading to all industries – have begun to include services bundled with their products, delivering this to the market requires changes to a company’s business model. Take, for example, the jet engine manufacturer discussed earlier; they transformed their company from producing jet engines to providing “thrust services,” or engine uptime, for airlines. This transformation required not only changes to their product, various jet engines, but also to the myriad of processes required to build, manufacture, deploy, and support their use by their customers – not to mention all of the accounting and billing processes that needed to change to support such a transformation. Process innovation was applied across their business, resulting in an evolution from product to service innovator.

Innovation can be applied to processes within departments and across the enterprise, among design partners, throughout the supply chain, and ultimately directly with customers. Process innovation provides the ability to radically transform the nature of your business. Successful innovators have been able to innovate across their product and/or services life cycles to bring to market differentiated products and services, setting them apart from the competitive crowd. Therefore, process innovation will work best when it is deployed with an end-to-end approach in which complete product and services life cycles can be addressed clear of organisational and informational boundaries.

Key business challenges of manufacturers today can be summarised as efficiency, differentiation, regulations, and alignment.

To stay competitive in the current global environment, companies need to be faster, leaner, and more productive than ever before. They have to continually reduce their costs and optimise their processes. They need to analyse market conditions, customer requirements, and their competitive status. In a business climate that demands greater responsiveness to constant business changes, customer needs, and shareholder expectations, companies are increasingly focusing on core competencies and partnering to fill the gaps.

All business processes must work together to achieve the best balance between investment, revenue, and profit. Management needs to make the right decisions based on keen market insight and past performance of their products and services based on changing parameters. Companies must continuously gain increased efficiency to be competitive in the market.

Companies must differentiate themselves or risk losing their market share and position and eventually failing all together. Companies most effectively differentiate themselves against their competition and in their chosen market through a unique offering of products and/or services. There are many ways in which to differentiate your products and services, such as establishing market leadership with the most inventive products or delivering complete solutions that create market entry barriers for your competitors.

Governments and other regulators are requiring compliance with various regulations, such as the US Sarbanes-Oxley Act, the European Union’s Waste Electrical and Electronic Equipment (WEEE) directive, Restriction of Hazardous Substances (RoHS), US Food and Drug Administration requirements for improved tracking and drug pedigree information, and many more, including global, regional, and industry-specific standards. These regulatory and compliance requirements are stressing many companies to their limit.

Optimising your design centric product life cycle is no longer sufficient. Time to market and flexibility demand a tighter integration of all product-related processes spanning enterprise systems, from product life-cycle management (PLM) to enterprise resource planning (ERP) to supplier relationship management (SRM) to supply chain management (SCM).

Manufacturers are faced with the daunting task of aligning their business and information processes to gain higher flexibility in order to adapt to changing business challenges. They are also challenged with devising an end-to-end strategy across their product and/or services life cycles.

Successful companies must innovate across their complete life cycle to meet today’s business challenges of gaining efficiency, creating differentiation, complying with regulations, and driving process alignment. No longer can they be satisfied with addressing just a small segment of their life cycle or multiple segments without a clear and workable end-to-end strategy.

SAP believes the true vision and greatest value of PLM lies in its ability to drive the business of product coupled with a company’s enterprise business processes. SAP’s PLM vision acknowledgements the need for an end-to-end solution strategy to foster innovation yet drive company differentiation in products and/or services across a company’s complete life cycle, including partner and supplier value chains. SAP’s PLM approach fosters a culture of innovation while providing the infrastructure and process integration to make it all work, thereby creating true business innovation. Many suppliers claim that their offerings support innovation, but in reality can support only on a small segment of the life cycle.

The SAP Product Lifecycle Management (SAP PLM) application supports innovation across three primary domains: product innovation, process innovation, and business innovation. Product innovation is supported through extensive features for product portfolio management, product development and engineering, and product service. Process innovation is supported through functionalities that let companies synchronise products and related processes as well as maintain product compliance. Business innovation is supported through industry-leading native integration to a company’s SAP enterprise business solutions, including the SAP ERP application, the SAP Supply Chain Management application, the SAP Supplier Relationship Management application, the SAP Customer Relationship Management application, the SAP ERP Financials solutions, and so on. SAP is uniquely positioned to deliver to the market this solution built on a robust enterprise service-oriented architecture (enterprise SOA) and the SAP NetWeaver platform.

SAP PLM provides the most complete solution in the PLM market today and, with its business of product strategy, continues to extend its visionary position. Manufacturers deploying SAP PLM will be able to respond more effectively to market opportunities, drive additional growth, and differentiate their products. The end-to-end approach to driving innovation across the complete life cycle of products and/or services will yield customers a higher level of return on their innovation investment.

SAP PLM’s unique value proposition is to:

• Enable full life-cycle innovation (product, process, and business)
• Deliver business process convergence
• Provide comprehensive PLM functionalities
• Deploy industry-ready solutions

Only SAP delivers PLM built on the industry’s most robust and leading integrated business process platform, enterprise SOA–enabled ERP application. This allows SAP to deliver true business process convergence across enterprise applications, supporting a company’s needs in PLM, CRM, ERP, SCM, sales, finance, service, and so on. This aspect is a key differentiator for SAP and a key market requirement for more and more companies that must streamline their business processes to meet competitive market pressures.

No other enterprise solution provides the breath of applications and market-leading functionalities of SAP software. From idea management, to product portfolio management, to project management, to design collaboration, to manufacturing, to quality management, to enterprise asset management, SAP delivers a fully integrated enterprise solution today.

SAP PLM is industry ready and actively used in over 12 key industries, including industrial machinery and components, high tech, automotive, aerospace and defence, chemicals, consumer products, and others.

Join other leading innovators and industry leaders that have successfully deployed SAP PLM. These companies include Siemens, VW, Hella, Tenneco Automotive, BMW, General Mills, Wella, Nestle, WelchAllyn, HP, Smith & Nephew, Volvo Aero, KLM, EADS, Lilly, Bayer, and Henkel.

Thomas Ohnemus
Director Solution Marketing SAP PLM