PLM Business Transformation: Gaining the Commitment
Ed Miller

In today’s challenging global market, enterprises are increasingly transforming their businesses to successfully address the pressures that they face. Forward-looking companies are taking advantage of Product Lifecycle Management (PLM) to successfully achieve these transformations. But for most organizations, the challenge isn’t just to understand the necessity of business transformation and PLM’s role in making it happen, but to effectively communicate this message throughout the organization and gain the commitment to embrace it.

Businesses face a number of significant pressures in their quest for success – increased product complexity, globalization, new and different competitors, and pricing pressures are challenges for all organizations in their respective markets. All of these pressures cause stress and for years companies have attacked them in many different ways. To respond, companies have traditionally focused on initiatives to reduce the time required to develop and deliver products to market, reduce costs, and improve product quality. Addressing these issues is certainly necessary and must be continued, but it is not sufficient to enable companies to be successful in current competitive markets. Success demands a proactive focus on innovation as well.

Increasingly, the companies that innovate are those that achieve success in their respective markets. But being innovative does not just mean that a company creates innovative products. Innovation must be applied to all facets of business processes as well. Companies must find ways to innovatively produce their products, distribute their products, and service their products. Innovation of product-related processes requires that organizations look inside themselves and work more collaboratively to solve problems in unique and new ways in order to distinguish themselves from their competitors. Re-defining the business processes and mechanisms that individuals and groups use to communicate and accomplish their objectives is what business transformation is all about. The objective is to change the way people work so that the individual, the team, and the business can be much more successful. PLM is critical to enabling the kind of environment that can facilitate innovative business transformation.

But before beginning to promote PLM and business transformation inside an organization, it is critical to clarify the overall objective of these efforts. The goal is clear if one considers a typical product lifecycle and the phases through which the product passes. Initially money is invested to specify and design the product and then begin production. The product is then released to the market and begins generating revenue through sales and service. Hopefully, the revenues generated will eventually be sufficient to repay the investments and then produce profits. This typical product profitability lifecycle is illustrated in Figure 1.
Figure 1 Typical product profitability lifecycle

In the context of this lifecycle diagram, the overall objective of business transformation is quite simple; to shift the profitability lifecycle curve to the left, as is shown in Figure 2.
Figure2 Goal of Product-Focused Investments

The value of achieving this objective is clear: get to market earlier and respond to customer needs more quickly. The benefits of meeting those objectives are many fold: gaining a larger market share advantage; the ability to charge premium pricing that early market entry allows and achieving higher margins; having longer production runs which enable higher economies of scale, thus allowing more profitable operations. The ultimate goal of these efforts is to maximize shareholder value. But making the business transformation necessary to achieve this objective requires both product and process innovation! And enabling product-related innovation requires management of the entire product lifecycle in the context of the business’ operating model. PLM is the strategic business initiative that drives this transformation. This message is quite simple, but is critical to communicate throughout the organization, especially to a company’s executives.

The vision of PLM is to transform the way companies manage their product through all phases of its lifecycle: initial ideation, concept design, product design, manufacturing design, production, delivery to the customer, in-service support, and retirement from use. The scope of the product lifecycle that must be considered is continuously expanding. In many industries, the end of the product lifecycle is not just when the customer ceases to use it – more regulations than ever dictate how companies must now address disposal or recycling. In today’s world these issues are no longer optional, they are mandatory.

Inside most organizations, one can find many initiatives that should be components of an overall PLM strategy. This reflects the evolution of PLM, and the breadth of initiatives that comprise a full PLM program. When some people think of PLM, the areas of Mechanical CAD (MCAD) and Product Data Management (PDM) immediately come to mind. But PLM is much more than these two critical areas of interest. PLM is focused on the management of the complete virtual, or digital, product definition and lifecycle. Managing the complete product including all mechanical, electronic, and software components is increasingly critical for companies that are fully embracing PLM. PLM encompasses the extended enterprise within in its scope including a company’s supply and value chain. As the PLM evolution continues initiatives such as digital manufacturing, strategic sourcing, service after sales, product requirements definition, and product portfolio management are emerging that extend support further across the product lifecycle, and are becoming fundamental to a comprehensive PLM strategy and program.

Don’t be confused – all these new initiatives do not need to be handled within one large mega-project. But they do need to be incorporated as elements of a single coherent PLM strategy for transforming your business and address the full product lifecycle across your extended enterprise. But PLM cannot be achieved through technology alone. PLM solutions include a set of enabling technologies, but they also include the new processes and best practices needed to transform business operations and support the implementation of business process change itself. Implementation of PLM solutions provides a catalyst for transformation within a business.

It is important to understand this broad scope of PLM; the breadth of the product lifecycle and the value that managing the digital, or virtual, product can have on your organization’s success. But this breadth challenges companies. Who in the organization has this broad responsibility? Who has that span of control? Clearly, PLM demands that the executive office be actively involved and this demands that the message of PLM and its value must be effectively communicated to and by the executive team.

Executive support is critical to the success of PLM and the associated business transformation. All strategic business investment decisions are reviewed and approved by C-level management, by CIOs, CTOs, CFOs, and even CEOs. With its expanded scope and impact on the extended enterprise, PLM solutions are truly business-critical enterprise solutions and are strategic to improved business performance. Executives need to understand the opportunities afforded through PLM so that they can knowledgeably and proactively support it. Companies that are successfully transforming their businesses are doing so because executives in those organizations embrace this message.

A question that is often asked relative to PLM is, "how do I communicate the impact of PLM to the executive staff?" The answer to this issue is clear if one considers the motivation of company executives. A CEO is focused on both top-line and bottom-line business success; increased revenue, increased market share, increased profitability. Given this, PLM has an excellent opportunity for executive support because PLM investments provide the mechanism for enabling the business transformation needed to achieve success in the increasingly competitive business world. Whether one considers the income statement, balance sheet, or even a company’s market valuation, PLM can have a major positive impact on each of these important business metrics. The value of PLM has been validated in many implementations around the world, and examples can be found to illustrate the impact of PLM on many different business metrics. CIMdata has conducted several analyses of the benefits of PLM and the value that they have demonstrated; the results have been impressive.

Although top-line benefits such as increased revenue offer the greatest gains, cost reduction still tends to be one of the primary methods used to justify PLM investments. Why – because it is easier to develop and is often more understandable and credible. Cost reduction is an approach that many organizations use as a basis for most investments. Of course PLM implementations can be justified totally on cost reduction, but that is clearly not where companies are going to achieve their greatest gains.

As another indication of this issue, in early 2004 IBM conducted a study of CEOs (IBM’s Global CEO Survey) to understand their motivations. The results indicated that most of them prioritized revenue growth as a key focus over the next three years, and recognized that new, innovative and differentiated products are a key driver for that growth. These same CEOs also indicted that cost reduction will remain a focus area. These messages clearly support PLM investments. The challenge is that most executives do not yet really have a good understanding of PLM. That must change if PLM is to have an opportunity to help our organizations!

PLM is a strategy that can be used to transform business. But success requires an educated and committed executive staff. Organizations that understand the opportunity available and invest appropriately will be the organizations succeeding in industry over the coming years. Those companies understand that PLM is a strategic business approach to empower the business, to enable product and process innovation, and enhance both top and bottom line business performance.

About the Author:
Ed Miller is president of CIMdata, a leading independent worldwide firm providing consulting and research in Product Lifecycle Management (PLM) solutions, best practices, and technologies that help companies develop products in the evolving global business environment. Contact him at e.miller@CIMdata.com, or (+1) 734-668-9922, or visit the CIMdata Website at www.CIMdata.com.