Www.prtm.com Leading thinking for lasting results How to Make Money - From Operational Excellence in Global R&D 28 May 2005 “Global R&D in China” - Nanjing

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Leading thinking for lasting results

How to Make Money- From Operational Excellence in Global R&D

28 May 2005

“Global R&D in China” - Nanjing

Graphic

© Copyright 2003 PRTM XXXXXX—00/00/03

Telecommunications Automotive

Computers & ElectronicEquipment

Software

Life Sciences

A&D and Industrial

Chemicals & Materials

Semiconductor

Stamford

Detroit

Washington DC

ChicagoHong Kong•

•• • •

Oxford

Paris Frankfurt

Glasgow

•• •• ••••Mountain View

Costa MesaDallas

Waltham Tokyo•

We have offices across the US Europe and Asia to serve our global clients

Our clients are the leading companies in each technology-based industry segment

Experience

Depth

FocusPRTM was founded in 1976 with a unique focus

Technology-based companies “Results not reports”

More than 1100 technology-based clients Over 5,000 successful implementation projects 90% level of repeat business Proven methodologies

More than 400 consultants

Technical backgrounds with practical experience, and MBAs from top schools

Low staff/director ratio, ensuring senior involvement in projects

Success

We have grown at 30% per year for the past ten years

Controlled growth despite much higher demand for our consulting services

PRTM is the leading management consulting company that helps clients deliver strategic transformation


PRTM credentials in product developmentand lifecycle management

Product Strategy for High-Technology Companies, 2nd edition, by Michael E. McGrath (2000: McGraw-Hill)

Focus:Core Strategic VisionPlanning and Managing PlatformsPortfolio ManagementProduct-Line Planning

Setting the PACE® in Product Development: A Guide to Product And Cycle-time ExcellenceMichael E. McGrath, Editor (1996 Butterworth-Heinemann)

Focus:Cross-Functional Project ExcellencePipeline ManagementTechnology Management

Voices into Choices: Acting on the Voice of the Customer Christina Hepner-Brodie and Gary Burchill (1997 Joiner)

Focus: Customer-Inspired DesignCustomer-Inspired Strategy

PRTM’s Performance Measurement Group is the premier source for reliable quantitative performance benchmarks on product development and supply chain management

Next Generation Product Development: How to Increase Productivity, Cut Costs, and Reduce Cycle TimesMichael E. McGrath, expected publishing date April 2004, McGraw-Hill

Focus:The Future of Product Development when Fully Enabled by Enterprise Development Systems, Including Resource Management, Networked Teams, and Enterprise Project Management

0

100

200

300

400

500

600

700

'87-'88

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03

Cumulative Experience

PRTM has conducted close to 700 product development process implementations


PMG, a PRTM subsidiary holds the benchmark database that contains over 1000 organizations

Aerospace & Defense

Product Development - 48

PLM - 3

Supply Chain - 18

Chemicals & Applied Materials


PLM – N/A

Supply Chain - 162

Computers & Storage


PLM – N/A

Supply Chain - 125

Consumer Goods


PLM – N/A

Supply Chain - 167

Medical Device & Equipment


PLM – N/A

Supply Chain - 66

Semiconductors


PLM - 5

Supply Chain - 70

Telecommunication Equipment


PLM – N/A

Supply Chain - 195

Automotive & Industrial

Product Development – 38

PLM - 29

Supply Chain - 107

Electronic Equipment


PLM - 8

Supply Chain - 183


Illustrative PRTM services in product development management

Portfolio Excellence Integrated market, product, and platform strategies Portfolio balancing and prioritization Cross-portfolio solution management Portfolio process implementation Portfolio management systems/tools

Co-Development Excellence Development chain and partner strategies Partner management process Co-development project methodologies/structures Co-development project facilitation/recovery Collaborative development systems/tools

Resource Management Pipeline rationalization Project resource capacity planning and utilization

management Resource management process Resource management systems/tools

Project Excellence Integrated development process and project

team/decision-making structures Customer-inspired ideation and requirements

management Critical project recovery Project and knowledge management systems

Product Development Operations Requirements management process Configuration and change management Design excellence practices Supplier and component management Product development operations systems/tools


Product Development capability tends to progress in distinct maturity stages (from PRTM’s PACE© Model)

Informal Management

Stage 0

Informal practicesbased on individual experience

Functional Excellence

Stage 1

Excellence within functions, but not across functions

ProjectExcellence

Stage 2

Functions aligned for effective execution from concept to market

PortfolioExcellence

Stage 3

Processes aligned to achieveplatform leverage, portfolio balance, and excellence in project selection and execution

Collaborative Development

Excellence

Stage 4

Core processes linked across internal and external business partners for maximum leverage

Managing Across Functions

Managing Across Projects

Managing Across Portfolios and Partners

Successfully mastering each stage delivers a step-change in business performance!


Stage 3Portfolio

Excellence

0.8

1.6

The business performance improvements associated with advancing is clear and demonstrable

Stage 1Functional

TTM Index: 2.0

Growth Index: 0.7

Stage 0Informal

Per

form

ance Stage 2

Project Excellence

1.0

1.0

Source: Performance Measurement Group LLC (a PRTM company)

Stage 4Collaborative DevelopmentExcellence

?

?


Increase in Co-Development is apparent in many industry segments

OLD

Vertically integrated

Few customers

Few products

Component solutions

“Sell a switch”

Long lead times

Comprehensive test

“Not-invented-here”

R&D

NEW

Huge web of co-developers

Many customers

Exploding portfolio

System solutions

“Sell a network”

Short lead times

Early betas

Acquisitions and merger mania

Development web

Example: The World of Telecommunications Equipment

Source: Marco Iansiti, Harvard Business School


Co-development offers many significant business opportunities

Rev

enu

e fr

om

R&

D

Current Revenue

from R&D

Co-

Dev

elop

men

tC

o-D

evel

opm

ent

Gro

wth

Pot

entia

l G

row

th P

oten

tial

Potential Revenue from R&D

Offer Complete Solutions

Outsource Selectively

Capture TechnologyImprove Strategic

Focus

Achieve Break-outInnovation

• Expand offer definition

• Expand business definition• Cost

reduction

• Flexible capacity

• Make vs. buy

• Technology access

• Shift R&D to suppliers

• Optimize value chain

• Enableinnovationincubators

Co-Development Value CreationCo-Development Value Creation


Real ExampleA Stage 3 IT company used to delivering great new products quickly and reliably with a stable roadmap and revenue adopts a partnering approach for a major new product line

It’s aim was faster TTM and new functionality based on combining its existing technology and new functionality developed with a new Chinese partner

Six months after the Executives have completed the due diligence work with their new partner and the job of delivering results has been transitioned to the best product development teams, the performance of the development programs crashes.

The first high-profile projects predict delivery slippage of 100%, account managers reduce revenue forecasts and the development team reports big differences with the partner on development flow, management process, the use and content of technical control documentation, quality levels and IP sharing (despite clear legal agreements).


Miss-match in the partners process meant that together, their maturity level was much lower

Informal Management

Stage 0

Informal practicesbased on individual experience

Functional Excellence

Stage 1

Excellence within functions, but not across functions

ProjectExcellence

Stage 2

Functions aligned for effective execution from concept to market

PortfolioExcellence

Stage 3

Processes aligned to achieveplatform leverage, portfolio balance, and excellence in project selection and execution

Collaborative Development

Excellence

Stage 4

Core processes linked across internal and external business partners for maximum leverage

Managing Across Functions

Managing Across Projects

Managing Across Portfolios and Partners

Performance SlideInitial Performance of partnership equivalent to ~ 3 years ago


Stage 4 Best-practices structures the approach to investing in Collaborative Development Excellence…

Infrastructure

Execution

Strategy

Foundational Elements Situational Elements

DevelopmentChain

Design

PartnerSelection &

Management

Governance &Metrics

IT ToolsIT Roadmap

Teams &Processes

How will teams be structured; how will they synchronize processes?

What is our core vision, and what role will our partners

play?With whom should we

partner and at what level?

What are the criteria for success, and how will decisions be made?

How will teams leverage IT tools to maximum advantage?

How will IT supportco-development, and

when/how do we deploy?


Licensing

Outsourcingagreements

Preferredsuppliers

…And its implementation must respect the many types of relationships that global companies have

Source: Adapted from Benjamin Gomes-Casseres, Third International PDMA/MRT Congress on Co-Developing Products, January 2004

Competitivesuppliers

Mergers andacquisitions

Minorityinvestments

Joint venturesCo-development

Co-production

Co-marketing

One-off, arm’slength purchase

Market Exchange

Internal

Alliances/Strategic Partnerships

Extent of Joint Decision Making

Du

rati

on

of

Co

mm

itm

ent

Short

Long

None Extensive

Documents

Www.prtm.com Leading thinking for lasting results How to Make Money - From Operational Excellence in Global R&D 28 May 2005 “Global R&D in China” - Nanjing