How does your Configurable Product Platforms Drive the Profitability of the Business?
Profitability is secured through the management of business fundamentals.
So, what are they?
Treacy and Wiersema present a model in their book ‘The Discipline of Market Leaders.’ The authors identify three value disciplines – or axes – that serve as measurable and manageable fundamentals: Operational Excellence, Customer Intimacy and Product Leadership. Based on these axes, the executive challenge becomes how to reduce costs (operational excellence), increase market share (customer intimacy) and increase price premiums (product leadership) at the same time?
This model is rational and practical, that's why I like it. Systems associated with each axis can connect your teams and the KPI output can populate your management dashboard. But how?
Why am I Sharing how to set the Product Platform Strategy?
I’ve always been interested in the bigger picture. How do things work? How does everything stick together? How can we improve?
After reading illustrated how-to books as a child, I completed engineering and business degrees in Sweden and the US. My professional career began in engineering at Scania. After that I moved into regional management at Eaton Corporation and the product divisions of ESAB, and then joined Sidel Group as President and CEO in 2008.
Now I’m a Board Member at Modular Management, world leader in configurable product platforms and modularization, and at Starcounter, the in-memory database specialist. You’re welcome to link in, but I’m not here to reminisce about my career. Instead, here are a few ideas about how executives can bridge strategy and results. And connect organizations without drowning in complexity and Microsoft Office documents.
Connect IT Systems to the Value Axes
Customer intimacy means products and services that suit individual customer’s needs. Every customer is unique and wants an individual solution. Fast. Do this well and you can build long-term customer satisfaction and loyalty. Market share is the driving KPI, and sales (CSO) and marketing (CMO) often share responsibility.
System: CRM and CPQ
Product leadership means first-to-market with new and innovative products. Do it well and you get a price premium. Sales of new products are key performance indicators, and your innovation teams drive this, with R&D and product management (CTO) at the forefront.
System: PLM and CAD.
And as CEO, you get the lot.
The authors of ‘The Discipline of Market Leaders’ suggested that companies should focus on one axis to increase competitiveness and become market leader. But how can a CEO succeed with responsibility for all three axes by focusing on just one? Instead, let’s look at a solution for this executive dilemma.
One size doesn’t fit all, which is exactly why disaggregation into a modular system is important.
Modularity is defined as ‘the degree to which a system is made up of relatively independent but interlocking components or parts.’ A modular system is the foundation for tailoring your hardware, software and services to the needs of your customers.
Products can be built up of modules. Each module has a technical function, as well as specific parameters in terms of company strategy and customer needs.
For example, product X is built up of 20 separate modules and each module is available in five different variants. If the modules have standardized interfaces, each variant can be combined differently to create completely different products, which can then be configured by individual customers. The result? 95 trillion product configurations quickly produced with fewer parts and lower overall costs. This is the power of a configurable strategic product platform.
Since one size doesn’t fit all, make sure that you can disaggregate your products into modules that each combine these three key variables: strategy, function and customer needs.
Each module should have a clear, documented purpose aligned to the overall business strategy, not just functional/technical, so the full interdependencies between modules is clear. Modular design means each module is available in different variants to be easily combined and connected though standardized interfaces. Customers can configure customized solutions and you can deliver fast without drowning in complexity.
Once you’ve disaggregated products into modules, you have a modular system and its accompanying, documented information model. Modularity, configuration and digitalization then combine to solve the three-axis executive challenge.
With a configurable product platform, each customer knows what is and isn’t possible to configure. And you know too. The bill of materials (BOM) is such that customers get what they want, fast. Your organization knows what you’re selling, making, delivering, servicing and reselling. You sell what you have, not what you don’t, and you focus your product development on those modules that really make a difference. Your support systems are connected, thanks to the universal information model connected by nodes, and your organization is able to share the same information in real time.
Want to know more?
Please contact me directly if you'd like to discuss the topic covered in this blog or looking for a sounding board in general around Modularity and Strategic Product Architectures.
Board Member Modular Management Group
+41 79 947 69 15